How can companies best balance East and West?

As Chinese companies continue their push towards globalization, they are increasingly combining tenets of ancient Eastern philosophy with modern Western management principles in order to tackle formidable operational challenges.

“Harmony with Differentiation” – an approach rooted in the ancient doctrine of Confucius – is extremely appropriate when describing the principles of operations management. On the one hand, there are global companies that clearly display the hallmarks of global unity and a high level of consistency in management practices. On the other, there are companies that place a heavy emphasis on differences across regions, countries and cultures, adapting their management practices to meet with local conditions. Balancing the two sides to achieve harmony is not easy.

The essence of “harmony”, or “coherence” in modern management language, is a state of orderliness and consistency. For a global company, the state of harmonious dynamism comprises a powerful core competency. Competitive rivals will not be able to match this type of core competency by merely duplicating business models or mimicking a few operating techniques. From the perspective of operations management, this harmonious state and its corresponding competitive strengths are the products of unified corporate culture, well-designed organization structure, a clear definition of who has the right to take decisions and standardized processes.

When attempting to create a global corporate culture, finding universal elements that transcend regional and national differences is a real challenge. Many Chinese companies, for example, are extremely proud of their military-style culture, which is essential to their success in the domestic market. When trying to weave that element into their global culture, many have found it difficult, if not impossible. Outside of the Chinese market environment – and without the Asian reverence for power and authority – this type of culture may not survive or thrive.

By nature, global organizations typically adopt a matrix structure with multiple dimensions (e.g. region, function, line of business) and different types of reporting lines. Chinese companies, however, are more accustomed to ranks and titles, and are traditionally very weak when it comes to management by matrix. In addition, to design global processes, companies must shift from the paradigm of “rule by people” to “rule by law”. These challenges are sometimes very difficult to tackle as even many of the most outstanding Chinese companies have yet to completely adopt standardized processes and systems in their domestic operations, let alone global operations.

The concept of “differentiation” calls for a respect of diversity, in many different forms. In the operations management of global companies, this means tolerance for different cultures, commitment to host country and community, empowerment of overseas teams, a certain degree of process flexibility, and an emphasis on the training and development of local staff.

Conceptually, it’s easy to talk about respect for differences. The difficult part is not to lose control while maintaining a high degree of integration among various measures during actual implementation.

Take the delegation of the right to take decisions, something that challenges the majority of globalized Chinese companies, as an example. Most companies say they will delegate decision-making powers and give ample authority to those in charge of the overseas business. However, to empower people on the front line without losing the necessary control, the decision-making process must be transparent, communication between headquarters and the front lines must be smooth, and risk control mechanisms must already be in place. It is also important that preparations can be made in advance, checks can be conducted throughout, accountability can be traced afterwards, and that contingency measures have been established.

In the absence of these preconditions, the blind delegation of authority will result in misallocation of the company’s resources, and will usually lead to more harm than if headquarters had just held onto its power. Additionally, in terms of acceptance of other cultures and commitment to the host country and community, it is essential that the management teams are properly localized. Otherwise, this respect is like a tree without roots or a spring without water – meaningless.

The wisdom encapsulated in the concept “Harmony with Differentiation” teaches us about balancing operational polarities in global management. Truly successful globalized companies manage to maintain harmony at global level, but differentiation at the local level. Using a phrase from an HSBC advertisement, these types of companies are truly “glocal” enterprises.

You can read more on this topic in our Chinese Globalizers report.

Author: Tiger Shan is a senior adviser at Strategy& (formerly Booz & Company).

Image: Chinese lanterns in a Beijing shopping mall. REUTERS