Paranoid verticalization: can this MNC trap be avoided?

Paranoid verticalization: can this MNC trap be avoided?

Shakespeare wrote eloquently about the seven stages of man’s life. In the times of the global corporation, the analogy could apply to the four stages of evolution of the Indian subsidiaries of many global MNCs. Take, for instance, the case of our protagonist. On the face of it, he had the world, or at least the country, at his feet! His visiting card could get him exclusive membership of many elite clubs and associations, his compensation was to die for and the organizational “pedigree", as head hunters are wont to say, was “top class". Yet this country head of a large multinational firm did not look all that happy. In fact, the disappointment was palpable.

We got talking. “I have no direct reports, bar the facilities in charge and my PA. In a few months it will just be my PA and driver," he joked, quoting a much respected industry doyen. “But it was not always like this," he said. “In fact, this is the result of the latest re-org; a structure that has evolved."

If this resonates, it is no surprise.

Multinational firms are opening India offices at a frenetic pace. Others are growing them even faster. Privileged to have a ringside view of this traffic for some time, I am fascinated at the way organizations, as they go global, attach and detach their regional outposts from the corporate headquarters’ (HQ) umbilical cord. Here is my take on how the reporting structures evolve.

“At first the Infant…" to quote the famous bard. Incubated by a powerful sponsor in far-off Cupertino, New York or London, the India entity is a favoured child. The head office honchos who fly in at the drop of a hat lavish wholesome attention. Policies are carefully grafted to suit the child, first steps are proudly showcased and milestones celebrated.

This phase usually ends when after much fanfare a country head is selected and anointed. Expat or local country hire, this individual is usually a direct report of said sponsor. He therefore has the sponsor’s ear, and enjoys a business leadership role for in-country operations. In addition, enabler functions such as HR, facilities and finance report to him. The cup indeed “runneth" full. HQ is now comfortable with the hands-off approach. The country head can do no wrong. This then is, as the French say, the laissez-faire, or “leave them alone", phase.

Now two scenarios could emerge, indicating laissez-faire may not be kosher after all. First, it could be an India black hole hiding a multitude of sins, an autocratic or partisan country leadership, or a growth strategy that is not perceived as aggressive enough. The noise decibels reach a crescendo, and Global steps in. Alternatively, and this is where it gets more interesting, the trigger could be the mind-blowing growth trajectory of the India arm. In parallel, lines of business outside the direct sphere of control of the current global sponsor enter and start growing in India.

Powerful leaders now want a stake in the India pie. The function heads at HQ feel the need to flex their global muscles and be in the thick of India action and we segue into the third phase of organizational reporting. This is an era when lines of business systematically opt for out-of-country reporting. The country head’s role is now a travesty of its former all-powerful avatar. Even functions such as HR, facilities and sales are on the global or regional reporting leash. There is some in-country reporting. But it is usually a diluted, dotted one. This phase, one of paranoid verticalization, is where our country head protagonist, quoted earlier, finds himself.

This verticalization penetrates departments too. It is not uncommon for a function such as HR to be compartmentalized into sub-functions such as recruitment, training, compensation and business partners, with each of them reporting out of the country. As a consequence, the in-country HR head position loses much of its teeth and as one incumbent sarcastically described it in the vernacular, becomes de facto a raja with really no praja….

Of course, generalizations are not always true. There are country heads and country heads. And some more organizationally savvy than others. The ability to work the matrix is a godsend in such dual reporting times. One appreciates why it is that search firms put such a premium on the ability of the candidate to tolerate the ambiguity of dual reporting when hiring for MNCs. Success comes to those who are adept not just at handling the responsibility, but also have strong influencing skills and good connects at HQ. One successful country head, an influencer par excellence, gave me his mantra. “From saying this is what we want to do in India, I have now moved to telling them, ‘Here are some suggestions. What do you want to do?’"

But the structural evolution does not end here. And that is the good part. Stifled by the bureaucracy and inward focus that verticalization brings, and unable to build on in-country synergies, global organizations turn the flashlight on themselves. By no means is out-of-country reporting abandoned, but there is a new awareness of geographic sensitivities. The one-size-fits-all panacea, adopted by Global, is replaced by an era of enlightened decentralization. There is renewed appreciation of the country head as unifier, as a bridge across functions. With a new maturity, the matrix is now embraced with a collaborative mindset. Healthy debates replace the turf protection syndrome. And we have an organizational El Dorado.

How long does each era last? Do we necessarily need to progress in this order? Can laissez-faire be succeeded by the era of enlightened decentralization, forsaking the stifling constraints of paranoid verticalization? Is there a better model? All these are interesting debates which are, as we read, playing out in many a corporate discussion room. My fervent plea to global players is get to El Dorado or beyond at the earliest. It pays to evolve.

Hema Ravichandar is a strategic human resources consultant. She also serves as an independent director and an advisory board member for several organizations

Write to Hema at