Presentation of Article

MANAGING
DIFFER
ENCES

Professor of Global Strategy

at IESE Business School
Harvard Business Review, March 2007
• Professor of Global Strategy at
IESE Business School,
Barcelona, Spain.
• B.A. degree in Applied
Mathematics from Harvard
College
• Ph.D. in Business Economics
from Harvard University.
• Then worked as a consultant at
McKinsey & Company London
• Join the Harvard Business
School (HBS) faculty in 1983.
• He spent 25 years on the full-
time faculty at Harvard
Business School.
• In 1991, he was appointed the
youngest full professor in HBS’s
history. He joined the IESE
faculty in 2006.
 Summary
In the article Prof. Ghemawat describe that
there are two wrong assumption about the Global
Strategy’s challenges. In his opinion the biggest challenge
is “Managing differences that arises at borders. To solve
that he presented his famous concept “AAA-Triangle”. In
his AAA model “Adaptation, Aggregation & Arbitrage” , he
discussed Adaptation & Aggregation, Aggregation &
Arbitrage, Adaptation & Arbitrage & at the last all the AAA
at the same time.
According to him, managing any AA or AAA
strategy is very difficult. So the MNC’s should have a
Comprehensive strategy to deal with it. AAA triangle has a
framework that provides a basis for considering global
strategies which encompasses all three effective
responses to the large differences that arise at national
borders. Clear thinking about the full range of strategy
options should broaden the perceived opportunities,
sharpen strategic choices & enhance global performance.
 AAA Triangle  Find
 Adjust to local
commonalities
conditions/
among countries
relevance
 Standardization
 Remodel firm
of product

Ag
DNA

ion

gr
 Product

eg
ta t
 Become local

ati
ap
divisions/

on
Ad
 Country- centric regional
structure / structures-
strategies global accounts
 Expensive when Arbitrage  Horizontal
covering many relationship for
countries cross border
economies of
 Exploit economics differences between markets
scale
(prices, resources, knowledge etc), geographic
differences (distance, climate etc)  Even large
 Needs willingness and ability to change MNC’s fail here
 Needs creative, fearless executives
 Vertical relationships
 Adaptation seeks to
boost revenues & market share by
maximizing a firms local
relevance.

Ag
on

gr
Aggregation attempts to

eg
tat

ati
deliver economies of scale by

ap

on
Ad
creating regional or sometime
global operations; it involves
standardization of product/ Arbitrage
service and grouping together
the development & production
Arbitrage is the exploitation of differences
processes.
between national/inter-national markets; often by
locating separate parts of the supply chain in
different places. e.g. Call Centres in India,
Factories in China & Retail Shops in Western
 From A to AA
Combinations
To Manage AA strategies requires considerable
organizational & material Innovation. Companies
must do more than just allocate resource &
monitor national operations from headquarters.
They need to deploy a board array of integrative
devices ranging from the Hard (i.e. Structure &
system) to the Soft (i.e. Style & Socialization).
There can be Three Combinations as AA-
Strategies
 Adaptation & Aggregation
 Aggregation & Arbitrage
 Arbitrage & Adaptation
 Adaptation &
Aggregation
Proctor & Gamble
Started with a Adaptation strategy
Hesitating attempts at Aggregation across Europe
Which led to function-by-function installation of
Matrix structure throughout 80s but proved un-
manageable.
In Sept 1999, new CEO D.I. Jager, introduced
REORGANIZATION plan (which consist 6
Reconstruction programs, cut workforce by 15,000,
which is 13% of the whole workforce)
In Which GBUs retained Profit Responsibility but
these were accompanied by MDOs that were
concerned with Sales.
Results were..failure...D.I.Jager left in less than a
 Adaptation &
Aggregation (Cont)
His Successor CEO, Lafley, has
enjoyed success because his
approach was a right fit of
Adaptation & Aggregation &
allows room for differences across
general business units & markets.
Profit responsibility continue to
be vested with Country Managers.
Decision Grids are structured…
Decisions… how & by whom.
GBUs regional Headquarters are
collocated with MDOs.
 Aggregation &
Arbitrage
TCS has targeted a balance
between Aggregation & Arbitrage,,
to gain the benefits of Aggregation TCS Today
without losing its traditional Chairman
Arbitrage -based Competitive Ratan Tata
Advantage. CEO
S. Randari
The Global
It built GlobalCentres….
NetworkServe Large
Delivery Revenue (FY 08-09)
Customers,
Model, breadth & depth of
which consist $ 6 Billion
skills, very high scales & Quality
NOPAT
Control process
$ 1.12 Billion
The Regional Centres… Medium Employees
scales, select Capabilities, and 141,162
emphasis on addressing language & Website
Cultural Challenges www.tcs.com

The Nearshore Centres… Small

 Aggregation &
Arbitrage (2)
This right fit improves TCS’s
economics in so many ways
It seems to hold potential for
International Revenue gains. As TCS TCS Today
signed a five year, Multinational Chairman
Ratan Tata
Contract with Dutch Bank ABN-
CEO
AMRO, that generated $ 200 S. Randari
millions. This was the largest Revenue (FY 08-09)
contract ever for an Indian Software $ 6 Billion
firm. NOPAT
According to CEO, S.Ramadori, $ 1.12 Billion
TCS beaten out Indian Competitors Employees
including the Intra ABN-AMRO, 141,162
Website
Because it was the only Indian firm
www.tcs.com
which can arrange several hundreds
professional to meet the
 Arbitrage &
Adaptation
Cognizant begun its operations as
captive firm of Dun & Bradstreet (US
firm) in 1994. Cognizant Today
Chairman
In 1996, it become independentKumar Mahadeva
firm. CEO
Francisco D’soza
Its CEO then & Founder Kumar
Revenue (FY 08-09)
Mahadeva dealt customer in US, $ 2.817 Billions
while COO then, Lakshami Narayanan
mange delivery out of India. Employees
64,000+
A two-in-a-box structure was
Website
developed; there were two global www.cognizant.com
heads for each project- one in India &
one in US- jointly accountable and
 Development Centres in India Local presence in US
Developing Software Engineer in Headquarter in US
India
Main Challenge For Cognizant
To over come on Poor Coordination between Delivery &
Marketing that leads to “Tossing Stuff over the wall”.
 The Elusive Tri-fecta
(The Mysterious Ranking of AAA
Strategies)
The question is “Is it possible to
Implement AAA simultaneously & in
which order”.
There are hurdles i.e.
• The Complexity of doing so
collides with Managerial
Bandwidth.
• People think that an organization
should have only one Culture.
• Capable Competitors can force a
company to choose which
dimension it is going to try to beat
them.
Medical Diagnostic Industry
of US A Case Study of Elusive Tri-fecta
The Global Medical Diagnostic-
imaging Industry are in the
hands of three firms which hold
75% global share as
 GE Healthcare (GEH) ………30%
 Siemens Medical Solutions
(SMS)….. 25%
 Philips Medical Systems (PMS)
Among these, GEH is
……..20%

Successful because
it uses a right fit of
AAA.
 GEH …..& AAA
 Economies of Scale
Higher R & D spending
more than PMS/SMS, Greater Total
Sales, Larger Service force (50% of
GEH total workforce), low expenses
ratios.
 Acquisition Capabilities  Arbitrage
GEH is very much 50% raw material
efficient in acquiring . It made 100 & 60% manu-
acquisitions under Jeffery Immelt facturing in low
(CEO GEH then, later on GE CEO) cost countries.
including $ 9.5 Billions Amersham
(2004) deal.  Adaptation
 Economies of Scope Country focused
MDO
GEH integrated its Bio-
chemistry skills, through Amersham, Bundle Offerings
its traditional base of Physics & Goods +
Engineering skills ; it finances Services
equipment purchases through its  Aggregation
sister organization GE- Capital. Pitcher – Catcher
concept.
 PMS - AAA stretegy
development
• Originally adaptation emphasized
• Transfer to aggregation
–Less R&D investment
–Aquisition
• Abitrage
–Outsourcing in low cost country
 AAA
competitive
map
 Broader Lessons
Focus on one A or two of A’s
It is possible to progress on all
three A’s, companies usually have to focus on one
or two in trying to build Competitive Advantage.
Make sure the new elements of a
strategy are a good fit organizationally.
The new elements should be
brought in accordance with already present
elements of the strategic grid. Otherwise the
result will be a big failure.
Employ multiple Integration
Mechanism
Progress on more than one of A’s
 Broader Lessons (2)
Think about Externalizing Integration
Not all the Integration needs to occur in
single organization.
IBM see some Externalization is a key part of
Global strategy. e.g.
i) Joint Ventures in advance Semi-Conductor
research.
ii) IBM’s relationship with Lenovo in PC’s.

Know what not to Integrate

All the times integration is not good idea.
Because
1) Very tightly coupled systems are not flexible
enough.
2) Domain selection; Knowing what not to do as
 Conclusion
Globalization is not concerned only
with just availing of Production Opportunities
across the borders. Only 1% of managers think
about globalization strategically. The AAA
framework provides a basis for considering global
strategies that cover all the three effective
responses to the large differences that arises at
national borders. Clear thinking should broader
the perceived opportunities, sharpen strategic
choices & enhance global performance.
 Q & A…. Its your Turn
We Welcome Questions; but as
You know this is Business World,
where every Question has
Thousand & one Answers. We
will try to give The Best.. In
Sha Allah.