Here is an excerpt from an article written by Wouter Aghina, Aaron De Smet, and Suzanne Heywood for Harvard Business Review and the HBR Blog Network. They note that, after more than 50 years of trying, the search for an ideal model of the global organization remains elusive. But intriguing new experiments are under way. To read the complete article, check out the wealth of free resources, obtain subscription information, and receive HBR email alerts, please click here.

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Consider if you will the following quotations, each from executives at Philips, the global technology company—one in the late 1970s and one quite recently:

o “We typically lose out when a market commoditizes and we no longer differentiate, further aggravated by us being too slow or expensive.”

o “The matrix is too slow—we are in a very turbulent market with great potential, and we have far too many low-cost competitors. We need very short communication lines, quick decisions, alertness—we’ve got to be able to adapt fast.”

The first statement, from current chairman and CEO Frans van Houten, is the new one; it appeared in a 2013 working paper from the MIT Center for Information Systems Research. The second, older statement, from a Philips product manager, initially appeared in a 1978 Management Today article and was quoted by Tom Peters in his first McKinsey Quarterly piece, “Beyond the matrix organization.”

The similarity of these statements, from thoughtful leaders at a well-run company, speaks to the difficulty of the global corporation’s perennial challenge: how to capture scale across borders while differentiating products and services to suit the needs of local customers—all without letting complexity get in the way of speed and agility.

Aspects of this persistent challenge have played out over the years in recurring fashion in major corporations, in the marketplace for management ideas, and in the Quarterly. Surveying the range of heroic efforts by great practitioners and thinkers to solve these challenges once and for all, you come away convinced that there is no silver bullet to the global company’s challenge. Indeed, faith in one-dimensional solutions—redrawing organizational boundaries, constructing matrices, winning the war for local talent, reengineering business processes, moving the global headquarters—is arguably dangerous. The fact is that solutions need to combine changes across organizational structures, people, and processes.

We recognize that the absence of a simple solution may not be entirely satisfying and defies the impulse to fix everything at once through a single “big bang” change to one of these elements. But we think that’s more realistic, too. We also believe that, within this mix, a focus on processes is taking on greater importance—not in place of people and structure but as a means of influencing them. Thanks to digital technologies, the growing connectivity between knowledge workers, and the more collaborative organizational behavior this connectivity supports, ours is a time of significant process innovation both inside and across corporate boundaries. These process innovations may provide new ways forward in dealing with the persistent difficulties of managing complex global organizations and meeting the urgent need for greater efficiency in the face of rising global competition.

The evolving organizational challenge: A brief tour

In 1959, five years before the birth of McKinsey Quarterly, an ambitiously titled article appeared in the Harvard Business Review: “Creating a world enterprise.” Written by McKinsey’s Gilbert H. Clee and Alfred di Scipio, it made the radical proposal (radical, at least, for its day) that expansionist American corporations, instead of treating international activities as subdivisions of their domestic businesses, should turn the US organization into a subdivision of the wider global one.

The Clee and di Scipio article, calling as it did for “major revisions in business thinking,” was pertinent as well as provocative. In the late 1950s, after all—with the reconstruction of Europe well under way after World War II and new industrial forces stirring in Asia—growing numbers of North American executives were eyeing overseas pastures for the first time. Faced with economic pressures and foreign competition at home, and lured by bright prospects abroad, a majority of representative executives questioned in a McKinsey survey of the time (and cited by Clee and di Scipio) reported that these companies were actively stepping up the ratio of their foreign-to-domestic investments.

Opening such profit opportunities beyond their borders, though, created new planning, resource-allocation, and management-control issues, as well as unprecedented organizational strains. Old structures and relationships that had worked smoothly for an export-oriented domestic company were no longer appropriate as global engagement increased.

In many ways, that organizational response is the story of multinational enterprises over the past 50 and more years. In a 1965 article3 featured in the Quarterly’s third-ever issue, Clee and McKinsey consultant Wilbur Sachtjen set out some evolving organizational patterns for global companies. There were several such models. The traditional international-division structure and its variants (Exhibit 1) all involved a shift in responsibility for policy and worldwide strategic planning to the corporate center. Then the international division was replaced by subsidiaries in assigned geographic areas, run by locally based senior line managers bearing full operating responsibility, notably in production and sales. Next, product-based and business-based structures replaced the international division with units run by senior line managers bearing worldwide responsibility for the P&L of their divisions.

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Here is a direct link to the complete article.

Wouter Aghina is a principal in McKinsey’s Amsterdam office, Aaron De Smet is a principal in the Houston office, and Suzanne Heywood is a director in the London office. The authors would like to thank Vidushi Sharma and David Turnbull for their contributions to this article.

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