Question

Based on the location the GoTo Consulting group identified a few weeks back, provide a breakdown of the cultural considerations the new director will need to take into account when relocating and bringing on a staff made up of local nationals Should the director consider sourcing leaders from other divisions and taking them to the new location or focus on hiring local nationals as line managers, shift supervisors, and senior leaders Based on best practices and analysis of current cosmetic companies, how would the director best structure the team. Indicate how senior leadership will be divided (i.e. Assistant Division Director (ADD) of Operations, ADD Finance, ADD Marketing, ADD Sales, etc.) as well as the structure below them. Consider how Operations is divided. There will be Procurement of materials; manufacturing, distribution, etc. Finance will have to consider the different accounting processes such as Accounts Receivable, Accounts payable, and others. Marketing will focus on U.S. based marketing and global marketing and sales will need the same type of considerations. Don’t just use these exact examples, but use theses as a starting point and guide for your research.

Answer 1

Jeffrey Immelt, CEO of GE, claims that regional teams are the key to his company’s globalization initiatives, and he has moved to graft a network of regional headquarters onto GE’s otherwise lean product-division structure. John Menzer, president and CEO of Wal-Mart International, tells employees that global leverage is about playing 3-d chess—at the global, regional, and local levels. Toyota may have gone furthest in exploiting the power of regionalized thinking. As Vice Chairman Fujio Cho says, “We intend to continue moving forward with globalization…by further enhancing the localization and independence of our operations in each region.”

The leaders of these successful companies seem to have grasped two important truths about the global economy. First, geographic and other distinctions haven’t been submerged by the rising tide of globalization; in fact, such distinctions are arguably increasing in importance. Second, regionally focused strategies are not just a halfway house between local (country-focused) and global strategies but a discrete family of strategies that, used in conjunction with local and global initiatives, can significantly boost a company’s performance.

In the following article, I’ll describe the various regional strategies successful companies have employed, showing how they have switched among the strategies and combined them as their markets and businesses have evolved. I’ll begin, though, by looking more closely at the economic reasons why regions are often a critical unit of analysis for cross-border strategies.

The Reality of Regions

The most common pitch for taking regions seriously is that the emergence of regional blocs has stalled the process of globalization. Implicit in this view is a tendency to see regionalization as an alternative to further cross-border economic integration.

In fact, a close look at the country-level numbers suggests that increasing cross-border integration has been accompanied by high or rising levels of regionalization. In other words, regions are not an impediment to but an enabler of cross-border integration. As the exhibit “Trade: Regional or Global?” shows, the surge of trade in the second half of the twentieth century was driven more by activity within regions than across regions. The numbers also cast doubt on the idea (held implicitly by advocates of pure global strategies) that economic vitality is promoted more by cross-regional trade. It turns out that regions whose internal trade flows are the lowest relative to trade flows with other regions—Africa, the Middle East, and some of the Eastern European transition economies—are also the poorest economic performers.

Building on the social psychologist Morton Deutsch’s research on trust, suspicion, and the resolution of conflict, and on my own experience over the past 15 years consulting with organizations and executives on trust, I developed a model that can be used to predict whether an individual will choose to trust or distrust another in a given situation. (See the exhibit “To Trust or Not to Trust?”) I have tested this model, which identifies ten factors at play in the decision-making process, with hundreds of top executives. Using it, they were able to identify relationships that would benefit from greater trust and to diagnose the root causes of distrust. Armed with that knowledge, they took concrete steps that made it easier for others to place confidence in them.

Risk tolerance.

Some people are natural risk takers; others are innately cautious. How tolerant people are of risk has a big impact on their willingness to trust—regardless of who the trustee is. Risk seekers don’t spend much time calculating what might go wrong in a given situation; in the absence of any glaring problems, they tend to have faith that things will work out. Risk avoiders, however, often need to feel in control before they place their trust in someone, and are reluctant to act without approval. Not only do they not trust others, they don’t even trust themselves. Research by the organizational anthropologist Geert Hofstede suggests that at some level, culture influences risk tolerance. The Japanese, for instance, tend to have a lower tolerance for risk than Americans.

Level of adjustment.

Psychologists have shown that individuals vary widely in how well adjusted they are. Like risk tolerance, this aspect of personality affects the amount of time people need to build trust. Well-adjusted people are comfortable with themselves and see the world as a generally benign place. Their high levels of confidence often make them quick to trust, because they believe that nothing bad will happen to them. People who are poorly adjusted, by contrast, tend to see many threats in the world, and so they carry more anxiety into every situation. These people take longer to get to a position of comfort and trust, regardless of the trustee.

Relative power.

Relative power is another important factor in the decision to trust. If the truster is in a position of authority, he is more likely to trust, because he can sanction a person who violates his trust. But if the truster has little authority, and thus no recourse, he is more vulnerable and so will be less comfortable trusting. For instance, a CEO who delegates a task to one of her vice presidents is primarily concerned with that person’s competence. She can be reasonably confident that the VP will try to serve her interests, because if he doesn’t, he may face unpleasant repercussions. The vice president, however, has little power to reward or sanction the CEO. Therefore, his choice to trust the CEO is less automatic; he must consider such things as her intentions and her integrity.

Situational factors.

The remaining seven factors concern aspects of a particular situation and of the relationship between the parties. These are the factors that a trustee can most effectively address in order to gain the confidence of trusters.

Security.

Earlier we dealt with risk tolerance as a personality factor in the truster. Here we look at the opposite of risk—security—as it relates to a given situation. Clearly, not all risks are equal. An employee who in good times trusts that his supervisor will approve the funding for his attendance at an expensive training program might be very suspicious of that same supervisor when the company is making layoffs. A general rule to remember: The higher the stakes, the less likely people are to trust. If the answer to the question “What’s the worst that could happen?” isn’t that scary, it’s easier to be trustful. We have a crisis of trust today in part because virtually nobody’s job is truly secure, whereas just a generation ago, most people could count on staying with one company throughout their careers.

Number of similarities.

At heart we are still quite tribal, which is why people tend to more easily trust those who appear similar to themselves. Similarities may include common values (such as a strong work ethic), membership in a defined group (such as the manufacturing department, or a local church, or even a gender), and shared personality traits (extroversion, for instance, or ambition). In deciding how much to trust someone, people often begin by tallying up their similarities and differences.

Imagine that you are looking to hire a consultant for a strategy assignment. The first candidate walks into your office wearing a robe; he speaks with an accent and has a degree from a university you’ve never heard of. When you meet the second candidate, she is dressed very much like you and speaks as you do. You learn that she also attended your alma mater. Most people would feel more comfortable hiring the second candidate, rationalizing that she could be counted on to act as they would in a given situation.

That’s partly why companies with a strong unifying culture enjoy higher levels of trust—particularly if their cultural values include candor, integrity, and fair process—than companies without one. A good example of this is QuikTrip, a convenience store chain with more than 7,000 employees, which has been named to Fortune’s 100 Best Companies to Work For in each of the past four years. One of the company’s bedrock values is do the right thing—for the employee and for the customer. This meaningful and relevant shared value serves as a foundation for an exceptionally strong culture of trust. On the flip side, a lack of similarities and shared values explains why, in many organizations, the workaholic manager is suspicious of his family-oriented employee, or the entrepreneurial field sales group and the control-oriented headquarters never get along: It’s more difficult to trust people who seem different.

Alignment of interests.

Before a person places her trust in someone else, she carefully weighs the question “How likely is this person to serve my interests?” When people’s interests are completely aligned, trust is a reasonable response. (Because both the patient and the surgeon, for instance, benefit from a successful operation, the patient doesn’t need to question the surgeon’s motives.) A fairly unsophisticated leader will assume that everyone in the organization has the same interests. But in reality people have both common and unique interests. A good leader will turn critical success factors for the company into common interests that are clear and superordinate.

Consider compensation policies. We’ve all heard of companies that have massive layoffs, drive their stock prices up, and reward their CEOs with handsome bonuses—in the same year. It’s no wonder that so many employees distrust management. Whole Foods Market, by contrast, has a policy stating that the CEO cannot make more than 14 times the average employee’s salary; in 2005 CEO John Mackey forfeited a bonus of $46,000. That policy helps demonstrate to workers that the CEO is serving the best interests of the company, not only his own. Aligned interests lead to trust; misaligned interests lead to suspicion.

This factor also operates on a more macro-organizational level. In “Fair Process: Managing in the Knowledge Economy” (HBR July–August 1997), W. Chan Kim and Renée Mauborgne described how a transparent, rigorous process for decision making leads to higher levels of organizational trust. Opaque decision-making processes, which may appear to serve special interests whether they do or not, breed distrust.

Benevolent concern.

Trust is an issue not because people are evil but because they are often self-centered. We’ve all known a manager whom employees don’t trust because they don’t believe he will fight for them. In other words, he has never demonstrated a greater concern for others’ interests than for his own. The manager who demonstrates benevolent concern—who shows his employees that he will put himself at risk for them—engenders not only trust but also loyalty and commitment.

Aaron Feuerstein, the former CEO of Malden Mills, represents an extreme example of benevolent concern. In 1995 a fire destroyed his textile mill in Lawrence, Massachusetts, which had employed some 3,200 people. He could have taken the insurance money and moved his manufacturing overseas. Then 70, he could have retired. Instead Feuerstein promised his workers that he would rebuild the mill and save their jobs, and he kept them on the payroll. Feuerstein’s benevolent concern for his employees, despite the cost to himself, gained their trust. Unfortunately, it lost the trust of his banks, which probably would have preferred that more benevolent concern be directed toward them. The resulting debt eventually forced the company to file for bankruptcy protection. This points to a real challenge in managing trust: how to balance multiple and sometimes competing interests.

Capability.

Similarities, aligned interests, and benevolent concern have little meaning if the trustee is incompetent. (If you’re going to have surgery, you’re probably more concerned about your surgeon’s technical skills than about how much the two of you have in common.) Managers routinely assess capability when deciding to trust or delegate authority to those who work for them.

Capability is also relevant at the group and organizational levels. Shareholders will be suspicious of a board of directors that can’t establish reliable processes for compensating CEOs fairly and uncovering unethical behavior. A customer will not trust a firm that has not demonstrated a consistent ability to meet his or her needs.

Predictability and integrity.

At some point in the trust decision the truster asks, “How certain am I of how the trustee will act?” A trustee whose behavior can be reliably predicted will be seen as more trustworthy. One whose behavior is erratic will be met with suspicion. Here the issue of integrity comes into play—that is, doing what you say you will do. Trustees who say one thing but do another lack integrity. The audio does not match the video, and we are confused as to which message to believe. The result is distrust.

In my executive-coaching work, I have seen some managers consistently overpromise but underdeliver. These people are well-intentioned, and they care passionately about their work, but their enthusiasm leads them to promise things they simply cannot produce. Despite their hard work and good intentions, colleagues don’t trust them because of their poor track records.

Take the case of Bob, the managing partner of a global consulting firm. Bob was a creative and strategic thinker who was well liked by everyone. He had good intentions and had demonstrated benevolent concern for employees. But the other partners in the firm did not trust Bob, because he often failed to deliver what he had promised when he had promised it. Despite his good intentions, people in the firm said that any project that relied on Bob was in a “danger zone.” With time and coaching, Bob learned to delegate more and to live up to his commitments. But the point here is that when a person fails to deliver, he’s not just missing a deadline; he’s undermining his own trustworthiness.

Level of communication.

Because trust is a relational concept, good communication is critical. Not surprisingly, open and honest communication tends to support the decision to trust, whereas poor (or no) communication creates suspicion. Many organizations fall into a downward spiral: Miscommunication causes employees to feel betrayed, which leads to a greater breakdown in communication and, eventually, outright distrust.

Consider how the Catholic Church handled allegations of sexual abuse by priests in the Boston area. Cardinal Bernard Law failed to openly communicate the nature and scope of the allegations. When the details emerged during legal proceedings, parishioners felt betrayed, and trust was destroyed. The word “cover-up” was frequently used in the media to describe Law’s response to the crisis. His lack of candor caused people to feel that the truth was being obscured at the expense of the victims.

Around that time I witnessed an example of excellent communication within the same Catholic Church. I sat with my family one Sunday while, in an agonizingly uncomfortable homily, a priest confessed from the altar that he had had an inappropriate encounter 20 years earlier with a woman employed by the parish. He acknowledged his mistake, talked about how he had dealt with the issue, and asked for forgiveness. Over time his parishioners came once again to regard him as a trusted spiritual leader. His offense was less serious than Law’s, but his story shows that honest communication can go a long way toward building or repairing relationships and engendering trust. To some degree, one person’s openness induces openness in others, and the decision to put faith in others makes it more likely that they will reciprocate.

Managing with the Trust Model

Once these ten factors are understood, executives can begin managing trust in their own relationships and within their organizations.

Consider the example of Sue and Joe, a manager and her direct report in a Fortune 500 consumer goods company that was in the midst of a major turnaround. Sue, a relatively new VP of sales, wanted to make some aggressive personnel moves in response to pressure from her boss to improve performance. Joe, one of Sue’s employees, was three years shy of his retirement date. He had been a loyal employee for 17 years and had been successful in previous staff roles. Recently, however, he had taken on a new job as a line manager in sales and was not performing well. In fact, Sue’s boss had suggested that it was time to move Joe out.

Joe was a confident person (high level of adjustment), but he knew that he was in the wrong job and wanted to find a different way to contribute (high alignment of interests with Sue). He was concerned about how candid to be with Sue, because he was afraid of being terminated (low risk tolerance and low security). And because Sue was a new VP, Joe was uncertain whether she was the decision maker and had any real control (low predictability and low capability).

As the situation originally stood, Joe wasn’t inclined to trust his manager; there were too many risks and uncertainties. The trust model helped Sue identify what she could do to change the situation and create a climate of trust afterward. (See the exhibit “Trust Intervention: Sue and Joe.”) Sue and I realized, for instance, that we could do little to raise Joe’s tolerance for risk. Cautious by nature, he was genuinely—and quite rightly—fearful of losing his job. So I encouraged Sue to demonstrate greater benevolent concern: to have a candid but supportive conversation with Joe and give him time to go through a self-discovery process using an outside consultant. After that process, Joe requested a transfer. I also coached Sue to work with her boss to gain approval for some alternate options for Joe, thus increasing her capability and predictability in Joe’s eyes. In addition, Sue began communicating more frequently and openly to Joe about his options in the organization and was sincerely empathetic about how this career uncertainty would affect him and his wife—showing still more benevolent concern. Eventually Joe was moved into a more suitable position. He wasn’t shy in sharing his positive feelings about the whole process with his former colleagues, who still reported to Sue. As a result, those people were more apt to place their faith in her, and trust increased in the department even though it was experiencing major change.