Digital transformation can be daunting for any organization, but it is especially challenging on a global scale.
Global organizations typically want to standardize business processes across international operations, but they also need the flexibility to serve diverse customers, employees, economies and regulatory bodies.
The decision to globalize or localize isn’t black and white. Every organization has different operational, organizational, cultural, regulatory and financial considerations. Let’s discuss some of the pros and cons of standardization and differentiation. We’ll also provide tips on how to balance globalization with localization.
Benefits of Global Standardization
International organizations, particularly those that acquire other companies, often have non-standardized business processes. Standardization allows these organization to scale for growth by consolidating business processes. Consistent processes drive operational efficiency and enable global visibility into operations. Financial reporting, for example, is faster and easier when processes are standardized.
While standardization can require a large investment in business process reengineering, you’ll ensure that all processes at all locations are designed to bring you competitive advantage. Global organizations lean toward standardization when they want to deliver quality goods or services with a high degree of predictability.
Benefits of Localization
Localization reduces change resistance because you’re adapting to the unique needs and requirements of different locations. Instead of changing local business processes to align with processes at your headquarters, localization allows you to retain the unique processes suited for each location. Certain locations may need flexibility to manage data and transactions in local languages and currencies. Some countries have intricate requirements when it comes to taxes, currencies and regulatory reporting. Differentiating your processes based on location ensures you stay compliant and avoid penalties.
Balancing Globalization With Localization
If you want the best of both worlds, you should be strategic about which processes you standardize and which you differentiate. Some processes should always be standardized. These include processes such as back-office functions that enable a shared services strategy. Other processes, such as regulatory and reporting processes, should typically be localized. While you may want to localize customer-facing processes, you should probably globalize processes that don’t add as much value.
A balance between globalization and localization becomes even more important when you consider organizational change management. The need for organizational change management at global locations typically increases the more you standardize your processes. While standardization may save money in the long term, you’ll need to invest in extensive organizational change management in the short term. This means more than end-user training. It also involves communicating change impacts and project status updates.
How Much Organizational Change Management?
The most challenging aspect of a global digital transformation might be aligning corporate culture around a singular goal. You must account for cultural differences and language differences.
Executive support is especially important during global projects as local entities may be extremely resistant to globalized processes. People can’t embrace what they don’t understand, so you must communicate the reasons for transformation and how it will benefit employees and the organization as a whole.
Organizational readiness assessments are also critical to global projects. You can assess risk by analyzing your organizational attributes as well as the characteristics of proposed changes.
How Much Software Customization?
Does globalizing your business processes reduce the amount of software customization you’ll need? Sometimes, but not always.
While you may be standardizing your processes based on a global standard, you’re not necessarily standardizing your processes based on software functionality. However, there is typically an overlap between globalized processes and processes that are standardized based on software functionality, as they both mostly involve non-value add processes. It’s probably safe to say that more globalization usually equals less customization (but more organizational change management).
Another strategy for reducing customization is to allow flexibility in each location’s choice of software and vendor. This can make globalization more difficult than usual but not impossible.
Defining a Support Structure
While you’re determining which of your processes should be globalized versus localized, you should consider whether your support structure will be globalized, localized or customized. Many companies choose to centralize ERP support and helpdesk functions, while others choose to offer decentralized support to cater to diverse locations. The sooner you define a support structure, the sooner end-users will adopt new processes. This is true for both on-premise and cloud ERP implementations.
Defining a Master Data Strategy
Master data is an important but overlooked aspect of the global vs. local conundrum. Not only do you need to cleanse and migrate master data, but you need to define how it will be managed going forward. For example, will local offices have the flexibility to manage their own local chart of accounts, or will changes require centralized and global governance? The same should be decided for other types of master data, including customer, supplier and inventory master records.
Final Piece of Advice
This may be your first global digital transformation, but it’s not ours. Our digital transformation and ERP systems experts understand the challenges of both globalization and localization and how to find the right balance based your organization’s unique objectives.