Yet talk to the leaders of some of the world’s biggest companies today, and they’re claiming new abilities to shift organisational gears on a global basis and produce meaningful innovations quickly.

To discover the truth behind these claims, I assembled a research team and ventured deep inside a dozen such giants. After two years of visiting their operations, I am convinced that the transformation these leaders describe is real. Companies such as IBM, Procter & Gamble, Omron, CEMEX, Cisco and Banco Real are moving as rapidly and creatively as much smaller enterprises, even while taking on social and environmental challenges of a scale only large entities could attempt.

A decisive shift is occurring in what might be called the guidance systems of these global giants. Employees once acted mainly according to rules and decisions handed down to them, but they now draw heavily on their shared understanding of mission and on a set of tools available everywhere at once. Authority is still exercised and activities are still coordinated – but thanks to common platforms, standardised processes and, above all, widely shared values and standards, coherence now arises more spontaneously.

In this article I will set forth the pillars of this new model of big business.

Shared values, principles and platforms
Large corporations must respond quickly and creatively to opportunities wherever they arise and yet have those dispersed activities add up to a unified purpose and accomplishment. Companies that meet this challenge rely in part on clear standards and disciplines.

Consider the “CEMEX Way.” Around 2000, the Mexico-headquartered global cement company CEMEX launched this companywide program to identify best practices and standardise business processes globally. The point was to foster sameness in areas where sameness would make life easier.

In every one of the company’s plants, for example, pipes carrying natural gas were painted one color and pipes containing air were painted another color. This made it simple for transferring employees or visiting managers not to waste time figuring out the setup.

Providing a platform on which creative people can build is only half the battle. What’s also required is a shared set of values to guide their choices and actions. Once people agree on what they respect and aspire to, they can make decisions independently and not work at cross-purposes.

At IBM, three simple sentences about customers, world-improving innovation, respect and responsibility were repeated everywhere we visited. Those values were credited with clarifying decisions and cutting through internal politics.       

Getting close at a distance
The payoff for companies that have embedded values and principles in their guidance systems comes in many forms. The first benefit is integration, which permits collaboration among diverse people.

Innovations do not simply emanate from the home country and radiate outward. They emanate from many places. Know-how is transferred to and from emerging and developed countries through a web of global connections.

Sometimes companies achieve collaboration by bringing people from diverse backgrounds together physically. CEMEX is especially adept at getting people to the problem and gaining speed in the process — for example, seconding large numbers of experienced people to newly acquired operations to work on post-merger integration teams for periods of a few months to a few years. This encourages every manager to train replacements and ensures deep bench strength.

Empowerment in the field
Common values and standards also allow people at the front lines to make consistent decisions, even in culturally and geographically disparate locations. Expressing values and standards in universal terms is not meant to inhibit differences. In fact, it helps people see how to meet particular customers’ and communities’ needs by adding localisation to globalisation.

At P&G Brazil, leaders called this “tropicalising.” As a marketing executive told us: “The values and principles don’t change, but we respect the local trade, the local consumer, the local organisation.”
          
Innovating in markets
People are even more inclined to be creative when their company’s values stress innovation that helps the world. Banco Real, the Brazilian arm of a European bank, discovered this when it put social and environmental responsibility at the core of its search for differentiation.

The result was a spate of new financial products, including consumer loans for green projects (such as converting autos or houses), microfinance for poor communities and the first carbon credit trading in the region. By 2007, it had more than doubled its profitability and grown in size to become the third-largest bank in Brazil.

A stronger basis for partnering
Companies that have established strong guidance systems find themselves more effective in selecting and working with external partners – increasingly a necessity for competitive success.

Omron’s principles, for instance, form the basis for choosing partners and gaining trust. The knowledge that partners would share Omron’s values and standards helped the Japanese company’s research and development transform what one manager called a “not-invented-here, ivory tower” research approach into collaborative information sharing with partners.

Fire in the belly
Values and standards offer people a basis for engagement with their work, a sense of membership and an anchor of stability in the midst of constant change.

Values arouse aspirations to increase the company’s positive impact on the world, and that is worth more to many people than increases in compensation, as a manager in India pointed out to me. This, he believed, was why his rapidly growing unit could attract the best talent without offering the highest pay scales.

How the fabric is woven
The key to success with the new model may seem counterintuitive to leaders operating under the old paradigm. More than anything else, we heard in our interviews about a loosening of organisational structures in favor of fluid boundaries and flexible deployment of people. Managers and professionals generally appeared less concerned with where they worked and to whom they reported than with what projects they were able to join or initiate.

Many of these companies have a tradition of making mobility a part of career development, which ensures a degree of international mixing as well as the carrying of expertise from one place to another. Working with extended networks of partners across inter- and extra-company boundaries requires large numbers of people to serve as connectors among activities – not as bosses but as brokers, network builders and facilitators.

One last element that seems central to the success of the global giants we studied is that they have explicitly added mutual respect and inclusion to the values they live by. Diversity programs are valued because they help people form relationships more quickly and overcome tensions between groups.

A giant change
The new model yields a way of doing business that is more localised and humane. The interplay of corporate standards and local conditions puts companies in a position to influence the ecosystem around them and to generate innovation. If these vanguard companies lead others to adopt their way of working, not only will that be good for business, it will also be good for the world.         

One company’s return on values
Imagine a developing country where workers like their beer and like it cheap – to the extent that alcohol use has become a serious public health problem. Now imagine you are the country manager there for a multinational corporation that profits by selling alcoholic beverages. Your goal is to gain more market share. Is this anywhere for values to hold sway?

Here’s how the story played out in Kenya. UK-headquartered Diageo, the world’s leading producer of premium alcoholic beverages, had entered the market with a large investment in East African Breweries but couldn’t match the low price of its competition. That was because the competition was home brew, subject to no standards or inspections and sold out of garages.

Illicit beer was downright dangerous in a country where water supplies are often contaminated – it was known to cause blindness as well as the intense hangovers and related illnesses that routinely lowered productivity in Kenya’s labour-intensive industries. But it was popular because, with no government taxes added to its price, it offered the most sips for the shilling.

Diageo had the benefit of local talent with global thinking who could recognise the opportunity in the situation and seize it. (Over the years, the company encouraged members of the internationally educated African diaspora to return to Africa at expatriate pay rates.) Using Diageo’s global resources, including a Web-based innovation tool, the local team attacked the problem. Importantly, it put the focus on the best outcome for society and was therefore able to open lines of communication with the national government.

The company proposed producing a low-cost beer and making it widely available, giving the buyers of illicit beer an alternative they would consider reasonable. The safer product would succeed, however, only if the government agreed to reduce the surtax on it, so the price would be truly comparable. The government, of course, had no interest in corporate charity, but it became clear that if more people bought legal beer, taxes would be collected on a greater proportion of the alcohol being consumed. A tax cut, therefore, was likely to yield higher tax revenue overall.

Distribution channel
To make the new beer, now called Senator, widely available, Diageo needed to develop a new distribution channel: responsibly managed licensed pubs. The team talked to community leaders throughout Kenya to identify influential solid citizens, such as shopkeepers and sports club owners, who could set these pubs up. Diageo provided equipment and trained them in business operations, eventually establishing 3,000 new outlets.

The launch of Senator beer saw success on many fronts. Beyond the high market share it immediately claimed, Diageo received a prestigious award for contributing to reduced rates of blindness and increases in workplace productivity. Meanwhile, thousands of new small businesses flourished, and government policies started to change. The work was gratifying to Diageo managers both locally and internationally.

At the time of Diageo’s formation in 1997 (by the merger of Guinness and Grand Metropolitan), its leaders had articulated the company’s values and operating principles to emphasise both high global standards and local community responsibility. With that kind of guidance system in place, local decision makers – even in a ‘sin industry’- can have a transformative positive social impact.

Having it both ways
When do you know a paradigm is shifting? When long-standing contradictions begin to resolve. In the giants my research team and I studied, I was struck by the number of areas in which they achieved a balance between seemingly opposing goals.

– They both globalise and localise, deriving benefits from the intersections.
– They both standardise and innovate, endeavoring to prevent consistency from becoming stifling conformity.
– They foster a common universal culture but also respect for individual differences, seeking inclusion and diversity.
– They maintain control by letting go of it, trusting people educated in the shared values to do the right thing.
– They have a strong identity but also a strong reliance on partners, whom they collaborate with but do not control.
– They produce both business value and societal value.
– They bring together the “soft” areas (people, culture and community responsibility) and the “hard” areas (technology and product innovation).
– They do not abandon values in a crisis; in fact, as leaders put them to the test, crises serve to strengthen commitment to values.

Rosabeth Moss Kanter, a professor of business administration at Harvard Business School and author of ‘America the Principled.’ She was also the editor of Harvard Business Review from 1989 to 1992

© 2008, by Rosabeth Moss Kanter, Harvard Business Review / Distributed by the New York Syndicate.