April 4, 2010

From the Middle East to the World

Fuelled by their financial strength, and compelled by increasing competition and saturation of their home markets, Gulf Cooperation Council (GCC) telecom operators have launched unprecedented international expansion programmes since 2004. Going global, however, comes with a new set of challenges. The operators that most effectively address these challenges will be best positioned to capture maximum value from their investments and earn a place among the world’s leading global operators, according to a new study by Booz & Company.

Crossing Borders and Breaking Boundaries

Before 2004, all GCC incumbents combined were operating in only six markets outside their home countries. Today, this number stands at 78, with government policies in GCC countries stimulating this drive for corporate globalisation. As the profitability and financial strength of GCC operators have grown, so too has competition in their home markets. This created a surge in globalisation, as operators sought growth through mergers and acquisitions. The disclosed value of GCC incumbents’ cross-border M&A activity between 2004 and 2009 exceeded US$33 billion.

Going global, however, comes with a new set of challenges. “The leaders of GCC operators can ensure successful global growth by ensuring that their companies are properly positioned, to capture the maximum value from their international investments,” said Karim Sabbagh, a partner at Booz & Company and global leader for the company’s communications, media and technology practice.

Building a Sound Foundation for Globalisation

As operators pursue global expansion, their market and operational footprints tend to evolve in three stages: from a domestic focus to a regional focus to a global focus—most GCC operators are in the first two stages of this evolution. There are five sets of challenges that GCC operators need to address in their quest to go fully global: governance models, organizational models, management processes, values and culture, and talent management.

Governance Models: From Limited Oversight to Strategic Alignment

Corporate governance is an ongoing challenge. “To successfully compete globally, GCC operators will have to elevate governance from its current oversight role to a vital mechanism for streamlining the strategic planning process across subsidiaries, thus creating alignments and generating value within the entire group,” explained Mohamad Mourad, a principal at Booz & Company. In the past, most GCC telecom operators worked in protected markets with high margins and little external pressure to produce results. Consequently, some of these operators have legacy systems of governance that often hinder them as they go global.

Overcoming the governance challenges of globalisation will enable operators to address the remaining organizational challenges. There are a number of measures that will contribute to more effective corporate governance. GCC operators can review and adjust the composition of their executive committees at headquarters, by being more inclusive with senior management of international subsidiaries. They should give these executives the opportunity to participate in strategic decision making at the corporate level, as well as standardize decision-making processes across the group.

GCC operators should also examine and redefine decision rights in order to create the proper balance between control in corporate headquarters and autonomy in subsidiaries. “This will ensure clear decision rights that cement the ability of headquarters to establish, execute, and enforce key corporate imperatives; and will provide sufficient authority for each international subsidiary to make effective decisions based on local challenges, within the parameters of corporate imperatives,” Sabbagh said.

Finally, GCC operators should ensure that their corporate imperatives are properly represented within their subsidiaries by training the executives who will represent the company on the supervisory boards of subsidiaries. These representatives must be able to identify and analyse the issues that arise within the subsidiary and align them with the overall corporate strategy.

Organisational Models: From Obstacle to Enabler of Global Business

There is no single organizational model that is best for GCC operators seeking growth but as they go global, inefficiencies that currently exist within their organizational structures will be magnified. These inefficiencies can include misaligned spans of authority, excess layers of management, and paternalistic management models. The inability of support functions, such as human resources and shared services, to cope with global needs can also hinder growth.

To overcome organizational challenges, GCC operators can restructure to integrate, support, and manage global operations. Although some initial redundancies and inefficiencies are unavoidable when expanding aggressively, centralized core functions that are capable of supporting and enhancing all of the subsidiaries should be developed as quickly as possible. “GCC operators that seek global expansion should also clarify the role of the corporate centre, carefully balancing the efficiency of central standardization and control with the effectiveness of local autonomy,” noted Mourad.

Management Processes: From Ad Hoc to Standardised Best Practices

As operators go global, they often need to improve the flow of information to ensure effective decision making. To do this, they need to standardize, extend, integrate, and institutionalize strategic management processes in a careful and measured way. Process challenges can be exacerbated when operators do not already have effective management systems and processes, particularly strategic and financial planning processes, in place as they begin to expand internationally. Furthermore, as operators acquire new operations, they also acquire the legacy systems and processes of the new subsidiary leading to the systems and processes that support effective decision making to become fragmented, and the information needed to monitor and manage performance across the organization unavailable.

To be successful, GCC operators need to develop and replicate best practices both at home and beyond their national borders. “They should seek to balance global standardization and its potential competitive advantages with local customization and the ability to leverage local differentiating capabilities,” Sabbagh commented. As they integrate their processes and IT platforms with those of the acquired operations, companies should also standardize systems and processes to allow some degree of local flexibility while avoiding an overreliance on ad hoc initiatives. Periodic revision cycles should be established, too.

Values and Cultures: From a Closed to an Inclusive Ethos

GCC operators are at various stages in the development of global corporate cultures. Many continue to struggle with redefining their legacy values and cultures, which can be inward-looking and not readily adaptable to global organizations operating in multiple geographies with varying dynamics.

To meet the value and culture challenges of global expansion, GCC operators should establish a corporate culture that can successfully cross borders. They should consider their current global footprint, to identify their own differentiating, nonnegotiable values and traits, as well as the national and corporate values, attitudes, and behaviors present in their subsidiaries. They should recognise the diversity within their companies, determine how to leverage it, and build relationships with key stakeholders in each geography. “Global operators should also find ways to engage employees across the organisation and instill a unified sense of pride,” said Mourad.

Talent Management: From a Reactive to a Proactive People Strategy

“As companies go global, their talent requirements become more complex with an increased demand for skills and a shortage of senior executives with sufficient global experience,” commented Sabbagh. To meet the talent challenges of globalisation and put the right people in the right position, GCC operators should start by increasing awareness among senior leaders and executives of the importance of talent management. To build successful global organisations, operators will have to identify, measure, and capture the maximum value from their talent base. They should segment employees according to their impact on the performance of the organisation; develop tailored value propositions for each segment that balance business requirements with specific segment needs; and cascade these across their people processes.

With this strategic foundation for talent in place, GCC operators can begin to create talent pools to fill international positions. They should determine a standard profile for international hiring and secondment, and coordinate their recruitment efforts across geographies to ensure consistency. They should also invest in hiring executives who are capable of filling international positions in advance of a specific need.

GCC operators should design development programs aimed at creating the skills required to drive performance in an international organization. Furthermore, they should align employee compensation and incentive systems with their global objectives, designing consistent and objective assessment tools and processes. These programs and systems must be flexible enough to adapt to geographic, cultural, and management style differences among subsidiaries.

Finally, an effective leadership succession strategy is critical to achieving uninterrupted growth in a global organization. “GCC operators should be identifying high-potential leaders and providing them with opportunities to participate in high-impact initiatives that will prepare them for international assignments, as well as continuously monitoring their satisfaction and readiness for larger leadership roles,” noted Mourad.

Tomorrow’s Leading Global Enterprises

Many GCC operators are seeking international expansion and growth and some hope to claim a spot among the world’s leading global enterprises. The operators that have the best chance of achieving this will be those that are able to successfully transform their structures, systems, and processes, enabling their people to effectively and efficiently execute and compete anywhere in the world.