Managing an integrated European company with variety of national cultures is tough enough. But a little guidance is helpful when a pan-European business is seeking to deploy any organizational change such as Six Sigma or Lean across the business.
Managing on a pan-European level is not easy. While the extension of the European Union and the introduction of the Euro have been a tremendous help in simplifying the management of an integrated European company, the differences in national cultures and the strength of national perspectives still provide a challenging environment. This is especially true for a company trying to deploy any organizational change such as Six Sigma or Lean across the business. But there is some guidance for how to address the difficulties involved in such an effort.
Considering the Dilemma
Companies operating on a pan-European level have, in most instances, created a centralized organizational structure. Country organizations are frequently gutted, redundant jobs are eliminated, and a central group is formed that takes on most decisions, leaving the country organization with the responsibility to implement what was decided on a central level. Centralized functions often include finance, human resources, marketing, distribution, purchasing, engineering, information systems and quality. Local organizations evolve in many cases into mere sales organizations. Responsibility for local operations is transferred to a separate supply chain group, which is rationalized based on unit cost. Once manufacturing costs can easily be compared, operations in high-cost countries survive only if the product requires extensive distribution or technical know-how.
In theory, this transformation results in substantial cost savings – resources and investments such as IT are leveraged on a pan-European scale, increased economies of scale result in reduced cost per unit, and redundant activities are eliminated. In practice, many companies have realized that this change can result in an increase in the costs of complexity that often outweighs the savings achieved through centralization:
- Business processes that were designed to accommodate the needs of local markets cannot be easily transformed into standard processes.
- Investments in technology are required to standardize information flows, while the differences in processes often stay the same.
- Local managers, who are left without the ability to control critical resources to do their job, need to spend significant amounts of time lobbying the central staff to ensure that needs of the local organization are met.
- At the same time, the central staff responsible for key decisions needs to spend a substantial amount of time understanding the local conditions.
- Differences in local markets require the build-up of a team of specialists in many functions. For example, where before the quality manager was a generalist, now the individual tasks involved in that job are being handled by European staff members, who specialize on one specific aspect.
As a result, those responsible for managing on a pan-European level are faced with a number of key questions when implementing a common approach such as Six Sigma:
- How should the deployment approach be adapted to local needs?
- What is the role of local management versus central management?
- How will Six Sigma impact the central functions?
Adapting the Deployment Approach
The typical Six Sigma program is launched at the top. Due to the heavy investment in people and time a typical Six Sigma program requires and its potential impact on virtually every process in the business, the decision to implement Six Sigma is made by the business leader. The deployment quickly cascades down, with local managers and central staff being trained and charged to select Black Belts and projects. Finally, Black Belts are being trained and the project work begins.
But in a pan-European environment, how does one select high-impact projects when processes are controlled by central decisions but the cost are at the local level? To whom should the Black Belts report? Will local management be able to backfill candidates now reporting into a central group? And to what extent will the central message for why the company is launching Six Sigma be adapted to the situation in the local market?
Those are the questions that need to be answered. Every manager with pan-European responsibility should consider the trade-offs:
- Standardization versus adaptation
- Optimization versus ownership
- Speed versus sustainability
A careful review of the deployment plan and approach with an eye on organizational culture and cross-cultural differences can help identify the optimal level of adaptation, and help create a pathway for how the program should evolve.
Role of Local Versus Central Management
Six Sigma is more than just a collection of statistical tools and techniques. A critical ingredient in the success of Six Sigma is its solid infrastructure – dedicated resources focusing on problem-solving. Other crucial factors are the selection of improvement projects, the integration of a change management methodology and of other improvement approaches such as Lean, the education of leaders at all levels, and the alignment of measurement systems using a dashboard approach. Most companies that have decided to deploy Six Sigma create a central program office to coordinate training and control resources.
What makes sense from a pan-European perspective? What is the role of local management? Does it serve as a steering committee? If so, how can the company make sure that critical central functions are represented on the local level? Where should the Black Belts report? How will the impact be measured, and who receives the credit? Is the budget authority for Six Sigma at the central level? If so, where does the funding come from? If central management selects, what voice do local managers have? If projects are selected locally, how will the project portfolio be optimized across the business?
Those are only some of the questions that need to be resolved before embarking on the Six Sigma journey. The central issue is the trade-off between local ownership and central efficiency, with organizational culture as a key element. Again, timing should be considered: Most Six Sigma deployment structures evolve over time, as the organization becomes more mature. While leaving ownership at the local level is recommended, experience shows that centralizing some of the administrative aspects of the deployment is critical to avoid costly changes later on. A dynamic deployment plan that foresees how the program will evolve is key to balancing the needs of local and central management.
Impact on Central Functions
Most deployment strategies focus on making sure that local organizations are well aligned and committed to the program. What many European leaders forget is to think through the impact on the central functions. If the deployment is driven on the local level, how can the company balance the impact on the central functions? How will it make sure that critical specialists are available to the project teams while supporting the business? What changes in central systems such as ERP or management systems will result, and how can those be coordinated and prioritized? If the deployment is led by the central functions, how does the company replicate improvements of local processes, and how does it make sure these improvements work? How will the company balance the benefits of local improvements with the cost resulting at the central level?
What a manager with pan-European responsibility quickly realizes is that he or she cannot delegate the decisions relative to Six Sigma to a local forum or a central staff person. Business processes are critical to create value for customers and shareholders. Changes in these processes have strategic implications. The potential of Six Sigma to overburden the organization is often underestimated.
Conclusion: Minimizing Cultural Conflicts
At first sight, Six Sigma could be mistaken for a tool. Pan-European executives should take a closer look and understand their options to adjust the deployment to the needs of their organization. In the European context, the typical conflict between central and local functions is amplified by cultural differences and organizational history. An effective deployment strategy minimizes this conflict and aims at maximizing the benefits. To develop such a strategy, one must understand the current organizational culture – both across the organization and within each of the local businesses.
About the Author: Thomas Bertels is a partner of Valeocon Management Consulting, and serves as the global firm’s regional director for the Americas. He has worked with clients such as TRW, Siemens, Vanguard and Johnson & Johnson, and also served as the editor of and main contributor to a Six Sigma leadership handbook. Mr. Bertels started his career at ABB (Asea Brown Boveri), one of the early adopters of Six Sigma. Fluent in German and English, he is based in New York, N.Y., USA, and can be reached at firstname.lastname@example.org.