Limits of the MNC Hub-and-Spoke Model

A friend who joined IBM Global Services (IGS) in Bangalore five days back shared his joining experience with me. His desk wasn’t ready, it took almost four days to get his email working, and it’s now end of week but his laptop still hasn’t arrived. His case could be an exception but I doubt this is the case given his seniority.

In IBM’s defense one could say that they are growing headcount so fast in India that some of their backend processes are simply struggling to keep up. Indeed having everything in place when an employee joins – the zero-day joining experience (ZDJE) – is easier to achieve when there is unhurried hiring taking place. But there to this than meets the eye. 

The ZDJE process is to the talent-based organization what quote-to-cash process is to a business. It’s a straightforward concept, simple to measure but hard to implement. Why is it so hard to implement you might ask. After all it’s not rocket science. It’s because you need cross-functional collaboration across the organization from a range of corporate functions. Staffing, facilities, human resources, information systems and purchasing have orchestrate things, and on top of it line management is involved as well. Most companies that manage to get ZDJE right in their HQs fail to replicate that success in their branch offices. This has been particularly true for MNCs operating in India.

The reason they have struggled is because getting tight local cross-functional integration in India is impeded by the current spaghetti reporting structures. Most corporate functions have a traditional report-to-HQ reporting and these reporting relationships create deep functional silos in India. Getting an India-specific ZDJE process in place (and yes, the global ZDJE process needs lots of tailoring to work in India!) requires strong local leadership that is supported by HQ. When this empowered local leadership is missing, everyone is doing their job but the results are not there. Finger pointing and tension across functions is the result.

I am surprised that so many MNCs have failed to get their India leadership structures right. They have continued to manage their India footprint using an archaic hub-and spoke model for each function. This model just doesn’t work in India anymore because the India headcount is now large in relative terms (and often growing) and the nature of the footprint is very untraditional. Apart from the usual sales operation, a hi-tech MNC would typically also have a large back-end that caters to the global business. This would include an engineering footprint, a technical support organization, an internal IT practice, (increasingly) a HR services team, and sometimes even an offshore accounting group. When you put it all this together, the India is unlike any other sales office and instead looks like a microcosm of the home office. To manage this right you need an empowered India CEO who can knock heads together to get the right type of local integration to happen.

In the past there has been some discussion in various management fora on how to combine local responsiveness with global integration in MNCs. But that discussion has been in the context of servicing customers in key markets. We need to reopen that discussion to address another set of important stakeholders – the large pockets of skilled employees in key markets. I am interested in hearing your views.

45 Responses to “Limits of the MNC Hub-and-Spoke Model ”


  1. 1 Pawan Goyal Nov 15th, 2006 at 1:33 am

    The key driver for most MNCs in setting up opearations in India has been cost leverage and not talent leverage though most of them do pay lip service to talent leverage. As long as the driver remains cost leverage, I contend that no changes to the hub and spoke model are likely to happen.

  2. 2 Vijay Anand Nov 16th, 2006 at 4:37 pm

    It’s interesting to compare the structure and organizational models for MNCs operating captive R&D sites with the models they use for setting up field sales operations. In the large MNC, the field operation usually includes direct sales, support services, professional services, a education & research business unit that sells to the E&R market, public policy person who engages with government and other units. Usually, the head of sales is the most senior and often the Managing Director of the company’s subsidiary in India. These units often report directly into their chain of command, usually through their parent operation in Singapore or Hong Kong. Even with this silo’d model, the Sales Director often is able to wield a tight knit presence for the company — the common underpinning being the customer relationship and the revenue/profit goals for the country. He/she owns the geo.

    Now contrast this with the MNC R&D model. You again have teams within Silos often defined by the product/engineering business unit boundary. These teams are headed by fairly senior folks who have good trust linkages with their parent, often reporting into the US. Matrix organizational models are often prevalent. The business owner is often in the US. A range of products and services are worked upon, often with varying levels of competency, ownership and leadership. There is often very close supervision on tasks by HQ. And the results often are poor results in terms of productivity and value.

    So, what’s the difference? A few things come to mind:

    - Does the organization have a common goal and a common measure of success? Sales, services, support, edu all have a common goal — customer acquisition and satisfaction, revenue and profit goals, market share etc. You sell the customer a product, attach support and services to it, you seed the market and monetize it etc. The team across silos needs to work together to support the top relationship officer — the sales director. He/she’s the boss.

    - Compare the MNC R&D operation. It doesn’t always help that the head is an expat on a 2 year assignment and is unable to craft a long term success story. Customers (internal) vary depending on silos and there isn’t really a upsell/cross sell opportunity. Market share is interesting but who are you competing with — other emerging centers? And if so, over competition is frowned upon given you are hurting the customer (HQ) at this point. There often isn’t a clear investment model, a clear set of overarching goals to achieve and strong measurement/reviews at the top levels in the company, the way a geo sales operations is often reviewed. In short, there isn’t a common/binding set of goals or value proposition. The result is haphazardness.

    So, what is needed to make the MNC R&D model successful? All the basics in my opinion — a clear business plan for the presence, well defined measures, regular business reviews at the highest levels and a firm commitment to succeed from the leaders — I call all of this effective leadership and execution. Unfortunately, much of this is sorely missing at most of our MNC R&D operations.

    It will be interesting to develop the science of MNC R&D models in India (for that matter this would apply equally well elsewhere) and get consistency in terms of how we operate for success. I just see this now as an inexact science.

  3. 3 Pawan Goyal Nov 22nd, 2006 at 4:20 am

    Hi Vijay,

    Your analogy is interesting. The sales organizations are setup to impact the top-line, and, hence, have all the necessary support structure to make it successful. Most of MNC R&D centers have been setup to impact the bottom-line though there are some which have been setup to leverage talent and, hence, impact the top-line (I am happy that I am at one such MNC). If it is a top-line driven approach, then I believe the R&D center will receive the attention and support of the executives to make it succeed and it is worthwhile converting the art of managing them into science. However, if it is bottom-line driven approach, then there is little incentive for executives to set the organization structure right (cost reduction from 100 to 30 is interesting whereas 30 to 25 - which is what more attention/support from executives may get - is not); one can argue that hub-and-spoke or any other structure that does not lead to a hue-and-cry from the R&D center will work.

    In many MNC’s there is actually an asymmetry of perception - the executives view the center as driving the bottom-line whereas the India management team views it as impacting the top-line. This asymmetry leads to a chaotic and dysfunctional organization and is prevalent in many of the MNCs today.

    Pawan

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