Information Systems Go Global

The rapid globalization of business creates significant challenges for managing information technology. To coordinate their international networks most effectively, multinational companies must establish systems that can efficiently coordinate a wide variety of business requirements and processes.

“Patterns in the Organization of Transnational Information Systems,” a study published in the February 2001 Information & Management, concludes that the most successful companies select the approach that fits most closely with their corporate strategy. “When there is a match between centralization and dispersal of the geographic business and similar arrangements for IT, the organization is doing better in terms of revenues and intangible factors such as customer satisfaction,” says Vikram Sethi, an associate professor of information and management sciences in the University of Texas at Arlington and a co-author of the study. “In the case of mismatches, they are creating dissatisfaction among system customers.”

To determine basic benchmarks for integrating information systems into corporate strategies for the study, Sethi began working with William R. King of the University of Pittsburgh's Joseph M. Katz Graduate School of Business in 1992. Over the next seven years, the two carried out an in-depth survey of the ways in which 150 companies, from 20 countries and 25 industries, organize their worldwide information systems. The CEOs of participating organizations, all of which had at least one international subsidiary, completed two questionnaires. The first, designed to evaluate corporations' multinational reach, focused on value-chain configuration and coordination, strategic alliances, centralization, and market integration. The second covered the companies' management of IT and information systems.

Matching IT to corporate culture may seem obvious, but IT strategists don't necessarily see it that way. “Some of these ideas in multinational management are so fundamental that you would expect them to trickle down, yet they often haven't,” Sethi says. “Coordinating information systems with corporate strategy is well established in theory — but not in practice. Some organizations simply do not have a global IS strategy. Some headquarters are not even aware of what their subsidiaries are doing with their information systems.”

According to the study, there are three main global IT strategies, each related to a specific type of multinational organization:

1. Low dispersal with high centralization is an approach used mostly by small companies that conduct business in relatively few countries. For them, the enterprise's domestic IS needs control much of the planning for international information systems. Japanese household-products maker Kao Corp., for example, conducts business in relatively few countries and supports its production bases using standard components for data and applications throughout its worldwide IT system.
2. High dispersion with low centralization is best suited for large, diverse conglomerates that let their wholly owned subsidiaries and joint ventures maintain their own strategic IT plans. One of the world's 100 largest banks, Australia and New Zealand Banking Group Limited, for example, offers services through branches and subsidiaries in several Asian countries in addition to its base in Australia and New Zealand. The company permits its local subsidiaries a significant amount of control over the development of their IT systems and strategies.
3. High dispersal with high centralization is the structure of choice for truly global companies that have strong strategic alliances with organizations in host countries. The approach includes both domestic and international IS plans and encourages communication among IT executives in the corporation and its subsidiaries. For example, when PPG Industries, a Pittsburgh manufacturer of glass, coatings and chemicals, made acquisitions and set up joint ventures overseas, the company spent a great deal of time designing compatible information systems to reflect both corporate philosophy and local circumstances. “Its IT systems in England differ from those in, say, South America and Asia, taking account of the local cultures and the local personnel available,” explains Sethi. He adds that the integrated system now provides rapid access to critical information worldwide.

All three strategies are valid. What is important is identifying the right one for a particular organization.“It's necessary for IT managers to determine what type of global organization they are in and to align the IT structure with it,” explains Sethi. “It's easy to say ‘We're a truly global organization,’ ” he says, but not all companies really fit that description. IT managers need to understand clearly how their organization rates in terms of size and corporate strategy in order to determine the proper IT structure.