For Multinationals, Processes Shouldn’t be One-Size-Fits-All

For Multinationals, Processes Shouldn’t be One-Size-Fits-All

With David Avison

From the paper: “Reconciling global and local needs: a canonical action research project to deal with workarounds” Published in Information Systems Journal, May 2015.

As global economic activity grows and shifts from Europe and North America to developing nations in Asia, Africa and Latin America, the business of managing global firms has become increasingly complex. Reliable information regarding global performance is critical for multinational firms, yet linguistic, organizational, cultural, and economic differences between local sites easily clouds a business-wide vision. 

Most large firms, for example, rely on Enterprise Resource Planning (ERP) software to collect, store and interpret information critical to their performance so business decisions can be data-driven. Within global firms, systems like these make key performance indicators relative to manufacturing, marketing, inventory and payments procedures available to head office, in real time. The catch is, for ERP to be effective, local teams need to use more or less the same procedures across the board - and attaining this kind of uniformity is easier said than done.

Our story focuses on the experiences of one large French Multinational  as it set up a subsidiary in China, where linguistic and cultural differences between head office and the local site were particularly acute. 

The company needed an overall view of its business, in particular financial aspects, and that included its Chinese subsidiaries. Yet the implementation of their ERP system was fraught with problems and on the verge of failure. There was major concern at headquarters that since the standard procedure were being by-passed, the global reporting and monitoring system was giving some misleading information. The implications of possible failure led to a change in management attitude: Even though the ERP rollout was deemed successful in European, American and African subsidiaries of the company, the possible failure of the system in Chinese subsidiaries jeopardized the whole global project.

Julien Malaurent was called to take a closer look at what procedures weren’t working and why - and ultimately spent 5 years working hands-on with local managers to identify and fix recurring problems.

The Experience of a French Multinational in China

In an ideal world, remote sites would use the same data sets, reports and business processes globally, through a single, worldwide information system, whatever the local specificities of each remote site. In the real world, however, this management control ‘dream’ is easily thrown off by even small and seemingly harmless local diversions from procedure. 

We call these diversions “workarounds”: user adaptations and improvisations that overcome anomalies and constraints preventing the system from being fully effective from the user’s point of view. In other words, rather than resist the imposed, rigid system by not using it, users were able to (unofficially) work-around aspects of the system which did not fit in with the local needs. From these Chinese users point of view, the ERP system was impeding proper execution of their local organizational activities.

Therefore, to identify sticking points in their ERP project, we were really looking at people factors – the users of the ERP system.

Obviously, linguistic factors were particularly apparent, as there was no Chinese version of programs at first, along with communication difficulties between the French head office and the Chinese subsidiary. For example, none of the French consultants had worked with Chinese people previously and the majority of the Chinese consultants had a poor level of English and did not have experience with Western companies.

Other difficulties that we saw concerned the limited employee involvement due to poor communications. Local employees did not feel involved in the project. They had the feeling that only top management (which means European expatriates in the main) was concerned with this project. Other cultural differences that made an impact concerned ‘attitudes’ and values related to control, management and communications. An obvious one that proved important here concerned ‘losing face’ as Chinese managers were criticized by Europeans in front of the ‘inferiors’.

Laws were also different at the various Chinese sites, yet the system assumed standard regulations. The implementation at that time might be described loosely as somewhat of a mess, naive and ever disrespectful to Chinese values, and seen as one of many failures of Western countries implementing information systems in China. It was not untypical of such efforts for global companies generally.

Overall, we found that Chinese employees were using three types of workarounds: data adjustments, procedural adjustments and parallel adjustments. 

Data adjustments

Data adjustments occur where users enter data into the system that do not reflect the coding system but that are seen as important for local use. To give one example, the headquarters-imposed system was requiring payment terms to be 30, 50 or 90 days following delivery, whereas the norm for these companies in China is a half-yearly payment of all invoices in that period made on a fixed date. Users believed that not conforming to the Chinese norms would lead to a loss of customers and they worked around this misfit by using an alternative payment code which was entered in a field not meant for this, thus ‘cheating’ the system.

Procedural adjustments

Other workarounds impacted procedural protocol. For example, Chinese professionals place a great deal of importance on the relationships they share with customers that can sometimes be the basis for friendships. Building what they call ‘Guanxi’ might include entertaining and gift giving that can border on what Westerners might think of as corruption.

Head Office imposed that expenses over a certain sum would trigger a management control procedure, while Chinese managers were regularly crossing this threshold entertaining clients. To avoid this procedure, sales staff would ask restaurants to give them multiple receipts each being below that threshold and thus working around the management restriction.  

Parallel adjustments

Sometimes, parallel systems are developed by local teams to deal with complexity - in this case, to handle Chinese value-added tax (VAT) specificities. Local taxes in China change frequently, can vary greatly and can relate to a specific industry and the Chinese authorities require detailed information (aimed at reducing fraud). The calculations are very complex and different to those of Europe for which the system was designed.

Chinese users worked around this by using spreadsheets outside the ERP system and loading the figures manually. This seemed to be the only viable solution at the time but it meant that there was no control of the calculation processes as these were outside the ERP system.

When to fix, formalize, or let a workaround slide

In all, 64 workaround were identified, including 35 data adjustments, 19 procedural adjustments and 9 parallel adjustments. The workarounds impacted ERP effectiveness, to varying degrees.

Some, of course, were ultimately deemed harmless: despite not conforming to company procedures, as it was clear that they did not affect the reliability of processes or data. The simplest solution was to leave these workarounds alone.

Others were seen as a hindrance: they affected the accuracy of the data but did not affect the business workflow critically. Take the expenses workaround mentioned above: the fix implemented by the team included additional controls and all expenses had to be justified and agreed by management. Tthis proved to be mutually acceptable compromise which prevented fraudulent activity whilst all reasonable expenses were accepted.

But others were indeed critical: they had a major impact on the organization. Take the example of China’s complex taxation system: in this case, the solution found was to formalize the workaround but make the processing transparent. This included a validation step and uploading the spreadsheet file into the ERP system, including the calculations.

Ultimately, the realization that this expensive holistic global project was at risk altered minds at headquarters from ‘all aspects of this company-standard ERP are sacrosanct’ to ‘there are some circumstances when local needs require some deviations from the standard’. This change in management attitude has extended to be one of ‘suggesting’ rather than ‘imposing’ standards. Yet these standards have been largely accepted due to the ‘new’ care in dealing with communications, taking account of local situations and rewarding staff for co-operation.

Takeaways for today’s multinationals 

Workarounds are a natural development from misfits: rather than be seen as arbitrary and deviant, workarounds can be good practice that enable cultural, linguistic, financial and legislative misfits to be recognized and resolved, at least in the short term, before more secure practices are put in place. Such misfits can be striking where large ERP systems are implemented globally, but we have shown that the taken-for-granted inflexibility be can worked around by users.

The implementation of global ERP systems by multinational organizations in China has a poor record and we have shown a more positive reaction to conflict where the alternative is resistance and failure. Global firms can and should motivate long-term, formal and positive change.

Communications matter! It is hardly new to point out the importance of good communications in information systems practice, but this case again stresses the point. The ‘take it or leave it’ attitude of headquarters in rolling out its ERP system in Chinese subsidiaries led to users ‘leaving it’. The consultants coming from headquarters did not stay in situ long enough and there were language difficulties as the only possible language was English which was neither a first language of Chinese users nor the French consultants. It was only the appointment of (largely self-appointed) champion key users that made a difference as they discussed possible ways of working around the limitations of the template in the Chinese environment. Discussion groups, the use of email and a newsletter also helped. 

But these workarounds – and their repercussions for a global understanding of the company’s financial status were not discovered by headquarters management until sometime later, again because of poor communications, when their negative impact became evident. Good communications formed a key element of the mission statement of the project team set up to resolve the workarounds: a communications campaign, oriented to facilitate the local Chinese procedures and build a work team spirit, was implemented, aimed at enabling users to follow the localized procedures that will be standardized. There was a will in both environments to resolve these problems. The team ensured that users were involved in the decisions relating to how to deal with the workarounds so that both headquarters and the Chinese users were comfortable with the system changes.

From the ESSEC Knowledge Magazine:

ESSEC Knowledge: Cutting-edge research – made practical 

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