September 6, 2017
Should MNCs Change Their Cultures to Survive in China?
What you can learn from this engineering multinational's culture journey
“Your products are over-engineered and too expensive.” “You should make simpler products.” “These new products don’t meet our specific needs.” This is just some of the customer feedback one multinational engineering company received from its Chinese customers. At the same time, local Chinese players have become more formidable competitors: They're faster, more nimble, more connected and reaching ever higher levels of quality. After reflecting on these various forces, the organization determined its culture played a key role in its future. Realizing that the business could soon be left behind if the company didn’t shift its culture, its leaders turned to Spencer Stuart to help evaluate the current culture of its China organization, define an ideal culture and articulate a plan for getting there.
For many organizations, culture can seem like a “soft” concept, but it has a tangible effect on the business. We define it as the manifestation of the shared values, beliefs and hidden assumptions that shape how work gets done and how people respond to one another and to marketplace developments. Essentially, culture represents the “unwritten rules” for how things really work.
As with different personalities, all cultures have their pros and cons. The question organizations need to consider is: “Is our culture a good fit for what we’re trying to achieve within the context of this specific market?” In China, the market has drastically changed, characterized by fast-developing technology, increasingly sophisticated customers, and unprecedented competition from local and global players. “We fear that if we don’t change our culture, we won’t adapt fast enough to changing market dynamics, we will become less and less relevant to the market, and ultimately, our business will decline,” said one of the engineering company’s senior executives.
Many multinationals operating in the region, including this engineering company, have organizational cultures that tend to be focused on "playing by the rules" and avoiding risk. According to the executives on our client's team, the organization is dedicated to quality and is engineering-driven, but is not as client-centric as it should be. It’s also internally focused when developing new products, i.e., building something simply because we can versus addressing a specific client need. In addition, the organization’s complex matrix structure and leadership hierarchy do not provide teams with the autonomy needed to react quickly to changes in the market. While culture change should address these challenges, leaders also want to preserve the organization’s strengths: global knowledge, engineering excellence and commitment to quality.
So what steps is this engineering company taking to shift its culture and what can other organizations learn from them?
- Define the current and target cultures clearly. There needs to be consensus on the state of the existing culture and what the desired culture looks like.
- Explain the “why,” not just the “what.” If the entire organization does not understand the purpose of the culture shift, meaningful change will be nearly impossible.
- Lead by example. The leadership team must also demonstrate the behaviors they hope to inspire; for example, giving decision-making power to the teams in order to drive more flexibility. If the employees don’t see the leaders changing, they will not buy into the culture transformation.
It’s important to note that changes in culture take time. The engineering company’s leaders recognize that the shift to a more nimble, flexible, customer-focused culture won’t happen overnight. But by committing to the culture journey, the organization is positioning itself for long-term success in both the Chinese and global markets.
Thomas Yu is a member of Spencer Stuart’s global Industrial Practice and has more than 20 years’ experience in general management, technology and operations leadership within the consumer, industrial and original equipment manufacturer sectors. Reach him via email and follow him on LinkedIn.
Richard Zhu is a member of Spencer Stuart's Industrial Practice, with a primary focus on the automotive and industrial services sectors. He also leads the firm's Supply Chain Practice in Asia, where he focuses on recruiting senior executives in manufacturing, procurement, logistics, shared services and integrated supply chain management roles across industries. Reach him via email and follow him on LinkedIn.