The distributed corporation

The online version of Strategy + Business magazine is running a new paper from C.K. Prahalad and Hrishi Bhattacharyya on the distributed corporation: Twenty Hubs and No HQ. They argue that the emerging new markets require a new form of corporate organization:

What if a company’s executives truly took seriously the new middle class emerging in so many countries? How would they organize their companies to provide products and services for those new consumers? They could start with the 20 countries in the world that best serve as gateways to nearby regions. Drawing on capital, talent, and resources from those gateway countries, companies would establish their own corporate hubs in each of them: offices with enough capabilities in marketing, manufacturing, and logistics to maintain a powerful presence in all the markets of that region. Companies would then integrate these hubs into a global network that distinguished their company from its competitors around the world.

This is, in there view, very different from the current model, which I would characterize as more a hub-and-spoke model. They also see it as an alternative to the decentralized model where each country subsidiary essentially acts independently in their own market.

Here is the core of the model:

Each hub would take primary responsibility for serving the gateway market, plus other markets in the regional footprint (often five to 10 other countries), all with local logistics expertise and cultural awareness that a faraway corporate staff could not provide. For example, the German hub might manage Switzerland, Austria, and Hungary; Brazil might support Argentina, Uruguay, Paraguay, Bolivia, and Chile; and Mexico might cover Colombia, Venezuela, Peru, and Ecuador. In the non-hub countries, there would be only a front-end organization for customer contact and service. Everything else would be handled through the hubs. For example, a hub might oversee 15 or 20 manufacturing locations — providing cost and scale advantages while retaining enough local autonomy to succeed in local markets. Some hubs, like that in India, might cover all aspects of corporate activity — marketing, manufacturing, research and development, logistics, and shared services — for a region, whereas other hubs, such as those in Turkey or Indonesia, might start with a customer-centric supply chain and gradually build capabilities in other functions. Hubs in the largest markets, such as the United States, Brazil, or China, might create their own regional brands. Mozambique and Kenya might receive products developed in South Africa, just as Austria and Denmark currently accept products developed in Germany.

I'm not sure that this is very different from the regional-based organizational structure I used to teach about in "Introduction to International Business." What appears to be different is the network approach - with no one global corporate headquarters. Unfortunately, they don't spend any time describing how the network would work -- other than to say how great it would be in creating a diverse top management team. To me, this network approach is the most important feature of the model.

Networking is clearly the best way to go in many cases -- and has been an emerging organizational form for some time. Management experts have been arguing for years that networks and alliances rather than acquisitions are a better way for companies to create value. These alliances, however, are usually built around competencies. The distributed corporation seems like a geographical alliance. It is an interesting idea, but I would like to hear more about how this would work in practice.