Organising to Address Global Customers

By Noel Capon, Mark Heil, Gus Maikish

As globalisation increases, corporations around the world seek better ways to address their global customers. The geographic-area model that served firms so well when customers confined their operations to individual countries is inadequate for customers that operate globally. In this article, we present four alternative approaches to develop organisation structures that enable companies to better implement global strategies.

Consider the following dilemma, based on a real occurrence:

As part of its European operations, a major U.S. corporation, Firm A, operates wholly owned subsidiaries in, among other countries, both Germany and France. All country managers are expected to meet or exceed aggressive P&L targets. Recently, the German subsidiary has been successful in selling several expensive machines to an important customer, Firm B, for its production operations. These machines have been delivered and successfully installed, and Firm A’s German subsidiary has booked the revenues. As part of the contract, Firm A’s German subsidiary management has agreed to provide Firm B with ongoing service for the next five years.

One year after machine installation, following a production rationalisation exercise, Firm B decides to transfer the machines to its French factory, just a few miles across the border from its German location. Firm B requests reinstallation assistance and ongoing service, as previously agreed with Firm A’s German subsidiary. For a variety of reasons, not the least of which is lack of language skills, Firm A’s French subsidiary would have to provide needed services. The French country manager refuses to provide the needed services. When asked to explain his decision, he states:
“I have the solemn responsibility to maximise profits in France, for the benefit of the company and its shareholders. If I take on reinstallation and ongoing service for Firm B’s machines, my expenses will increase significantly, and profits will fall. Furthermore, service is a core strength in France, but I run a very tight ship on service personnel; I would have to hire more people and get them up to speed. My German colleagues have suggested they would transfer funds to France, but we have very different ideas on these amounts. They have also raised the possibility that their service personnel would continue to service Firm B in France, but that would violate territorial boundaries, not to speak of language difficulties and a host of other problems.
“Frankly, I do not approve of the service arrangement with Firm B. In order to make the original sale, my German colleagues gave away the farm on servicing the machines. The contract is very open-ended, including significant liability for parts. My French organisation is being asked to assume a major cost drain. It would be one thing if we had sold the machines and received the revenues in France, but all revenues went to Germany. I’m not going to do it. I can’t risk the viability of the French subsidiary, and our ability to serve the corporation.”

In such a situation, the European vice president would have to intervene, so that service to an important European customer, Firm B, did not atrophy, with serious consequences for long-run revenues.

This illustration is just a single incident, but as firms increasingly operate outside their home countries, inter-country incidents like this have grown substantially. Furthermore, in this illustration, both countries – France and Germany – are the responsibility of the European VP. But had the countries been Portugal and Brazil, or the Netherlands and Indonesia, any resolution between country managements would have been intercontinental, and far more difficult.

It is axiomatic in management circles that structure follows strategy. The firm contemplates its environment, formulates objectives, then develops strategy by securing and allocating resources in pursuit of those objectives. The firm constructs an organisation structure that allows strategy implementation.

Background

Following the Second World War, U.S. firms developed aggressive revenue-growth objectives and related strategies for entering foreign markets.¹ They faced the challenge of constructing organisation structures to support these efforts. The academic leader in understanding these efforts was Harvard Business School professor Raymond Vernon.²

Vernon described an organisation progression from export department to international division, to either a product-division or geographic-area framework. In business-to-business (B2B) markets, the geographic-area structure (GAS) was the most popular. This approach proved highly successful in allowing U.S. (and European) firms to make significant progress in penetrating foreign markets.

In geographic-area structures, the firm typically divides the world into several areas/regions. For a U.S. firm, a typical structure comprises four components: North America; Latin America (including Mexico); Europe, Middle East, and Africa (EMEA); and Asia. Other firms employ somewhat finer-grained approaches; for example, Tetra Pak, the European packaging firm, employs a structure comprising nine geographic areas.

Country managers are responsible for objectives, strategy, and implementation for their countries, including meeting P&L targets. Country managers direct multifunctional teams. Revenue responsibility is universal; sometimes country managers also direct operations/manufacturing. They may also import products from sister geographies, often by means of complex transfer-pricing mechanisms. In some corporations, country managers report to powerful regional vice presidents (RVPs). In other firms, as a holdover from an international-division structure, the RVP role may be largely ceremonial; country managers effectively report into corporate. Regardless, this organisational form drives local performance attainment in specific countries; it discourages cooperation across countries.

The poster child for the geographic-area organisation was IBM. As IBM launched its groundbreaking System 360 (and later System 370) mainframe computers, it expanded globally via individual country subsidiaries in each major country it entered: IBM France, IBM Italy, and so forth. These subsidiaries operated semi-independently and were, in many ways, just smaller clones of the parent organisation. The wholly owned geographic subsidiary approach, under the IBM World Trade umbrella, was very successful in allowing IBM to penetrate foreign markets, globally.

As many firms have sought to grow foreign revenues, and the world has grown increasingly flat,³ the GAS has proven very successful and highly durable. U.S., European, and Asian companies alike have gravitated to this organisation structure. This geographic framework is a fine way to organise when individual customers operate within their home countries, and do not venture abroad. Problems arise when customers operate in multiple countries, and cross-border interactions are frequent.

Indeed, a half-century after Vernon’s groundbreaking work, corporations that seek revenues in many country markets around the world are discovering that the GAS, once so effective in addressing global markets, no longer functions effectively and efficiently. A combination of successful international activity by customers and environment change, has led to strategic evolution that requires a serious rethinking of this organisational approach.
That is the situation faced by Firm A in the opening vignette.

Managing Global Customers

The problems raised by the vignette have vastly increased during the past quarter-century. Suppliers seeking revenues from their products globally have discovered that individual customers do not operate in just one, or even a few, geographically proximate countries. Rather, they have bases in many countries around the world.

Global customers want to be treated similarly in the various countries where they operate. They want to be able to access similar (if not identical) products worldwide; in some industries – high tech, for example – global compatibility is the key requirement. Customers want similar levels of service and consistency in contractual terminology. They want the same (or at least similar) prices in their different country locations. In cases where prices are different country by country, they want to understand why. Typically, explanations based on cost differentials are acceptable; explanations based on local competitive activity or the exercise of monopoly power are not.

As regards procurement, customers may be fully decentralised; each country organisation makes its own decisions. Or they may centralise many purchases in a single location. If a customer operates globally, yet with a decentralised procurement operation, there is little value for a supplier in treating this customer in a global manner. Far better to address such customers via a classic multi-country geographic structure.

Regardless, many firms have moved, and continue to move, to centralised global procurement. Centralisation offers significant advantages: focused procurement expertise, the opportunity to access the best suppliers globally, standardisation, discounts on bulk purchases. Many global firms are adopting this approach, at least for some categories of spend. For this reason, an approach to customers that relies solely on salespeople/account managers reporting through a single country organisation is no longer sufficient or appropriate.

As one way to address this evolving customer environment, suppliers have evolved their sales efforts via the appointment of global account managers (GAMs). Frequently, for a firm’s most important global customers, suppliers appoint individual GAMs to focus exclusively on a single customer; an individual GAM may also assume responsibility for several smaller customers. The critical organisation-structure decision concerns GAM reporting relationships, and their degree of responsibility/authority for the entire supplier-customer relationship.

The opening vignette illustrated the deficiencies of the traditional GAS in addressing global customers. The critical challenge is to construct an organisation structure that allows the firm to grow revenues from its global customers. Solving this challenge is critical as, for most firms, global customers are the “20” in the 80:20 rule that describes most firms’ revenue distributions. To state this fact somewhat differently: global customers are frequently the firm’s most important, most strategic, and largest customers.

Essentially, there are four approaches: GAM-integrated geographic-area organisation; market-integrated global account organisation; global-customer division.

Each of these approaches has, at least theoretically, one major benefit frequently sought by customers: a single point of contact. In addition to the supplier’s various country organisations managing local geographically focused interfaces with customers, the supplier assigns to a single GAM responsibility for managing the overall, global supplier-customer relationship. Hence, customers now have not only a single point of contact, but also a clear escalation route for addressing issues that cannot be solved locally.

Across the four organisational options, the nature of the relationship between the GAM and the local salesperson/account manager varies markedly. In some situations, the local salesperson/account manager reports directly, solid-line, to the GAM. In other cases, the relationship is a formal dotted line; the local salesperson/account manager reports solid-line into the country organisation. In the weakest form of GAM-local relationship, the salesperson/account manager reports solid-line into the country organisation, and a formal relationship with the GAM is totally absent. Lacking direct authority, the GAM’s only option is to manage without authority.

Organisational Approaches for Managing Global Customers

We now discuss four organisational approaches to address global customers, each with its pros and cons.

GAM-Integrated Geographic-Area Organisation (GIGAO)

Global firms often adopt the GIGAO approach to address global customers when they realise that the traditional geographic-area organisation is inadequate to implement their global strategies, as in the opening vignette. The impetus to introduce this organisational approach typically derives from some combination of the firm’s desire to focus sales responsibility in a single location, and customer requests for a single point of contact.

In the prototypical arrangement, the supplier’s local account manager in the customer’s home country, frequently the greatest revenue source, assumes global customer responsibility. Overnight, the local account manager’s responsibility shifts from local to global, as their title shifts to global account manager (GAM). Typically, the firm reinforces the new GAM role by enhancing sales quota requirements from local – individual-country-based – to global.

Along with the two customer benefits noted previously – focused attention via GAM appointment and single point of contact – this organisational form has one significant advantage over the other three approaches described below: organisational continuity. The geographic-area organisation remains intact. Country managers and regional VPs maintain their fields of authority and responsibility. Top management does not have to deal with discontent in the ranks caused by organisational change.

Notwithstanding this non-trivial advantage, GAM integration into the traditional geographic organisation has several disadvantages. First and foremost is skill deficiency in newly appointed GAMs. Managing an important customer domestically requires one set of skills; the skill requirements to manage an important customer globally are quite different, and more extensive. To a certain extent, training and coaching can address this issue, but specific recruiting for GAM positions (internal or external) may be necessary.

A second area of difficulty concerns job requirements and the ability to secure resources to be successful. Concerning GAMs, not only must they develop and maintain good relationships at customer headquarters, they must also direct and manage local salespeople in those countries where the customer does business. But these GAMs, typically, have no formal authority to execute this task. Indeed, the strong advantage of organisational continuity militates against GAMs. With no line authority over geographically based colleagues, it’s very difficult to establish a consistent approach to a single customer around the world. The GAM requires significant skill to manage without authority. Indeed, because local salespeople report through their country organisations, GAMs may find it difficult to accomplish needed tasks, particularly if they are untrained.

An especially serious issue is pricing. Regional VPs/country managers typically set prices in their own areas of geographic responsibility. Frequently, coordination among countries/regions in setting prices is minimal. Customers wonder why prices for similar products differ from country to country (region to region) for no apparent reason! Faced with this problem, in the absence of formal line authority, the GAM has immense difficulties in developing coherent price schedules globally.

Implementation of the GIGAO structure causes country managers a serious problem in securing and allocating resources. By assigning global responsibilities to previously domestically focused account managers, in the extant geographic-area organisation, country managers lose a portion of their top account managers’ time and effort. In addition to focusing on their core customer(s) domestically, GAMs have global responsibilities. In particular, a GAM may believe that travel abroad to work with local salespeople in other geographies is important in order to better serve the customer. Regardless of the value of such travel, hopefully to assist in increasing revenues, the GAM’s country manager will not benefit; revenues will increase in other countries! To rub salt into the wound, the GAM’s trip expenses must be paid by the home country organisation. If the country manager refuses to pay, the trip does not occur, and potential revenues for the firm are foregone.

A related issue concerns the quality of local salespeople/account managers assigned to work locally with foreign-based global customers. Charged with maximising profits in their specific geographic areas, country managers most likely assign their best people to direct and manage their major domestic customers. The local operations of major global customers may not be served by the most competent local employees.

There are, of course, ways to ameliorate some of these problems. First, the firm can run two sets of books for each country. One set includes only real revenues. The second set includes duplicated revenues (“dupes”). Revenues earned from the GAM’s customer abroad are duped to the GAM’s home country. From the perspective of the country manager, this arrangement justifies allowing and funding foreign travel.

The firm may also address expenses for foreign travel by setting up a separate budget for all GAMs, managed by a GAM programme office. This office may also attempt to address the sorts of inter-country issues highlighted in the opening vignette. The seriousness with which the firm addresses global accounts may be judged by the organisational level of the programme office’s director.

Although duped-revenue systems and expense offsets may ameliorate structural problems with the GAM-integrated geographic-area organisation, the critical measure for the GAM’s boss is in-country revenues and profits. Notwithstanding corporate stock and stock-option awards to country heads, designed to reward behaviour that improves overall corporate performance, the core task of these executives is to hit their in-country numbers. In most firms, failure to succeed in this regard is not mitigated by superb global performance of directly reporting GAMs.

In some corporations, the CEO chairs a committee of regional VPs. This committee serves as a means of keeping top corporate officers up to date with company fortunes globally, and as a means of sharing best practice. At firms that have seriously committed to managing global accounts, by appointing a senior executive as head of the programme office, this person sits on the committee as a full member. In this manner, regional VPs face subtle pressure to cooperate with the global programme.

Another organisational approach to facilitate the GIGAO structure is to introduce two new organisational positions: regional account manager (RAM) and headquarters account manager (HAM). The purpose of the RAM is to support GAMs by providing a global counterweight to the dominant country-level geographic organisational focus and help resolve inter-country issues.

The HAM has a quite different focus. Situated at corporate, the HAM provides GAMs with information about company-wide issues that would not otherwise reach GAMs though the GAS. The HAM may be located in the global programme office.

The GAM-integrated geographic-area organisation has the feel of inserting a square peg into a round hole, but with the ability to sand the peg down for a better fit. As noted earlier, the geographic-area organisation is designed to separate country-level organisational units geographically. Yet the fundamental requirement of global customer management is to integrate efforts across geographies. GAM integration is possible with the GIGAO approach but, arguably, other approaches deserve serious consideration.

Market-Integrated Global Account Organisation (MIGAO)

This MIGAO form addresses the core problem with the GIGAO approach head-on. The firm downgrades its country-level geographic focus by reducing the responsibility and authority of country managers. The basic approach is for the firm to select a limited number of important global customers to place in a newly formed market-integrated global account organisation. The firm serves these customers with a group of specifically selected GAMs, recruited internally and/or externally, to direct and manage relationships with global customers. Frequently, newly selected GAMs undergo specific training for these roles. Indeed, some firms construct GAM certification programmes.⁴

Typically, each GAM assumes responsibility for a single global customer, but an individual GAM may also direct activities at several smaller global accounts. These GAMs report directly, solid-line, to a head of global accounts. If the firm serves customers in multiple industries, GAMs may be grouped into industry sectors, with or without large domestic customers.

The GAM directs and manages regionally and country-based personnel around the world. Country-based managers direct and manage local salespeople/account managers responsible for day-to-day customer contact. Typically, local personnel report solid-line into their country organisations, but dotted-line to the GAM’s regional managers. Regional managers typically report solid-line to the GAM, dotted-line to the region. Typically, the solid-line/dotted-line decision is made by the GAM. Notwithstanding the benefits of solid-line reporting relationships, some GAMs prefer dotted-line to solid-line relationships. They believe dotted-line relationships are preferable for securing access to local resources, and to enhance the career prospects for regionally and locally based personnel.

The market-integrated global account organisation solves the problem of inconsistent pricing in different geographic areas for a single customer. In advanced programmes, GAMs have pricing authority globally. For various reasons, a GAM may depart from totally standardised prices in all geographies but, nonetheless, make pricing decisions from a global standpoint. The GAM has the authority to ensure that these prices are implemented. Even if pricing authority is maintained within product divisions, GAMs ensure that the firm takes a global perspective across the geographic landscape of their customers.

This organisational form also avoids the problem of insufficient selling effort at the local level around the world. But it does not avoid a similar challenge for service delivery. Service should be provided by local country organisations; after all, these organisations receive revenue credit for sales to global customers in their geographic areas of responsibility. If global customers are insufficiently well treated locally, GAMs may have to escalate serious problems, possibly via an executive sponsor programme.

This MIGAO approach gains significant teeth from quota arrangements. The global account programme head and each GAM must deliver on serious quotas. One-year revenue quotas are ubiquitous, but profit quotas and long-term (three-year) quotas – to emphasise investment in customers – are not unusual. Typically, each GAM partitions the global total among geographic and/or product-focused team members. To ensure equitable quota management, revenues earned locally from global customers in different geographic areas are typically duplicated to GAMs.

As noted above, in advanced programmes, to enhance their ability to be highly customer-responsive, GAMs are given pricing authority. Accordingly, senior management must fully comprehend the importance and difficulty of the GAM position. GAMs are responsible for generating long-term revenues from the firm’s most important global customers. Successful GAMs should be well rewarded, not just by salary and commissions, but also by stock awards and stock options. Their success drives shareholder value; they should participate in those value increases. Furthermore, the GAM job is difficult. Customers speak different languages and live in different time zones. And if the firm’s product causes a customer problem, that issue must be addressed, no matter where or when it occurs.

In directing this type of global customer-management programme, the firm faces a difficult dilemma regarding GAM time in position. Long-term productive relationships between the GAM and key customer executives are crucial to long-term success. This reality argues for long-term customer assignments for GAM appointees. On the other hand, some successful GAMs may have career aspirations beyond their GAM positions. Senior management must carefully balance the best interests of the GAM programme with the career goals of its critical members – GAMs.

Global-Customer Division (GCD)

The global-customer division was pioneered by Cisco as the Global Enterprise Theatre (GET). Faced with a changing global environment, Cisco developed GET from a pilot programme – Segment One. Initially, Cisco selected a group of five of its most important US-based customers with which it had strong relationships; hence, mistakes would be tolerated. Cisco assigned account directors to each Segment One customer and gave them the responsibility for speaking for Cisco globally. The Segment One goal was to better align to, and advocate for, the customer within Cisco. Cisco provided account directors with flexibility in resource allocation, cross-functional leadership, accountability, and final-decision-making authority. To make Segment One work effectively, Cisco carefully selected account directors, strongly branded the programme within Cisco, and involved senior leadership in customer relationship-building.

Within Cisco, Segment One was viewed as a significant success. Customer alignment improved, joint marketing programmes expanded, wallet share grew, and customer satisfaction scores increased. Client directors were able to present a single Cisco face to the customer, by masking the complexities and inefficiencies within the Cisco organisation.

Having successfully designed and implemented Segment One, Cisco’s challenge was to build on its success. Cisco’s goal was to develop a critical mass of major customers that would benefit from the new approach. In doing so, Cisco would modify internal systems and processes to better serve major customers and achieve enhanced resource allocation. To achieve these goals, and protect the initiative from unhelpful systems and processes, Cisco set up the Global Enterprise Theatre (GET).

GET comprised 27 major customers, headquartered in the US, Europe, and Asia, based on global Cisco revenues and closeness of inter-firm relationships. Cisco essentially sidestepped the geography problem by placing its global accounts in a totally separate organisation. Previously, Cisco operated a conventional three-region GAS to manage its global business: Americas; Europe, Mid-East, and Africa (EMEA); and Asia. Cisco simply added a fourth region: GET. To form GET, the 27 global customers were simply transferred from their existing geographic regions into GET.

The introduction of GET followed a previous organisational innovation by Cisco as it developed a strategy to enhance its global presence in developing countries. In the early 2000s, Cisco modified its organisational approach by removing 140 countries from its traditional GAS to form, and place in, a single Developing Country organisation. Several years later, following successful penetration of many less-developed country markets, Cisco closed this organisation down, and folded the countries back into their traditional geographic regions.

In the market-integrated global account organisation (MIGAO), local salespeople/account managers mostly report solid-line through country management, and dotted-line to GAMs. By contrast, in the GET programme, in countries where Cisco earned substantial revenues, such local employees were part of GET. In smaller-revenue-generating countries, GET worked out sharing arrangements with local country management. Furthermore, in addition to local salespeople/account managers, locally based service personnel also worked for GET.

The GET programme avoided the geographic problem without directly impacting the authority/responsibility of country managers. Some country managers were completely unscathed by the introduction of GET. Others were affected indirectly; they lost responsibility for (and revenue contributions from) those customers transferred into GET. These transfers significantly impacted some countries, notably the US, which lost several customers, more than others.

At Cisco, the GET programme was viewed as highly successful. Customer satisfaction continued to improve and wallet share increased.

Country Global Enterprise Model (CGEM)

Cisco’s next challenge was to find a way to extend the benefits from GET to increased numbers of global, yet smaller, customers. The core dilemma was that the increased transfer of additional customers to the GET programme would weaken already denuded regional/country organisations that had already lost large customers in setting up GET. Furthermore, within Cisco, some geographically based managers resented resource allocations to GET; a sense of “haves” and “have nots” was developing. All the while, customer expectations were rising.

Cisco’s response was to transition GET into a new country global enterprise model (CGEM) programme. Essentially, Cisco closed GET and folded its entire global operation back into its three geographic regions (headquarters): Americas (New York), Asia (Singapore), and EMEA (London). However, Cisco placed 134 customers in its new CGEM (Americas – 64, EMEA – 47, Asia – 23) – a significant increase from the original 27 GET customers.⁵

Critically, Cisco maintained and expanded the GET infrastructure around the world for both sales and service functions. Hence, for an Americas-based customer, both the GAM and local sales and service personnel reported directly into the Americas region, not to the local regional (or country) organisation in which their responsibilities lay. Accordingly, in addition to managing operations in the Americas, the Americas RVP also manages operations for Americas-headquartered customers in Asia and EMEA. Similarly, Asia and EMEA RVPs direct their own global operations in, respectively, the Americas and EMEA, and the Americas and Asia, for major global customers headquartered in their regions. Accounting systems permit P&L measurement for individual customers, and hence for the CGEM in its entirety. This structure remains in place today. Client response regarding the CGEM is overwhelmingly positive.

Cisco continues to evolve its global coverage model to strike a balance between exceeding customer expectations and directing an efficient sales and service expense model. A local salesperson who calls on CGEM customers in one or more countries around the world reports through the CGEM organisation via the GAM(s) to a VP for Premier customers, and ultimately to the RVP – Americas, Asia, EMEA. In smaller countries, where revenues are insufficient to justify a whole salesperson, the CGEM organisation develops sharing arrangements, one geographic CGEM organisation with another – similarly for service.

This article was originally published on 02 October 2022.

About the Authors

Noel Capon is RC Professor of International Marketing, Columbia Business School, New York. Professor Capon is well known as a key/strategic global account management expert, and is the author of several influential books. Capon serves as Strategic Account Management Association (SAMA) board member, and is founder and chair of Wessex Press. He is also Honorary Dean Marketing, Innovation College, Beijing.

Mark Heil is the Vice President of Global Enterprise Sales, Premier Area. Mark and his team are responsible for the overall relationship with several of Cisco’s largest global customers that are headquartered throughout the United States. His team drives account strategy, customer satisfaction, and business alignment with these clients. Mark’s ability to align a client’s business objectives with Cisco’s transformational solutions has been a key to his success. He has an excellent reputation for accelerating revenue generation and exceeding customer expectations. His passion is supporting and mentoring sales teams, inspiring them to think big and bold.

Gus Maikish worked as a Strategic Account Manager at IBM for 37 years. His last position was Managing Director with responsibility for the global relationship with Citigroup. Since retirement, he has worked on projects with the Insight Group, been a guest lecturer and served as an Adjunct Professor at the Lubin School of Business in New York City.

References

1. See, for example, Jean-Jacques Servan-Schrieber, The American Challenge, New York: Scribner, 1968.
2. Raymond Vernon and Louis T. Wells, Jr., Manager in the International Economy (4th ed.), Engelwood Cliffs, NJ: Prentice Hall, 1981.
3. Thomas L. Friedman, The World Is Flat: A Brief History of the 21st Century, New York, Macmillan, 2005.
4. Noel Capon and Gus Maikish, Customers Win, Suppliers Win: Lessons from One of IBM’s Most Successful Strategic Account Managers, New York: Wessex, 2022.
5. Cisco classifies customers by type – Enterprise, Commercial, Service Providers (sell to and sell through); and by size – Premier, Key, Major accounts. Most (but not all) Premier accounts are in CGEM.