Trading Internationally, are tomorrow's risks today's opportunities?

True North? Are we sailing in the right direction?

We love the world we live in! With tea from India, chocolate from Belgium and computers from the United States delighting us as consumers, what is not to love about our world? What is easy to overlook however is the incremental cost of such delights. Is the framework of globalisation as its delivery vehicle a viable true north for us to sail towards in business and indeed as a society? Whilst the benefits of globalisation has transformed the world we live in which is felt nearly everywhere we go, this does not answer the kernel question for the longer term; is our developed model of globalisation a true north to continuous and positive development in mankind’s march through time? If so, how do we wrestle with the enormity of trading internationally and what can we do to better reap the rewards for trading across international borders?

One thing is for sure, its not the first time we have tried it! John Maynard Keynes talked of globalisation when he lamented of how a gentleman in London could be sipping tea from India before August 1914. Keynes in the 1920’s went onto talk of internationalisation and how it did not prevent war complicating the ability of nations to be self-sufficient. After the Bretton Woods agreement (1944), of which Keynes was instrumental in its draft, the transformation from colonial globalism to modern economic globalism, as we know it was complete.

John Maynard Keynes
Source: Biographyonline.net

Globalisation 101 defines globalisation as “a process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade and investment and aided by information technology.” The more recent addition of highly impacting information technology has seeded a disruptor wave that is transforming the landscape, as we know it. For any person, small business or multinational, this brings great opportunities but only if one is astutely reading the global landscape and exercising information driven decision-making skills before venturing into international trade.

Thinking international trade, we often think big business, but if we are pursuing information and understanding, the resulting decision-making at any size or level will have increased efficacy leaving sustainable success as the likely outcome. In thinking about our “true north” in international trade, I believe we should consider the following elements as key in our organisational approach and management of our business in international trade.

Risk Management is key in gathering, quantifying, assessing, ranking and addressing risks, both positive and negative in relation to international trade. The focus on internal risk areas like company preparedness, supply chain length, financial risk, and organisational set up are as important as territory culture mapping, market demand analysis and risk assessments of any strategic entry into an international market. A business will never be successful if it cannot keep its promises to its customers and run its business in a solvent manner.

Geo-Political Risk should always be explored assessing impacting risks like the upheavals we have seen of late in many territories altering the trading landscape. The US/EU sanctions on Russia for its part in the chaos in the Ukraine is a good example why we should as international traders monitor geo-political risk and open up options in timely manner for remediation of identified risks.

Economic Risk is a reality for all businesses trading either directly or indirectly in the market place. After all, if your end customer cannot afford to buy your product, your business will not be successful. The macro economic indicators like GNP, GDP and Jobs Data are some good indicators of overall macro economic management of a country or territory. However, it's always advisable to dig a little deeper with activities like monitoring news outlets local to the territory to see what is ‘big news’ such as layoffs, potential strikes, new investments in business and local government infrastructure investments.

Currency/FX Risk is certainly an issue to consider if you are billing in local currency or have a treasury strategy that bill’s in a regional currency. Your investment in currency into your books through billing, FX purchases or complex financial products like forward contracts will bring loss and gain risks that your business needs to understand and integrate into its wider strategic plans for entry to the market place. For example, as the European Central Bank (ECB) is now considering minus interest rates on the already low ECB base rate, banks would be wise to reconsider their strategic plans and how they trade in the Eurozone given they could be subject to interest charges, not payments on the cash they bank on deposit. Another good example is the strict and sometimes volatile FX controls placed on foreign currency in China. Its impact merits consideration in any planning session involving the country.

Country/Trading Risk is another area to think about. How do you want to enter the market place? Are you sure of your demand side analysis? What are the pricing strategies for this market? Is it compatible with your supply chain and distribution model? Is indirect sales preference a temporary or permanent feature to be reviewed into the future? How will your branding be exposed and developed especially in an indirect sales model? What security will be required on the high-risk territories such as letters of credit, 3^rd party guarantees or more complex forms of security on trade? Will lengthening supply chains be an issue in the territory given its security and governance levels? Have you developed management plans addressing the identified risks from these posed questions?

Thinking about the main areas, the best way for entities big and small to start the process of collection, evaluation, ranking and output is to develop a risk register. Even on an excel spreadsheet, a risk register can be highly effective with the focus on risk classification (individual/group/aggregate risk), risk type (country/fx/internal/political/etc), risk grouping (link similar risks), risk weighting (what is the likelihood of it happening?), risk impact (the impact it will have on your business, financial and non financial). The other side of the risk register is the evaluated risk management response which should be acceptance (deal with it when it arises/reserve funds or resources for the eventually), mitigation (take steps to reduce the impact and/or risk weighting to acceptable levels), sharing (involve 3^rd parties whom can lower the level of risk you are exposed to) or rejection (risk is too high therefore you cannot proceed to exposure the company to that element/point).

This type of information driven approach will inform us of our ‘true north’ in trading internationally. The resulting outcomes will be based on a higher level of awareness and understanding, which can only herald greater success probability. So when trading internationally, I submit that if we all take greater care with our risk management approach, less will get trapped in the pitfalls and more success will befall those whom embrace information driven decision making and in enough numbers can alter the course and trajectory of our societies true north in international trade making it safer, more informed and less subject to humanities dark side that is as clandestine as it is plentiful for the international trader.

Organisational Flexibility, the rise of the Matrix Management Structure

Today's silo, tomorrows competitive edge!!..

I once asked about the profitability of a product when considering extra payment terms to indirect suppliers in a cross functional meeting, and the Marketing Manager looked at me like I had just killed his first born son! I thought I best not pursue the issue at the time for fear that I be accosted by twenty sword yielding ninjas on my way home making it an even fight!

Upon more serious reflection of such defensiveness and numerous subsequent articles on Matrix Management structures, I have reviewed the core vertical management structure/silo concept as established over time by classical management theory and wondered if a need for simple accountability has become an inhibitor to organisational flexibility in today’s increasingly dynamic marketplace?

Source: Vertex 42

http://www.vertex42.com/ExcelTemplates/organizational-chart.html

Considering this, it is not hard to see why others have sought a solution to this problem, which has arisen in recent years due to the rise in technology as an integrated platform operating in business. Matrix management’s rise has also being aided by globalisation and the integration of advanced marketing strategies into big data models identifying market threats and opportunities much earlier then has been in times past. The need for responsive change through project management has become the norm in industries like technology, construction and government agencies that have dealt with fast changing market places for some years prior to other industries.

Matrix Management Structures have arisen initially through these industries but as technology based disruptor's reach more and more markets, the need to be more flexible in today’s marketplace creates a competitive edge and can become a matter of survival if left too late to plan for and adopt organisational structures like the Matrix Management structure.  It makes vertical structures less ‘silo’ and more ‘contributor’ to common goals set by the senior leadership in a dynamic marketplace. Matrix’d management should be managed by a cadre of high calibre functional and programme managers working together to common objectives rather then at odds, which often arises when perceived centres of power are challenged by often well-intended colleagues trying to do their jobs as they perceive them.

It sounds simple right? Well when thinking about the ‘vertical management silo’ we think of the following:

• ·      Good accountability
• ·      Good downward communication of goals, objectives and tasks
• ·      Good visibility of ‘vertical silo’ activity

When we think of ‘matrix management structures’ we think of:

• ·      Good project charters and functional modus of operation
• ·      Flexibility to handle organisational and/or market change quickly
• ·      Close collaboration on a horizontal level with layered visibility from the top down

It is reasonable to think if we lay out our expectations, the organisational benefits would be directly responsible for a world-class organisation? If so, then why are so many struggling with the need for more organisational flexibility and the matrix management structure as a model? The reasons vary from organisation to organisation but I would offer the following points to consider when looking at one’s company in a matrix management model.

ü  People make or break organisations, the matrix management model is people centric, so consider the model in terms of talent management, corporate culture and how accepting functional managers are to the influence and responsibilities a project manager would have in any change initiative. Without awareness and acceptance by all parties, the matrix management structure becomes dysfunctional and ineffective over time.

ü  Ensure the whole organisation is on board, not just one silo or a group of silos. The sponsor of a matrix management structure needs to be at the very top and the follow through needs to be executed at the same level downwards to successfully re-orientate the vertical silos to the matrix management structure in a planned manner so everybody feels secure and accepts their organisational roles into the future.

ü  Ensure the programme/project management structures are appropriately positioned to effect change and improvement in support of, rather then in conflict with functional silos.

ü  Matrix Management structures offer flexibility but make accountability difficult in complex areas of the business. Make sure the accountability is executed collaboratively using technological means to secure progress and milestone metrics on project and functional areas of operation. The synergy of accountability means projects are managed clearly and collaboratively, as are functional areas. Change management from autocratic management can be difficult but it’s necessary if matrix management structures are to work effectively.

ü  Never consider matrix management structures as an end, but a means to a new modus of operation. The requirements need to be carefully considered against internal readiness, market place dynamics and the strategic plans for the future. Engaging matrix management structures against a narrow window of project management need only will prove problematic and subject to a very high fail risk.

The need to be focused on people in such an increasingly dynamic marketplace has never being so apparent since the 1980s when the last “big push” was on moving the landscape in business. This time, its faster, more dramatic and more impacting leaving those whom balance vision and flexibility with organisational dogma standing into the future. The key always has and always will be people. To quote Debra J. Devine “If we are going to live with our deepest differences then we must learn about one another”. In order to do that we must saddle collaborative leadership practice and culture with a customised matrix model transforming the way we live, work and interact with each other building sustainable business into the future.