During the Covid-19 pandemic, many organizations with an international presence discovered that their operations continued efficiently and effectively, despite an unanticipated and almost fully-fledged evacuation from the office. The digitalization of routine tasks and activities, such as information processing, communication with clients, and customer service intensified. And employees demonstrated a good degree of receptivity to the substitution of face-to-face daily interactions with online engagement. As a result, leaders of these international companies are rethinking their organizational models.
There are both opportunities and challenges of remote working at scale, however. Those organizations that can successfully navigate these benefits will likely enjoy a competitive edge. But this will require a shift in how organizations are designed. To better understand what this might look like, we drew on our combined experiences of leading and researching these organizations and a new collection of data. We interviewed 20 senior executives in different U.S. multinationals that represent household names across the world. The multinationals included a mix of young, high-growth organizations and well-established global giants. We covered natively digital firms and firms that are fast-tracking their digital transformation, as well as businesses with physical product offerings. We examined how leaders are thinking about their organizational models, including what challenges and opportunities they foresee and what models they are considering. The leaders’ assessment considered the needs of the business and their employees.
Our research signals how top leaders are thinking about their organizational structures going forward. It also provides four unique models for international organizations to consider, based on two new design principles.
Two Principles for International Organizations
We identified two new design principles to help you to identify the most suitable generic organizational model for remote working at scale.
Consider the task context of your organization’s core activities.
This will help you determine the balance between remote and office work. To examine task context, leaders assess the level of relational or transactional exchanges required between colleagues to perform reach task effectively and efficiently.
Tasks with relational exchanges encompass innovation, knowledge creation, and activities where the organization has nascent processes. These activities rely on moment-to-moment creative sparks as individuals engage in vivid and spontaneous interactions. Relational tasks are therefore best performed in the collocated setting of an office. A vice president of a fast-growing tech company emphasized that their organizational model must include sufficient relational exchanges to innovate and share knowledge, especially around the integration of new hires into the organization’s culture.
In contrast, tasks with transactional exchanges are routinized and proceduralized, and therefore suitable for digital interactions. These tasks can be performed efficiently by employees working independently and coordinating with others virtually. Examples our leaders spoke about included software development, call centers, inside sales, and many support functions. One vice president mentioned that by capitalizing on remote working for such tasks, his company estimates that about one-third of its office footprint can be reduced — a major cost saving.
Of course, many activities encompass both relational and transactional exchanges. So it’s critical to examine the proportion of each, as well as interconnections between tasks that require relational exchanges and the value of the physical office for offering a space for socialization to embed an organization’s culture. Most leaders of tech firms with strong organizational cultures emphasized that their remote working policies will include expectations for a certain presence in the office. This makes it essential that employees live within a reasonable commuting distance. In any case, depending on the balance needed, a hybrid model is still possible in either an office-centric (work in office > remote work) or virtual-centric (remote work > work in office) manner.
Evaluate the competitive importance of having employees in international markets.
Most of our leaders mentioned a global “war for talent,” and noted that remote working gives their organizations an unprecedented level of flexibility to access employees. This may include finding rare, specialized skillsets or generic skillsets at lower costs. It may also involve the acquisition of a company (for technology or market share) where key talent can be retained. Moreover, it may be in the organization’s interest to create a new hub where there is a recognized cluster of talent focused on a particular sector.
Of course, having employees in a larger number of countries increases costs and creates complexity. One leader that we spoke to was particularly alert to the greater administrative burden when employees are based in several countries due to disparate employment and taxation laws. She warned that this is an often underestimated cost factor as organizations follow talent in multiple locations.
The required degree of presence in international markets will also vary depending on the nature of the company’s offering. Offerings that can be marketed, delivered, and supported electronically with global brand recognition (such as software applications) lend themselves to centralized operations with little geographical dispersion. On the other hand, physical products that are expensive or difficult to distribute, like building materials or perishable foods, will require some level of physical presence in every country market, even if marketed and sold electronically.
Drawing together these two considerations, firms can choose between having employees in some countries (low internationalization) or many countries (high internationalization).
4 Models for International Organizations
Bringing together an organization’s task context and its degree of internationalization, we distilled four generic organizational models for international companies. To illustrate each, we searched for exemplar businesses that was already bold enough to experiment with each of the models. Moreover, each model illustrates what our interviewed leaders sketched when speaking to us, and reflects their views on how the accelerated adoption of remote working is opening their range of potential organizational models.
Large Hubs (low internationalization, relational task context)
This model is office-centric, as employees must work closely together to deliver on specialized, knowledge-intensive, or creative activities. The organization is structured tightly in a few countries with large hubs where employees are collocated to trigger ideas and innovation, perhaps benefitting from knowledge clusters or centers of excellence. Some remote working is permitted, but only in close proximity to the hubs. There is an expectation of frequent collaboration through the physical presence in the office.
For example, highly knowledge-intensive international professional service firms, such as architectural firms, might co-locate all their engineering, drawing, and design development in hubs across each major location. Our leaders indicate a more open approach to the adoption of this model beyond highly knowledge-intensive creative organizations as well. For example, the IT director of a global automobile leader described how new systems development for their firm is no longer centralized, but moving towards large, regional software and product development hubs.
Hubs and Satellites (high internationalization, relational task context)
This model is also office-centric, relying largely on key hubs around the world, but with satellite operations to take advantage of smaller clusters of knowledge workers or regional specialities. For example, leaders we interviewed from professional service firms use satellite offices to respond to local needs by combining local expertise with global perspectives.
Adopted to access innovation in more sophisticated markets for sharing across the group, this organizational model allows international organizations to benefit from collaboration and the cross-sharing of ideas. A vice president of a leading online advertising operation spoke of how the organization is moving to from a large hubs model to adding international satellites around the world to facilitate access to regional talent pools. This model is predicated on the belief that most interactions are best done face to face, and it facilitates this by providing a large network of offices, both in major hubs and smaller satellites, within easy commuting distance for all employees.
Distributed (low internationalization, transactional task context)
In this model, most tasks are high volume and routine, and hence easily digitalized. Therefore, the organization lends itself to distribution. Work is located based on the availability and cost of talent. Typically, this will extend to a small number of countries, but not beyond that. If necessary, wider markets for the company’s products can be accessed without requiring a presence there.
For example, Aha!, the software company behind Roadmap.com, the world’s fastest growing online community for product and company builders, was founded without an office. All its employees are distributed across the U.S. and a few other international locations. Seeing the benefits of such an organizational model also for established firms, the vice president of a highly routinized pharmaceutical firm identified this as an option, particularly as drugs move off patent and less innovative activities are required.
Global Virtual (high internationalization, transactional task context)
This virtual organization model allows talent to be accessed worldwide. Rather than being driven by a search for specific talent or favorable labor costs, this model works well for companies whose business requires them to have a global presence, but can still be successful with a small number of employees per country. The billion dollar startup, Automattic, for example, has more than 1,300 employees in 79 countries speaking 99 different languages. In this model, employees in many countries work together as a global but virtual organization, engaging across geographical boundaries and generally choosing their own work locations. To create deeper bonds, they meet up once a year. Given all of this, physical offices would have little value.
Organizations adopting this model may also be on the leading edge of making some relational tasks virtual, applying technology and new work practices creatively to cover tasks that would normally require physical colocation. Several of our leaders were enthusiastic about such an approach, embracing the flexibility and adaptability this design offers. However, they also recognized that their organizations may yet be some distance away from this model. It is today’s start-ups and scale-ups, like Automattic, that will act as exemplars to others in this category.
Leaders must choose the appropriate model for their organization to capitalize on the opportunities that internationally distributed remote work has to offer. We propose that the models introduced in this article will become mainstream as they are adopted by both established businesses and start-ups. To prepare for the future, which is best for your business?