The most admired companies are more global than ever. Here’s why.

February 19, 2015, 1:00 PM UTC

As highlighted in Hay Group’s recent book Leadership 2030, six powerful megatrends are transforming the global business environment as we know it: globalization 2.0, environmental crisis, technology convergence, individualism, digitization, and demographic change. These six megatrends are also fundamentally changing how people work and what they want from their employers.

Based on the survey* we conducted in connection with the 2015 World’s Most Admired Companies (WMAC) ranking, the megatrends and the challenges they present are very much on the minds of senior leaders in these organizations. Globalization, in particular, is at the forefront of business planning and strategies.

That’s because a new economic order is emerging, which we call “Globalization 2.0.” Power continues to shift to fast-developing markets in Asia – to India and China, in particular. In fact, the International Monetary Fund predicts that by 2050 only three of the top 10 world economies will be in the West – U.S., Germany and the U.K. To exploit opportunities, companies will need to increase local participation in strategic and operational decisions.

The labor market will also go global, with increasing cross-border competition for talent. And big collaboration will be key. Companies will need to put in place the cultures, platforms, and processes to make collaboration easier and equip people with the right skills to foster effective cooperation. Only 55% of employees worldwide currently give their organizations high marks for effective collaboration across departments and functions, based on Hay Group’s global employee opinion norms. Globalization 2.0 will take the collaboration challenge a step further, and based on this year’s survey scores, the WMACs are already planning ahead.

Globalization is seen to be a much more pressing issue by the WMACs than by peer organizations. Seventy-two percent of WMAC respondents report that globalization will have a “very important” or “important” impact on their organizations, as compared with 52% of peer company respondents. A key challenge will be “balancing domestic vs. global business opportunities and allocating resources effectively amid quickly changing consumer consumption behaviors,” according to one U.S. executive.

Sixty-one percent of WMAC respondents see globalization as one of the top three megatrends impacting their strategic workforce planning (i.e., the future composition of the workforce), versus 46% of peer company respondents. Likewise, 58% of WMAC respondents see globalization as one of the top three megatrends influencing their employee engagement strategies, versus 44% of peer company respondents. One European executive, for instance, points to enhanced opportunities in a global labor market to access motivated employees: “more employment will move to international locations in emerging markets, and also target immigrants with higher aspirations and work ethics.”

Who’s getting Globalization 2.0 right?One of the nine attributes of reputation on which companies are evaluated as part of the WMAC rankings is Effectiveness in Conducting Business Globally. These are the leaders in 2015:
1. Walt Disney
2. Nestlé
3. Apple
4. Caterpillar
5. Google
6. Nike
7. IBM
8. Toyota Motor
9. McDonald’s
10. Facebook

Fortunately, WMACs also feel considerably better prepared to respond to increasing globalization. Seventy-three percent of WMAC respondents report that a plan is either already being implemented or has been defined and agreed, as compared with just 46% of peer company respondents. Likewise, 86% of WMAC respondents indicate that leaders in their companies are currently effective in managing with a global perspective, versus 75% of peer company respondents. At the same time, WMACs don’t underestimate the challenges. As one U.S. executive cautions: “Change is happening at varying pace and with varying impact across the organization. Different leaders experience the impacts at different times. The biggest challenge is getting consensus and alignment around how things are changing and ultimately what the appropriate response is across all the various levels within the organization.”

The human capital priorities most frequently cited by WMAC respondents as “critical” or “very important” suggest that, in their view, leadership and talent will be a key to success. Getting the right talent in different markets to support growth is at the top of the agenda for 95% of respondents. To respond, one U.S. executive indicates a focus on “expanding our global operations, increasing our diversity efforts to include global issues, and working on cultural issues to attract and retain new talent.”

Also high on the list of human capital priorities is recruiting and/or developing leaders with the skills needed to be successful in the future (97% of respondents) and leadership succession planning (91% of respondents). Challenges WMACs are attempting to navigate include “dealing with talent shortages for leadership roles,” “developing next generation leadership benches,” and “helping Baby Boomer leaders adapt to rapid change.”

A weak labor market associated with the economic downturn may have held down turnover rates in many organizations. But it could be argued that we have been in the eye of a turnover storm. And the backside is coming – soon. After broadly flat levels in recent years, worldwide employee turnover is set to accelerate. Another recent Hay Group study predicts that by the end of 2018 almost a quarter of people worldwide will have changed jobs from the ones they currently have now. That’s some 192 million workers who will hand in their notice over the next four years. So it’s not surprising that retaining key talent is seen as a pressing human capital challenge by 93% of respondents.

To succeed amid Globalization 2.0, it won’t be enough to merely operate internationally. Instead, companies will need to be truly global in all that they do.

  • They will need to align business units and subsidiaries around a common strategic vision and corporate culture. Companies operating globally face significant challenges in coordinating far-flung operations. Procedural systems are essential. But global organizations are unlikely to be able to rely on them exclusively, given the complexity associated with diverse markets. Emphasizing consensus on a broader set of corporate objectives is a critical complement.
  • They will need to drive execution through performance management and compensation systems that promote global consistency and emphasize enterprise-wide as well as local objectives. Designing effective performance management systems in global companies can be particularly challenging, given the diverse and at times competing goals of managers across business units. The best approaches encourage managers to strike a balance between local objectives and larger enterprise-wide goals. Consistent approaches to performance management are critical for managing talent globally, to assess and place individuals in positions that work both for the company and their career growth.
  • They will need to manage talent actively to meet organizational needs and develop breadth of leadership perspective. Our research has repeatedly demonstrated that leaders in WMACs take a very “hands on” approach to developing talent. They devote a significant portion of their time to talent management and providing ongoing coaching to their people. And, as a result, leaders in WMACs report that they have a better understanding of the capabilities of managers at all levels and do a better job of matching individuals to jobs, based both on the required skills associated with various roles and the career objectives and motivations of their people. Given these findings, it is not surprising that they generally indicate that they have more effective mechanisms for identifying leadership talent on a global basis than their peers.

Once again, the World’s Most Admired Companies are ahead of the curve.

*Data were derived from a survey of 786 senior executives from companies that participated in the annual WMAC rankings. For the purposes of the study, WMACs are defined as those that rank among the Top 50 All Stars or rank within the top three of their industries.

Mel Stark is a vice president of Hay Group in the metro New York office. Mark Royal is a senior principal with Hay Group’s employee research division in Chicago. For more on the implications of megatrends for employee engagement strategies read The New Rules of Engagement.