Global Strategic Management

1. Global Strategic Management Session: Bain & Co. Globalizing Service Businesses

2. International expansion poses a key problem for professional service firms: how to maintain a “one firm” culture which is key to high quality service products. Professional service firms often have a tradeoff to make regarding international expansion: “follow the client” strategy versus investment (local client) strategy. International service firms have a number of dilemmas to resolve: 1) how to coordinate across offices and share knowledge; 2) where to hire (locals vs. domestic/ international standard); 3) how to compensate. The choices are often a function of the firm’s strategy and they dramatically affect the ability to create and maintain quality and a “one firm” culture. BAIN CASE SUMMARY

3. Customers: 1. Customers (and their competitors) are becoming global and increasingly need service-providers who can serve them on a worldwide basis. 2. Being a growing, global firm increases the service firm’s exposure and enhances the firm’s reputation. Reputation is critical in service businesses. 3. Knowledge embedded in foreign locations may be critical for servicing customers (e.g., market entry strategies). Costs: 4. For complex services (i.e. strategy consulting) the costs of R&D (product development) are increasing. Thus, there is greater need to spread those development costs over a larger customer base. 5. The ability to manage capacity utilization effectively increases as the scope of operations increases. FACTORS DRIVING SERVICES TOWARDS GLOBALIZATION

4. CHARACTERISTICS: 1. Services are typically a repeat purchase item of value only for a short duration (Not like a durable good that lasts for years). 2. Service business customers have a difficult time knowing the value of the service before buying it; services are considered an “experience good”, meaning the value of it isn’t really determined until after the customer has bought the service (e.g., consulting). 3. Service businesses are typically very people intensive and do not require large investments in capital equipment/fixed assets. IMPLICATIONS 1. -Feedback from customers is critical for evaluating the success of a service. -Long term relationships and trust are critical to getting feedback. Mechanisms for listening to the customer are key to success. 2. -Customers need assurances that your service will provide value. Thus, a firm’s current customers and reputation are critical because potential customers will look to them for information. Service guarantees are an attempt to guarantee the customer acceptable service and respond to this concern. 3. -Service businesses have typically not been global due to lack of economies of scale. Knowledge acquisition and increasing R&D costs are key factors driving globalization. -Human resource management and training are critical to success. KEY CHARACTERISTICS OF SERVICE BUSINESSES