Recently, a heated argument divided the leadership at a large sporting goods retailer. The retailer had launched a digital transformation initiative, but no one could decide whether to centralize or localize their digital talent and activities. Some argued that digital activities should be put in just one central hub, pointing to examples like Booking.com, the $15B global leader in travel accommodations, which collocates over 1,700 developers in one location to optimize the tens of thousands of A/B tests that keep them in the lead. But others argued digital needs to be local, given the nature of retail, arguing that each country needed its own digital team to adapt to the local needs. They justified their arguments with examples from Amazon, which has prospered in the U.S., but struggled in countries, like the Netherlands, where they don’t have warehouses. Yet others suggested a middle ground of organizing digital operations around regions.
Should Your Global Firm Centralize Digital Operations?
Should all of your digital operations be located in one central location or do you need a local digital operations outpost in every country your company works in? For international firms, this is a critical decision, and each company has their own set of caveats: ownership structure, customer base, and the demands of local regulation all shape this decision. Looking at 50 firms, the authors identify five factors that companies should consider. First, economies of skill suggest that, when possible, you should try and centralize everything digital. But there are three meaningful exceptions: when your customer journeys differ significantly between operational areas, when you have a fast-faced business model that requires rapid local responses, and when your business is tied to physical assets, such as supply chain or route-to-market. Finally, many companies cite local language, or local regulations, as grounds for localizing digital activities, but this tends to be less of a factor than many assume — it’s usually not a good case for localization.