There is a growing awareness (and frustration) among top executives that the world’s biggest companies are losing ground to local organizations—many of them startups with little or no heritage—that are smaller, nimbler, and more responsive to customers and local regulations. For the past 100 years, big companies have succeeded by competing on the basis of scale and, for the past 50 years, on the basis of global reach as well. To drive efficiency and exert control over their increasingly far-flung operations, leaders built integrated, hierarchical organizations. This command-and-control structure is inherently bureaucratic and makes companies slow to change. Going forward, they will need a different approach: they must compete on the basis of speed (although scale will remain an important competitive strength)—especially at the local level.

In other words, to gain advantage, these big companies will need to evolve from an operating model of “global at scale” to a culture that focuses increasingly on “local at speed.”

In a series of articles, we have written about the radical shift in the competitive landscape and the emergence of a new source of strength, something we call fractal advantage. To recap, the thesis is this:

• The globally integrated market is being fragmented by disruptive geopolitical, technological, and societal forces and becoming more individualized, with local customer needs, regulations, and competitors.
• To be successful, it is more important for international firms to focus on building winning market share locally than globally.
• In deeply local markets, winning market share calls for speed, regional innovation, and customization, as well as 24/7 responsiveness to meet the ever-changing needs of customers and regulators. They must target new, fast-growing revenue pools that are, as one top executive put it, “emerging constantly at the edge” of the business.
• Global companies must transform themselves into fractal organizations, evolving from highly integrated, top-down companies into a connected network of empowered local “edge” teams that operate close to customers.

In short, global companies will need to develop some of the characteristics of a flexible, adaptive, multilocal connected network—something that is more common in the natural world. (See the sidebar.)

From our conversations, we know that many business leaders agree conceptually with the idea that they need to change their business model toward becoming a fractal organization. Most would also intuitively agree with its design principles, which we have written about in our series. “What I like about the fractal business model is that it encapsulates well the need for local granularity within an overall global structure,” one business leader told us. Simply put: it helps business leaders break the compromise between scale and speed.

However, like most of the global companies we have studied, that leader’s firm has not been able to build a fractal organization, even as the need to respond to local-at-speed disruptors has become more urgent. Why not? The same leader explained the company’s resistance by blaming it on the “chaos” it recalled when the business operated as a collection of autonomous local entities (leading to centralization). But is that truly the reason?

This important question has been at the heart of the current phase of our multiyear research on globalization and evolving global operating models. The answer that has emerged is both simple and highly complex: fractal organizations that compete on the basis of local at speed have an operating model that is more akin to a network than a traditional hierarchy. But more important, they have a very different cultural feel. To build this type of environment, today’s leaders need to challenge the prevailing corporate culture (and its underlying power dynamics), established over decades from operating with global-at-scale organizational principles. The leaders based in the company’s headquarters—the very people who are being called to lead the transformation—are precisely those who have traditionally benefitted most from the power dynamics that underpin this culture.

In the broad sweep of history, hierarchies have dominated as the model for organizing societies and their institutions. This is because the rich and powerful have been spectacularly successful in reserving exclusive access to precious information. Niall Ferguson, a professor at Stanford University, makes the case that there have been only two moments in history when networks have prevailed over this type of hierarchy. The first was Johannes Gutenberg’ early 1400s invention of the printing press. This achievement immediately “democratized” data, diffusing the knowledge once enjoyed exclusively by the ruling elites and empowering ordinary people, thereby overturning age-old power dynamics.

The second moment is now. The change started in the mid-twentieth century with the advancement of information technology and has grown rapidly with the digital technology revolution (further enhanced by generative AI). In our view, the fast-paced shifts in the competitive environment will only accelerate. For this reason, we think global firms should seize the moment—and steal a march on their slow-moving rivals.

It is not our contention that every company in every industry should adopt all aspects of the local-at-speed business model and its culture. On the contrary, we know that the global-at-scale approach continues to be highly relevant. What we argue is that every company operating under the global-at-scale business model should incorporate a local-at-speed culture in a nuanced way that takes into account their specific industry context and their unique starting point.

Three Cultural Features of Local-at-Speed Companies

Well-functioning networks are naturally local at speed and offer that “local granularity within an overall structure.” In this environment, chaos, if any, is a creative and controlled force. While it can be difficult to peel back the intertwined layers of an organization’s culture, we have synthesized from our study three key features that define a fractal environment. First, there is a shift in power and “ownership” from the center of the company (corporate headquarters) toward the “edge” (local teams operating at the consumer interface). Second, the operating rhythm shifts from slow to fast. Third, there is a focus on advantage from exponential growth of local knowledge and not just from systematic, center-driven asset growth. Together, these features create a powerful new cultural paradigm that transforms how a company thinks and behaves. Let’s look at each of them in turn.

Shifting power from the center to the “edge.” Local-at-speed companies decentralize ownership of outcomes from headquarters to teams at the local level (the “edge”). In practical terms, this paradigm shift requires C-suite executives to do two things: one, devolve, not just delegate, control to local teams (including greater decision rights and more control over resources to deliver the desired outcome) and two, ensure that innovative ideas developed in local markets are shared and replicated swiftly throughout the organization.

KPIs (key performance indicators) and OKRs (objectives and key results) are different performance management systems. KPIs are a cornerstone of hierarchical structure that focus on measuring the efficiency of individual roles in the hierarchy. OKRs, on the other hand, measure customer-focused team outcomes and drive collaboration, in essence representing the culture of a fractal network. Leaders can cleverly design highly visible OKRs (along with the underlying planning and decision rights) to drive local, “edge” teams’ performance to deliver profit-and-loss outcomes flowing from the firm’s strategic objectives. This structural utilization of OKRs not only balances center-driven organizational alignment with local autonomy but promotes a very different operating culture. 

Shifting the organizational rhythm from slow to fast. Local-at-speed companies operate with a much faster organizational rhythm. In most traditional, global-at-scale companies, this rhythm has been set by multiyear product life cycles (cycle time) and their associated annual plans. By contrast, the pace at which employees work in local-at-speed companies is determined by the need to respond to customers as quickly as possible. We call this high-tempo rhythm “takt time.” Originally a German term, takt time (calculated as the available time to create a product divided by the rate of customer demand) was popularized by Toyota and used for designing “just-in-time” manufacturing to respond in real time to changes in customer demand. Every activity, whether it’s a new investment, a product upgrade, or a business-as-usual team outcome, is conducted in weeks, days, and sometimes even hours, but not in years. This “projectization” of planning and outcome drives takt time rhythm.

As one local-at-speed business leader operating with takt-time rhythm told us, “We have a very different high-speed culture from my previous employer. For example, if my teams do not meet their OKR targets for two fortnightly (takt time) periods, the project may well be pulled.” To become local-at-speed companies, they have built a culture of running multiple short sprints rather than single marathons.

Shifting the focus from incremental asset growth to exponential knowledge growth. Local-at-speed companies focus on building advantage from the exponential growth of local knowledge. More traditional, global-at-scale companies think about advantage in terms of the centrally driven systematic growth of physical, people, and knowledge assets. “Scale curve” (which measures cost per unit of the asset) helps them gauge their competitiveness.

By contrast, local-at-speed companies build advantage by accumulating locally generated knowledge to create new customer solutions cheaper and faster. They do this through rapid and continuous innovation, experimentation, and improvements at the “edge” and by replicating and customizing this knowledge rapidly across the company and different markets to outperform their rivals. The more times they repeat this innovation cycle to create and accumulate knowledge across markets, the lower the cost per unit. They gauge competitiveness by using the “experience curve.” ¹ 1 The “experience curve” concept is not new. Indeed, it was pioneered by Bruce Henderson, founder of Boston Consulting Group, in the mid-1960s. But whereas the term originally referred to physical activity and output, here it refers to the cost per unit of generating, using, and replicating new knowledge. In today’s fast-fragmenting digital world, a culture that values local “experience” is stronger than one that values centralized “scale.” Notes: 1 The “experience curve” concept is not new. Indeed, it was pioneered by Bruce Henderson, founder of Boston Consulting Group, in the mid-1960s. But whereas the term originally referred to physical activity and output, here it refers to the cost per unit of generating, using, and replicating new knowledge. In today’s fast-fragmenting digital world, a culture that values local “experience” is stronger than one that values centralized “scale.”

Making the Fractal-Network Organization a Reality

OKRs, takt time, the experience (knowledge) curve: individually these are “hard” structural elements of an organization design, and business leaders can—and do—implement them. So why hasn’t this led to the widespread development of local-at-speed companies? One reason is that these stand-alone structural elements have not been woven into a cultural narrative that values local ownership and local speed over bureaucratic efficiency. This type of culture values the accumulation of local knowledge that can be easily understood, communicated, and embedded in individual and team behavior. Leaders must have consensus around this narrative to drive radical cultural change.

In the course of our research, we have identified several global-at-scale companies that are building a culture of local speed, exponential knowledge growth, and replicable innovation. Their leaders have created a powerful message around the new culture to drive alignment across the leadership team and communication across the firm. Each has customized their narrative to suit their industry and starting point.

For instance, in 2019, Procter & Gamble reignited its stalled growth by dismantling its centralized organization and complex matrix control to drive outcome where it mattered the most: its six category businesses and ten or so “focus” countries, each headed by a CEO. Giving clear accountability and ownership (decision rights and incentivization) with a simplified reporting matrix and end-to-end transformation gave them a “direct line of sight” to end users. This drove a multifold increase in the speed of decision making, local innovation, and responsiveness to customers and grew local market shares. Then chairman and CEO David Taylor called it “the most profound transformation in 20 years.”

In China, Haier Appliances has embarked on a radical transformation using “Rendanheyi,” a term coined by founder and chairman Zhang Ruimin, to become a company with “zero distance from the customer.” It has removed middle managers to eliminate bureaucracy and decentralized parts of the firm into semiautonomous business units at the customer “edge” through a digital platform to share data and drive transactions. While it is still early days, the example highlights the growing pressure consumer firms face to adopt fractal culture.

In India, Bajaj Finance under chairman Sanjiv Bajaj has become the market leader in non-banking financial services, with a market capitalization of more than 4 trillion Indian rupees (nearly $58 billion). Starting with a small motorcycle-financing business 20 years ago, its remarkable growth has been driven by a unique “break to grow” philosophy of systematically delegating ownership (with responsibility for the planning and execution of both revenue and cost) for identifiable profit pools at the customer “edge.” These “edge” business leaders are supported by a highly metricized data-sharing culture for real-time decision making. This is local at speed in action.

Meanwhile, in Germany, Siemens has embarked on a remarkable transformation from being an engineering leader of the “old world” to being a “new world” leader under Ronald Busch. When Busch became Siemens’s CEO in 2021, he was very clear about one thing: the company needed to accelerate its clock speed in today’s fragmented, fast-changing, and digital world. He therefore resolved that Siemens had to change its central “closed” culture, which was particularly prevalent within the R&D department. Acknowledging that this was never going to be easy, Peter Korte, the company’s chief strategy and technology officer, felt that unless the company could overcome its cultural barriers, Siemens would struggle to prosper.

To build a powerful cultural narrative—one that could be understood by the engineers—Siemens drew inspiration from application programming interfaces (APIs), a concept first applied in the software development industry that enables speedy local customization through “componentization” of the overall design. The modular software design of APIs allows “edge” teams to balance local customer needs with global scale. Other teams can then use the API components from the central library to respond quickly in their local market.

As a first step, Siemens recently launched Xcelerator, an open digital business platform that enables transactions between the firm, its partners, and customers from various end markets such as food and beverage and health care. Xcelerator enables global and local teams to design modular solutions quickly using local APIs that scale across markets.

While we have presented global at scale and local at speed as two ends of an operating and cultural spectrum, the reality is that in most organizations, both will exist. Each of these firms have defined a balance between the traditional hierarchy and the new fractal network (and associated cultural features) that takes into account the organization’s unique context.

We know that global companies can’t suddenly switch from global at scale to local at speed and instantly create a fractal-network organization that overturns long-established company cultures and deeply entrenched power structures. But starting on this radical journey by focusing on a series of incremental pilots—the usual way—won’t improve firms’ ability to compete with far nimbler local and network-oriented global organizations in this fragmented and fast-paced world.

P&G, Haier Appliances, Bajaj Finance, Siemens, and other organizations that are building local-at-speed capabilities (such as Nike, Schneider Electric, and Spotify) may all be at different stages of transforming into fractal companies, but each of them have built a powerful, market-driven narrative that incorporates the three cultural features of local at speed in some form. Right from the start, they were clear about their destination—even if they adopted a pragmatic, phased approach over the course of implementing their plan.

The time has come for other leaders to follow their example. In the end, however, leaders may have no choice. The world is moving inexorably in a direction that favors networks above hierarchies, and it is moving with lightning speed. Those who are willing to articulate what a leading organizational culture looks like, activate new behaviors to make it a reality, and embed and reinforce target behaviors to make sure it sticks will see their companies evolve at pace.

If you are a CEO, you’ll want to get ahead of history and start building your personal legacy by reimagining your company for the networked age and democratized data. You won’t be the first. But you certainly don’t want to be the last.