Intercultural Competence needed at the top

In this extended version of an article that appeared in the Summer 2015 edition of Re:locate magazine, Dr Barbara Gibson, a consultant and lecturer in intercultural communication and global business, argues, through research findings she presented at this year’s EuRA Congress, that failure to ensure intercultural competence at CEO level can prevent organisations from achieving strategic objectives in non-domestic markets.

Cross-cultural training often focuses on those at the sharp end of international assignments, rather than on senior decision-makers.In the increasingly global world of business, more and more companies of every size are doing business beyond their domestic borders. Unlike in the 20th century, when international business was the realm of the mega-corporation, and companies tended to progress slowly through identifiable stages of domestic to international to multinational to transnational, today many companies are global from start-up, and a large percentage of companies operating outside their domestic markets are small and medium enterprises.For smaller companies, the percentage of company resources focused on international markets means the stakes are higher. Even for the large, well-established multinationals, increased globalisation and worldwide competition have added pressure to be as successful outside their domestic markets as they are at home. But companies both large and small still often encounter cultural barriers that result in lost contracts, failed joint ventures, disappointing performance, regulatory and legal difficulties, and other challenges.

Achieving global success

With a background that includes more than 25 years in corporate communication and business strategy, I had observed at first hand how many companies – including large global players – were often not achieving objectives outside their domestic markets. I often saw what I felt was a lack of intercultural competence at the top of the organisation. I had begun to suspect that 'ethnocentricity rolls downhill', and I wanted to find a way to help companies achieve success globally. So I decided to undertake a PhD in intercultural communication, focusing on the intercultural competencies needed by global CEOs.What I found was that few studies actually examined the top level of management, leaving a gap in understanding which intercultural competencies are needed at the strategic level, where decision-making that determines the company's success or failure in non-domestic markets takes place. Little is known about CEOs' own perceptions regarding cultural challenges in their day-to-day jobs, or about their own capabilities in dealing with them.The purpose of my study was to gain insights into the strategic-level intercultural challenges faced by companies doing business internationally, and identify the competencies needed by CEOs, in order to help companies to overcome cultural barriers to achieve their strategic objectives.In total, I interviewed 28 CEOs of businesses operating in a global context. Companies represented ranged in size from fewer than ten employees to more than 200,000. The sample included diversity of age (ranging from 34 to 65 years old), gender (24 males, four females), location of headquarters (spanning 12 different countries), company age (from one to 140 years), national cultures of the CEOs (12 cultures of origin, several dual nationalities), native language (eight native languages, half English), and number of years in current role (from one to 22 years). The 28 CEO interviews generated approximately 24 total hours of digital audio recordings, which were transcribed verbatim, resulting in more than 250,000 words of textual data available for analysis.

Assessing business impact

My first research question focused on whether the intercultural competence of the CEO has an impact on their success in achieving business objectives. The interview data was analysed to examine where, if at all, culture comes into play at the CEO level.The findings clearly indicated that cultural challenges impact the CEOs in the study and that the CEOs' intercultural competencies do have an impact on their ability to achieve their objectives in a number of areas, the top five being managing their top teams, conflict/negotiation, decision-making, hiring, and ethical issues.

Key intercultural competencies

Based on those identified areas of business impact, I analysed which intercultural competencies are most likely to contribute to success or failure. In total, the data revealed 351 instances of competencies evident or lacking across all 28 interviews.The findings identified the following key intercultural competencies needed at the CEO level:1. Cultural self-awareness, defined as an awareness of one's own cultural influences, tendencies and biases, and awareness of how one's own culture may be perceived by members of a different culture.2. Cultural sensory perception, defined as the ability to recognise when cultural differences are in play, utilising a range of senses to spot verbal and non-verbal cues. Although this competency is frequently referred to as 'intercultural sensitivity' in the literature, that term is also frequently misinterpreted as something akin to political correctness, so I coined this new term to better describe the sensing nature of this competency.3. Open-mindedness, defined as the ability to suspend judgement based on one's own cultural biases and accept that other ways of thinking and behaving may be just as valid.4. Global perspective, defined as viewing the business from a transnational perspective, rather than as domestic first, rest-of-world second.5. Adaptability, defined as the ability to change one's behaviour, communication style or business strategy as needed to fit the circumstances.Analysis also found associations between specific competencies and the identified areas of business impact, providing possible insights into which competencies may be most critical, depending on the current strategies, challenges and stage of business of the company.By far the most-referenced source of culture-related challenge for the CEOs in the study was that of managing and motivating their culturally diverse top management teams. They experience problems building trust and loyalty cross-culturally, and find they need to adapt their own management/leadership style to the cultural expectations and needs of their subordinates. They encounter difficulties in knowing how best to motivate team members from other cultures with different value systems from their own.With direct reports located around the world, they face distance challenges that exacerbate other teamwork and communication challenges. They encounter difficulties gaining the feedback needed to make sound decisions due to cultural differences in communication style, and at times they are tripped up by cultural differences in specific practices or attitudes.Whereas the 20th-century model of international business may have meant the typical top management team was culturally homogeneous and the CEO rarely encountered such issues, 90 per cent of the CEOs in this study had at least one direct report of a different culture, and, for several, more than half the members of their top management team were of different cultures.The competencies most associated in the data with the impact area of managing were cultural sensory perception and adaptability. Those who are successful seem to rely more on their ability to sense that something is not working as intended, paying close attention to both verbal and non-verbal signals. Cultural sensory perception relies heavily on metacognitive ability and to a lesser extent on cognitive ability or knowledge.Once they sense a problem, they can gather more culture-specific information, either by probing further with those with whom they are interacting or by turning to other resources. The next step is adapting their behaviour from what has worked previously to fit the current situation. This ability includes a combination of motivational, cognitive, metacognitive and behavioural aspects of cultural intelligence. Inability to adapt may be due to a lack of the competency of open-mindedness or, as Andrew Molinsky, author of Global Dexterity, explains, to the psychological discomfort of feeling one is not being true to one's values.

Conflict resolution and negotiation

The findings revealed that culture impacts CEO success in dealing with conflicts and in negotiating. Although this is not an everyday challenge, the narratives regarding this area of business impact often revealed incidents where the consequence of not understanding the cultural issues at play was complete failure (ie the negotiation ended, the deal was lost). This means that the stakes are high in this impact area. Therefore, where the CEO is involved in intercultural negotiation, either on a frequent basis or less frequently, but in areas of high strategic importance, this impact area becomes more important. Cultural sensory perception appears to be the most critical competency in this area, to avoid abrupt failures that are the result of being blindsided by cultural differences.The competencies associated in the data with decision-making include cultural sensory perception (the most frequently associated), adaptability, global perspective and open-mindedness. Issues raised were not solely around whether or not decisions made were the 'right' ones, but also around the CEO's ability to adapt to culturally different decision-making styles, particularly when the CEO is the cultural outsider compared with the majority of the top management team and employees.Given that decisions made at CEO level can impact the overall strategic direction and financial success of the company, this impact area is a critical one, with important implications for boards of directors and investors. This area would probably be of greater importance to smaller firms, for which a higher proportion of resources are at risk, and also to firms expanding rapidly into multiple markets.Hiring the right people for key roles in foreign markets, while not an everyday occurrence, is critical to a company's success. As one CEO in the pilot study explained, the inability to hire the right people in foreign countries is one of her company's greatest barriers to growth. While several competencies were associated in the data with this impact area, the highest association was with cultural self-awareness, particularly the ability to recognise one's own cultural biases. This insight has particular implications, not only for CEOs but also for others involved in the recruitment and selection process. Human resources professionals may be in a position to compensate for weaknesses in this area by providing mentoring moments during the hiring process.The competencies most associated with dealing with ethical issues were cultural sensory perception, open-mindedness and adaptability, and it seems that all three are required, in this order. Without the ability to recognise that cultural differences are in play and to suspend judgement, one is not able to adapt. While this interplay is likely to be present in other areas, it seems particularly strong in this impact area, due to deeply held beliefs and values.

Responding to failure

The data also revealed patterns of how the CEOs responded to intercultural interactions that did not achieve the desired outcome, with four clear patterns emerging: adapt, continue, abandon, and avoid. Through further analysis, a conceptual framework emerged, which describes the patterns.As illustrated in the diagram above, each interaction, which may include anything from a simple conversational interaction to a complex business initiative, begins with a strategy. If the strategy is successful, the subject will utilise it again in similar encounters, repeating it until such time as it fails. If the strategy is unsuccessful, the interculturally competent individual is able to adapt his or her strategy in order to achieve success. But where intercultural competencies were lacking, other patterns were found.In a number of instances, the data revealed a response pattern of continuing to pursue the same strategy, sometimes in spite of repeated failures, until either circumstances change, or eventually enough learning occurs to achieve some level of adaptation. One CEO exhibited the 'continue' pattern in several instances, most notably in managing, negotiating and dealing with conflict, all three of which have serious implications for achieving strategic business objectives.Another response to failure revealed in the data was that of abandoning the strategy, in some cases to try a new strategy, which could lead either to success or to another failure. The primary difference between this pattern and the 'adapt' pattern is that no learning seemed to have occurred from the failure, except that the strategy failed.In some instances of abandonment, no new attempt was made to achieve the original objective, but instead the subject avoided a recurrence by abandoning the objective altogether. For instance, one CEO exhibited the abandon/try new response pattern repeatedly in hiring (which she identified as one of her company's biggest barriers to growth). In other areas, her response to failure was to abandon and avoid.A major business initiative to outsource a key function to India was abandoned completely when the chosen vendor failed to meet expectations. The company also retreated from several foreign markets where cultural differences meant their business approach was not well received or they were unable to hire the 'right person'. In each of these instances, no learning appeared to occur as a result of failure, and, in some, the failure served to reinforce existing ethnocentric beliefs.

Significance for relocation

The study has provided a clear indication that CEOs working in a global business environment do perceive that cultural challenges impact their success in a number of strategic areas and that specific intercultural competencies are needed. This has implications not only for current CEOs, but also for boards of directors and others involved in CEO selection and succession planning, and for HR and communication professionals responsible for executive development. There are implications for the field of intercultural training and development, pointing to a need for different kinds of programme tailored to CEOs.For those working in the relocation field, perhaps the most notable findings from the study are those related to how intercultural competencies are developed. The most frequently cited source of learning by the CEOs was living and working abroad, with several noting that it was essential to avoid living in an 'expat bubble'.Development appears to come frequently from informal relationships, and from the opportunity for mentoring moments as failures occur. This would indicate the need to move away from one-shot training and pre-move orientation toward programmes that provide ongoing support throughout an overseas assignment, and possibly to move away from expat enclaves toward full cultural immersion.For further information visit: bgibson@culturalresolution.comFor more Re:locate news and features about leadership and management, click here and for more about cultural training, click here