Ranked at #26 on the Fortune 500, Home Depot is one of the largest companies in the world. The retailer has some 2300 stores, employs more than half a million people, and has annual revenues of more than $110 billion. Synonymous with home renovation and weekend do-it-yourself (DIY) work, the company opened its first store in China in 2006 and quickly expanded to 12 stores in six cities. Just six years later, though, Home Depot closed all their stores and exited the Chinese market altogether.
What went wrong? Analysts point to failures on multiple fronts.
First, Home Depot opened all their stores in the Chinese suburbs, mimicking the placement of their incredibly successful US strategy. Yet in China, the wealthy move to the inner cities, placing Home Depot far from the customers it sought.
Second, Home Depot’s product mix and pricing didn’t attract the customers who did find their way to the stores. The wealthy city dwellers lived in apartments without the space for the lawn mowers and power tools that Home Depot was selling them, and they didn’t like paying Home Depot’s high prices for products made locally and available elsewhere cheaper.
Third and perhaps most importantly, Home Depot deeply misunderstood the culture of home renovation in China. While completing a DIY or home renovation project alone is a point of pride in the United States, in China manual labor is looked down on by the very middle-class that Home Depot was trying to attract. One CNBC analyst explained that instead of DIY, the Chinese market preferred to draw on the large pool of inexpensive manual labor and embraced DIFM: do-it-for-me.
Home Depot understood what made for a successful business in the US and has exported that model of success to close neighbors Canada and Mexico. Yet in China, it failed spectacularly and fast – and all because it lacked what experts call contextual intelligence.
The Key to Success in International Business
Contextual intelligence can be defined as the ability to understand the limits of our knowledge and to adapt that knowledge to an environment different from the one in which it was developed. Until this kind of intelligence is acquired and applied, the failure rate for cross-border businesses will remain high, an executive’s capacity to learn from business experiments unfolding across the globe will remain limited, and the promise of healthy growth worldwide will remain unfulfilled.
Home Depot’s product-market fit problem in China might be a high-profile example of contextual intelligence failure, but it is far from unique. Businesses in all industries have run into problems as they seek to apply a strategy that found success in one region in another region. Expectations run high – and why wouldn’t they? – but so often businesses find that what works one place does not work someplace else.
Academics have explored contextual intelligence for decades. Leading business schools like Harvard, Stanford, and Columbia prepare future business leaders for the world of international management with an education based on case studies. Students learn to apply the lessons they extract from the case studies and adapt them to the different national, economic, and market contexts they’ll encounter in the real-world.
The successful application of contextual intelligence, that is, the drawing on experience, learning, knowledge, and data derived from one context and applying it successfully in another context is the key to success in international business – and it can be powered by technology.
GDE, DEMS, and Contextual Intelligence
Global Data Excellence (GDE) transforms business management by providing a comprehensive platform that reconciles the entire eco-system of the organization and its core offering is the Data Excellence Management System, or DEMS.
DEMS is a next-generation artificial intelligence platform that works on meaning and reasoning. It provides a factual, value-driven collaboration that engages end users from all levels of an organization in the ultimate process of value creation. Fully integrated to every different sort of database and system, it is a multilingual, web-based solution that uses a combination of semantics and AI techniques to accelerate the creation of business value, the pursuit of key value indicators, and the minimization of operational costs. It helps organizations to manage their data policies, adopt best practices, and comply with guidelines, policies, and regulations from national, regional, and industry regulators.
And at the very heart of GDE’s DEMS approach is contextual intelligence.
DEMS’ contextual intelligence offers organizations the ability to adapt the insights and knowledge extracted from their data to an environment different from the one in which it was developed. In the same way that most humans are masters of using context to inform language in conversation and the best managers can apply contextual intelligence when considering different business contexts, DEMS is ready to contextualize the natural language rules that users bring to the software and ensure the data requested is returned every time. With contextual intelligence embedded in DEMS its data catalog automatically provides context, data lineage and semantic meaning. It defines the relationships between the business terms and their metadata to sharpen decision-making and actions.
Organizations that rely on DEMS don’t enter new markets with strategies based on what worked in entirely different markets with entirely different social, economic, and cultural contexts. Instead, and in simple terms, DEMS empowers organizations to make better decisions, optimized choices, and unlock maximum value in different contexts.
What Home Depot got wrong when they went to China came down to contextual intelligence. The company realized this eventually, but it took 6 years and many millions of dollars, time and money that could have been saved had they better understood what the data from their North American success story was telling them.
GDE and DEMS bring the contextual intelligence that multinational organizations need to succeed into the hands of the executives and decision makers who need it. Thanks to DEMS decision makers can generate insight and knowledge from the data and information in their organizations, no matter where or how it is stored. Armed with this knowledge, contextually intelligent decisions can be made, value unlocked and created, and insights applied to achieve excellence in familiar and non-familiar environments alike.
Ready to apply contextual intelligence in the service of your organization? Ask for your demo of DEMS today!
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