act CONTENT "Reinventing corporate headquarters" - Roland Berger

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ROLAND BERGER STRATEGY CONSULTANTS[SIZE]Analyzing our benchmarking database, we found very differentlevels of homogeinity depending on the functional category.BENCHMARKING OVERVIEW OF ALL FUNCTIONSValues for all participating companies. Headcount of HQas ‰ of total company headcount.Company managementStrategic planning/corporate developmentCommunicationsInvestor relationsMergers&acquisitionsLegalPatents and licensesAuditingOrganizational development/consultingFinanceControllingAccountingInsuranceTaxesInternational trade and customsHuman resourcesITOccupational safety and environmental protectionReal estate/facility managementGeneral servicesResearch and developmentPurchasing and procurementLogisticsQuality managementMarketing and salesMedian Min. Max.1.25 0.03 10.70.35 0.01 5.830.73 0.03 7.770.10 0.01 3.130.13 0.03 0.800.58 0.05 9.050.18 0.03 4.190.33 0.05 4.780.55 0.04 10.40.71 0.04 9.301.07 0.04 15.31.78 0.09 45.60.23 0.03 1.280.29 0.01 5.450.21 0.01 1.792.07 0.05 38.14.79 0.03 52.10.48 0.02 4.990.85 0.01 1230.75 0.01 15.83.13 0.04 2642.39 0.03 15.53.94 0.11 25.01.32 0.03 37.32.10 0.02 118Operational functions HR & system support Finance functionsStrategic/Corporate functions
CONTENTR e i n v e n t i n g C o r p o r a t e H e a d q u a r t e r sSHARED SERVICES – A SUCCESSFUL MODELShared service units are a good example of how this principle can work. Bundling knowledge(through standardization, for example) raises quality and reduces costs. Compared to traditionaloutsourcing models, however, shared service centers hold out an added advantage inthat sensitive data remains inhouse. Accordingly, shared service models are today significantlyinfluencing moves to slim down corporate HQs. Over one third (38%) of the companieswe surveyed today organize parts of their corporate functions as shared service units – upsharply from 17% in 2002. IT and HR are the main functions that are realigned in this way.The benefits of shared service units are: COST MONITORING: Time, quality and costs are contractually defined RELIABLE PLANNING: Internal customers can rely on the promises made SERVICE QUALITY: Service centers have to sell their services as products COMPETITION: Internal customers can solicit bids from external service providers MOTIVATION: Outstanding performance becomes visible and can be rewarded as such INTERNAL RESOURCES: Sensitive information can be kept inhouseINDISCRIMINATE DOWNSIZING IS A DANGEROUS GAMEIn recent years, many companies have centralized ever more extensive activity sets in orderto reap economies of scale. This has not automatically led to bloated HQs, however. On thecontrary, new technologies and constant pressure to streamline have actually reduced theheadcount at corporate headquarters.The functions retained at corporate HQ nevertheless have to maintain a certain size if theyare to work effectively and add value for the company.Paradoxically, there are many cases where over-zealous downsizing has left key corporatefunctions too small to truly do justice to corporate and management strategies. Our studyshows that the primary victims are usually strategic functions such as strategic planning,organizational development and investor relations.To take an example: At almost every second HQ that claimed a strategic management role,the Strategic Planning unit had less than five people. One of the largest and leadinglogistics companies in Europe assigned just 0.3 of a full-time equivalent to this function –a glaring discrepancy between claim and reality, and in all likelihood not enough for suchan important function.In their study of 600 companies, David J. Collis of the Harvard Business School and MichaelGoold of the Ashridge Institute showed how indiscriminately reducing the headcount canseriously harm companies in the medium term. According to their study, companies withabove-average profits had corporate functions that were around 20% larger than those ofcomparable but less profitable firms.One reason, in the view of the Harvard professors, is the value added by corporate functions.They argue, for example, that the large R&D department anchored in Pfizer’sheadquarters adds crucial value to the drug company. Collis and Goold also believe thatUnilever’s comparatively large HR department does a fine job of churning out exceptionallywell trained executives.21.8%Introducing a shared service centerhas reduced the cost of support functionsof an energy provider by 21.8%ROOM FOR IMPROVEMENTSimply downsizing is not a solution, according to a studyby the Harvard Business School. In Europe and Japan,where the number of employees working at headquarterswas considerably reduced, performance of headquarterswas rated poorly. By contrast, in the USA, where the majorityof headquarters increased in size, performance wasconsistently awarded good marks.CHANGE IN NUMBER OF HQ STAFFOVER PREVIOUS FIVE YEARS43%54%44%50%30%GERFRAUKJPNUSA28%24%25%9%50%-27% GERMANY-49% FRANCE-52% UKLOWER-52% JAPANSource: Harvard Business School, 2003HIGHEROVERALL EFFECTIVENESS OF CORPORATEHEADQUARTERS (+ GOOD ; - NEEDS IMPROVING)+20% USA
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