act CONTENT "Reinventing corporate headquarters" - Roland Berger

ROLAND BERGER STRATEGY CONSULTANTSBIGGER WORKLOAD, LESS PEOPLEAs corporate functions have been centralized, thenumber of HQ employees declined.LEVEL OF CENTRALIZATION (%)Strong uptrend75662000-20022003-2005NUMBER OF EMPLOYEES (%)Slight downtrend##2.18 2.112000-20022003-2005The data in our studies of corporate headquarters points to similar findings at European companies.Indiscriminate downsizing that takes no account of overhead processes and contentadversely affects a company’s profitability. It follows that, when designing (and sizing) corporatefunctions, the question of effectiveness ("Is the function doing the right things?")should take precedence over the question of efficiency ("Is the function doing thingsright?"). The conclusions drawn will influence both costs and sales. In other words, carefullyexamining how core processes are organized and clarifying who is responsible – a central ora decentralized unit – can have a huge impact on overall corporate performance.BOTTOM UP INSTEAD OF TOP DOWNIncreasingly, companies are finding that they can combine the benefits of centralization(the competence to issue guidelines and the ability to bundle purchasing power, etc.) withthe benefits of a distributed structure that is more responsive to the market. Modern communicationtechnologies and flexible, innovative virtual office models facilitate this mix.But what does all this mean in practice to the design of corporate headquarters? Our experienceshows that a greenfield approach is the best way to combine the benefits of centralizationwith the benefits of decentralization. The resultant target model can then deliver anoptimized corporate HQ structure. Our greenfield approach begins by asking some simplequestions:A) What is the future corporate management model?B) What tasks is HQ to handle in future? What tasks would be better performed elsewhere?C) How and where can these tasks be bundled sensibly?D) Which people and how many people will these new departments need?BIG BEN – ROLAND BERGERBENCHMARKING DATABASE Corporate center data culled from 241 companies(including relative levels of centralization andoutsourcing) is safely stored in our benchmarkingdatabase. Some of the data has been piecedtogether from high-quality interviews conductedduring corporate development projects.Supplementary information derives from thestudies of corporate headquarters thatwe performed in 1999, 2002 and 2005.The database thus enables enterprisespecificbenchmarking panels to be producedfor 29 core functions and 120 subfunctions.It can therefore set the ballrolling, stimulat-ing a meaningful discussionof key factors and sizing issues.It is especially important to accurately anticipate capacity requirements ahead of a reorganizationin order to minimize operating risks. However, it is not always helpful to draw on rawnumbers such as the size of the overall workforce. A corporate communications departmentwill not expand continually in line with company growth. Instead, it will grow intermittently asdifferent requirements thresholds are reached and crossed. Acquisitions can suddenlynecessitate the formation of an international team. New legal forms may change the requirementsfor disclosure and reporting. And changes in the media landscape may create a needfor specialists to handle new media.A more sensible way of working toward the optimal constellation is to analyze benchmarkdata. Our view is that it is best to look for patterns that cut across different industry lines. Wehave grouped corporate functions into the following clusters:1.) STRATEGIC/MANAGEMENT FUNCTIONS, e.g. management board, strategic planning,investor relations, corporate communications2.) FINANCIAL FUNCTIONS, e.g. finance, controlling, accounting, insurance3.) BUSINESS SYSTEM SUPPORT FUNCTIONS, e.g. HR, IT, facility management,occupational safety4.) OPERATING FUNCTIONS, e.g. research &development, purchasing, logistics,qualitymanagement