act CONTENT "Reinventing corporate headquarters" - Roland Berger

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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
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 sOur studies and analyses suggest that the first two function clusters follow a very uniformpattern across all industries, company sizes and management models. This finding is all themore remarkable given that not even varying numbers of business units appear to correlatedirectly to the size of these functions.The third cluster too fluctuates within a relatively narrow corridor when one compares the sizeof these functions with a company’s total workforce. In the fourth cluster (operating functions),the pivotal role is played by the specific industry and business model. For this cluster,it therefore makes sense to benchmark functions against a comparable panel of companiesthat operate similar business systems and management models in the same industry.We believe there is also another reason why it makes sense to draw comparisons with otherindustries. In terms of the perceived core functions they perform, individual overheadfunctions are very definitely comparable across industries. The analogies can, indeed, besurprising.Let us look at just one example. At a high-tech company, the IT department is central to theprocess of adding value. The same is true at a commercial bank. In this case, therefore,cross-industry benchmarking makes eminent sense. It is also worth asking why thecorporate HR departments at service providers have to be so much bigger than those atindustrial companies of a comparable size. Conversely, industrial companies can learn lessonsfrom service providers too. In recent years, the latter have done a far better job ofstreamlining their corporate accounting functions.In our experience, the insights gained from individual benchmarking exercises invariablyspark off fruitful discussions. Very quickly, companies then realize how certain functions canbe made to add more value for the company.DO YOU HAVE ANY QUESTIONS,IDEAS OR COMMENTS?WE WOULD BE HAPPY TO HEAR FROM YOU!Tim Zimmermann,Partner+49 89 9230-8362Tim_Zimmermann@de.rolandberger.comBjörn Witte,Project Manager+49 89 9230-8844Bjoern_Witte@de.rolandberger.comFabian Huhle,Senior Consultant+49 89 9230-8486Fabian_Huhle@de.rolandberger.comCOMPANIES HAVE TO TAKE ACTION NOW!"Business fashions" (such as outsourcing) and supposed patent recipes (such as deconstructingthe value chain) all have their limits, as we have clearly seen in the past few years.We believe that now is the time for companies to home in on their core tasks and make individualfunctions more effective. Despite the growing trend toward decentralization, closerattention will again be paid to corporate headquarters in future. Up to now, few companieshave grasped the true potential of radical reorganization. Yet that is precisely the issue atstake right now. Companies that depend on a flexible and efficient global organization butthat also want to keep their finger on the pulse of the market know that they have to keepreinventing themselves. But they also have to keep reinventing their corporate headquarters.Experience gained from cross-industry analyses is fueling this renewal process. Based on allthat we have seen, we believe that old paradigms (central or decentralized, strategic or operational,etc.) will give way to a refreshing new pragmatism. Can cumbersome giants be transformedinto dynamic and flexible organizations? Yes, we believe they can!think:act CONTENTPublishers: Burkhard Schwenker, António BernardoOverall responsibility: Torsten OltmannsProject management: Carsten MatthäusRoland Berger Strategy ConsultantsAm Sandtorkai 4120457 Hamburg+49 40 37631-40news@rolandberger.com
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