KEY CONCEPT

Corporate functions often lack strategic direction from CEOs. As well as underperformance, this can also lead to many other issues, such as bureaucracy on the part of function heads. But according to this Idea, four simple changes to normal management processes can help to avoid this and align corporate strategies between CEOs and corporate functions.

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IDEA SUMMARY

Most organizations are split into different business divisions that all report to a corporate office. This office houses the CEOs and other corporate functions, such as HR, finance and IT. In recent years, these functions have often underperformed and corporate offices have failed to add value. Could the reason behind this be that CEOs do not give enough attention and direction to the heads of their corporate-level functions?

According to survey of over 50 function heads at Europe’s leading companies, very few CEOs adequately guide function heads, expecting instead that they develop their own ideas and strategies. Not surprisingly, such under-management leads to mixed performance; some functions end up fulfilling their roles effectively, but many do not. In fact, in an article published in the European Business Review on the same subject, Andrew Campbell, Sven Kunisch and Günter Müller-Stewens write that without some unifying work by the CEO, the work of corporate functions becomes uncoordinated; left to their own devices they can be bureaucratic and costly.

Given that these functions are part of headquarters’ teams, why is it that CEOs tend to provide so little guidance to them? According to Campbell, Kunisch and Müller-Stewens, one explanation is that they are too busy working with the business units, or perhaps they do not have the technical knowledge or managerial tools needed to guide functions.

In this Idea, they suggest that CEOs can help give their heads of corporate functions the guidance they need to contribute effectively to corporate success by enacting four vital changes, detailed below

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BUSINESS APPLICATION

The following four simple changes to normal management processes can go a long way in addressing the gaps between CEOs and their function heads:

1. Define three to seven major sources of corporate-level added value: expand the strategy process to include a definition of the main sources of added value, such as better capital investment decisions, and building a pool of executive talent superior to competitors.
2. Review the strategies of corporate functions annually: this allows CEOs the opportunity to nudge function heads regularly towards better performance. Alternatively, you can spread the reviews throughout the year, such as every quarter.
3. Develop a corporate initiatives matrix: enter major initiatives into a table of corporate initiatives, which should also record which function is leading the initiative, which other functions are involved and which operating units will be affected. This will help different functions take an integrated approach and will help to anticipate potential problems.
4. Break out shared services: request that shared services be managed differently from other corporate activities. This will lead to what the researchers describe as an “order of magnitude change in performance”: better service at lower cost in the shared-services division, as well as clearer policies and control that focus on adding value with the remaining corporate functions.                                                           

As well as giving function heads effective guidance, following these four steps will also give operating managers confidence that functions are working together for the corporate good, rather than in their own self-interest. Ultimately, these four changes will increase the value corporate functions add to an organization.

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REFERENCES

Are CEOs Getting the Best from Corporate Functions? Andrew Campbell, Sven Kunisch & Günter Müller-Stewens. MIT Sloan Management Review (Spring 2012).

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