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Designing the parent

Designing the parent. Andrew Campbell Director, Ashridge Strategic Management Centre. The size and role of the corporate centre varies widely. Headquarters staff. 100,000. 10,000. 1,000. 100. 10. 1. 1,000. 10,000. 100,000. 1,000,000. Total company employees.

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Designing the parent

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  1. Designing the parent Andrew Campbell Director, Ashridge Strategic Management Centre

  2. The size and role of the corporate centre varies widely Headquarters staff 100,000 10,000 1,000 100 10 1 1,000 10,000 100,000 1,000,000 Total company employees MSH/FB/Aligning AspirationsAshridge Strategic Management Centre GLS/AC/Parenting Issues

  3. HQ staff and financial performance Relative number of staff Relative number of staff 2.0 2.0 1.23 1.18 1.00 1.00 1.0 1.0 0.0 0.0 Below average Above average Below average Above average Return on capital employed Shareholder return No objective evidence that “lean and mean” is more effective MSH/FB/Aligning AspirationsAshridge Strategic Management Centre GLS/AC/Parenting Issues

  4. Number of HQ staff Number of headquarters staff 1,000 France USA Germany Japan 100 Chile Netherlands UK 10 0 1 10 100 1,000 Number of employees in company (000s) MSH/FB/Aligning AspirationsAshridge Strategic Management Centre GLS/AC/Parenting Issues

  5. Corporate functions in the USA and Europe Median staff per 1000 employees % of companies Including function a,b a Function USA USA Europe Europe 56 34 32 33 7 68 72 33 52 70 33 90 Training & education Research and development Marketing/Commercial services Purchasing/inbound logistics Distribution/outbound logistics Information systems & telecommunications 0.22 0.56 0.52 0.45 0.66 0.43 0.23 3.33 0.50 0.64 0.51 3.06 a.Industrial companies with separate headquarters only. b. Companies reporting functional HQ staff. 50% of companies lie below the median, and 50% above. MSH/FB/Aligning AspirationsAshridge Strategic Management Centre GLS/AC/Parenting Issues

  6. Roles in the organisation structure(1) Parent BusinessUnit or Self-managed Operating Unit Operating Function MSH/FB/Aligning AspirationsAshridge Strategic Management Centre GLS/AC/Organisation Design Framework

  7. Roles in the organisation structure (2) Parent Division or Intermediate Parent/Layer BusinessUnit or Self-managed Operating Unit Sub-BusinessUnit or Semi-autonomous Operating Unit Operating Function MSH/FB/Aligning AspirationsAshridge Strategic Management Centre GLS/AC/Organisation Design Framework

  8. Roles in the organisation structure(3) Parent Parent Support Functions BusinessUnit or Self-managed Operating Unit Business Support Functions Operating Function MSH/FB/Aligning AspirationsAshridge Strategic Management Centre GLS/AC/Organisation Design Framework

  9. Roles of parent support functions • Policy function -sets and imposes policy • Shared service - looks after internal customers • Core resource – looks after a scarce resource and acts as a “business partner” to the businesses • Coordination or championing – persuades other units to give attention to something MSH/FB/Aligning AspirationsAshridge Strategic Management Centre GLS/AC/Organisation Design Framework

  10. Types of relationship between roles • Hierarchical relationships • boss to business unit (“hands off” – “parent”) • boss to operating function (“hands on” – “team leader”) • Lateral/diagonal relationships • policy relationship (“sorry, you have to do it”) • partner relationship (“we need to do this ….”) • championing relationship (“you need to pay attention to this and it will be good for us …) • service relationship (“what can I do to help”) • partner relationship (“lets discuss it”) • mutual self-interest relationship (“if it makes sense”)

  11. Three ways to structure the operating core Function • Function • Process • Geography • Customer • Product • Project • Asset • Two hats matrix • Two boss matix • Front/back Business Unit Matrix

  12. A way of drawing organisation structures Powerful central functions Headof structure Less powerful services and advisory units Policy functions (Fin, HR, IT, Comms, etc) Coordinating or championing units (Product, KAM, lean, etc) Core resource functions (Production, R&D, Marketing, etc) Shared services (Accounting, HR, IT, etc) Business Units

  13. How to design/re-design the parent • Define the main “governance requirements” • This provides a minimum size of the parent MSH/FB/Aligning AspirationsAshridge Strategic Management Centre GLS/AC/Organisation Design FrameworA

  14. Nearly all HQs include: general corporate management legal/ company secretary treasury taxation financial reporting and control “Governance” HQ functions These functions discharge the minimum governance role MSH/FB/Aligning AspirationsAshridge Strategic Management Centre GLS/AC/Parenting Issues

  15. Staffing of the governance role 29 1.00 1.27 0.34 0.63 1.00 1.59 2.94 4.68 0.77 1.00 1.30 0.71 1.00 1.05 0.71 1.42 0.67 1.50 Baseline median minimum Governance staff Factors x baseline staff Employees Turnover per employee Functional influence Lower quartile Upper quartile Lower quartile Upper quartile 29 Europe USA 2,000 5,000 10,000 20,000 50,000 100,000 $75,000 $150.000 $300,000 Low Medium High Quartiles Europe Quartiles USA X USA 1.27 X 20,000 Employees 1.59 X Turnover per employee 1.30 $300,000 X Functional influence Medium 1.00 = Median 76 Lower quartile Upper quartile 51 114 0.67 x 76 = 1.50 x 76 = MSH/FB/Aligning AspirationsAshridge Strategic Management Centre GLS/AC/Parenting Issues

  16. How to design/re-design the parent • Define the main “governance requirements” • This provides a minimum size of the parent • Define the major sources of added value • 3-7 each adding at least 10% • Do a matrix of functions and sources of added value • What contribution does each function make to each major source of added value MSH/FB/Aligning AspirationsAshridge Strategic Management Centre GLS/AC/Organisation Design FrameworA

  17. Matrix of functions and added value Major Sources of Added Value Functions MSH/FB/Aligning AspirationsAshridge Strategic Management Centre GLS/AC/Organisation Design Framework

  18. How to design/re-design the parent • Define the main “governance requirements” • This provides a minimum size of the parent • Define the major sources of added value • 3-7 each adding at least 10% • Do a matrix of functions and sources of added value • What contribution does each function make to each major source of added value • Challenge additional activities: only include if they have a low risk of value destruction MSH/FB/Aligning AspirationsAshridge Strategic Management Centre GLS/AC/Organisation Design FrameworA

  19. The three challenges • Do we have to do it (governance) and does it have to be done at the centre? - If no, try next challenge • Is it an important part of one of the major sources of added value (i.e. 10%)? - If no, try next challenge • Does it add some value with low risk of value destruction? - If no, don’t do it MSH/FB/Aligning AspirationsAshridge Strategic Management Centre GLS/AC/Organisation Design Framework

  20. How to design/re-design the parent • Define the main “governance requirements” • This provides a minimum size of the parent • Define the major sources of added value • 3-7 each adding at least 10% • Do a matrix of functions and sources of added value • What contribution does each function make to each major source of added value • Consider additional activities only if they have a low risk of value destruction • Get each function to present its strategy annually covering • Governance, Major Added Value, Other MSH/FB/Aligning AspirationsAshridge Strategic Management Centre GLS/AC/Organisation Design FrameworA

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