Greg Kesler and Amy Kates
Leading Organization Design, 2011
Functions (including HR, finance, IT, legal, marketing and supply chain) can serve as the mortar that holds the building blocks of a closely related portfolio of businesses together. The HR organization integrates the operating units by delivering common approaches to selecting people, by creating alignment with the right rewards systems, and by stewarding leadership talent as a company‐wide asset that can be redeployed across businesses. Finance creates integration by driving common measurement systems, setting financial targets, and helping ensure that capital moves to the right opportunities in the portfolio. Corporate IT, legal, and supply chain functions all play similar roles in holding the separate organizational building blocks together. The more there is opportunity to gain benefits from synergy between business units, the greater the opportunity for functions to serve as integrators.
The “Problem with Corporate”
Today’s corporate‐center functions often struggle to define the distinct value they add to the growth agenda for the business. In many companies, corporate staffs suffer identity crises, and the top talent is drawn to big jobs in the operating units rather than to roles in the center. For example, division presidents often love their own HR partners but rate the competence of the overall function consistently low, and are constantly battling to reduce allocated costs from the center. Conflicts over roles and decision rights become commonplace, staffers are frustrated with their ability to have impact, and successive rounds of cost reduction continue to reduce capability indiscriminately. This dynamic repeats itself between the corporate level and the divisions and from the division or regional level down to the local units. Companies that make the most progress in designing effective finance, HR, and IT functions create tight focus on how and where work is generated. They view the functions not just as compliance or service entities but as important information conduits and horizontal integrators. The ability of the functions to bring the right information forward enables better business decision making. These companies have taken up the challenge to design the function from “end to end.” This means examining all activity and resources in the function at the center, across geographies, and across business units as a collective in order to reconsider the overall cost and impact the function has on the business. The challenge starts with visibility. In many organizations it is difficult even to pull up headcount figures for a function such as finance around the world.
In end‐to‐end function design, the value framework is converted into a delivery model and then an organization structure. The “center” and the “field” are designed as one integrated capability, with separate but linked roles to play. The human resources organization is a good example to illustrate the benefits of an end‐to-end view of function design, but this analysis applies to any support function. In the traditional approach, “global” responsibility is assigned to the center, which manages an overarching HR strategy and a well‐defined set of corporate HR activities and resources for the greater interest of the enterprise. In this model, the regional and business HR teams are closely aligned with the business leaders. Their costs are budgeted by the businesses, and they have considerable leeway in practices and in staffing their own functions. In many companies, they customize corporate initiatives to fit local needs. This popular model has served to create an effective “strategic business partner.” Business leaders with a competent partner are generally satisfied with their local support. However, the model misses the opportunity to leverage the function as an integrative device for the enterprise. Typically, one finds:
- Limited consistency in core HR processes, deliverables, and impact on the business.
- Wide variation in HR skills and talent
- Higher total HR costs, due to proliferation of functional resources and often redundancy across units
- Limited information and best practice sharing or talent movement across the operating units