How do you design the role of corporate functions?

When refining or designing the role of corporate functions such as HR, Learning and Development, Strategy or Finance, executives often search out best practices. My colleagues and I at the Ashridge Strategic Management Centre have recently completed some research into this topic – taking the Strategy function as our focus. What we have learned suggests that the search for best practices in corporate functions may be something like the search for the Holy Grail – tempting but likely to be a waste of time. The problem is that corporate functions are, and should be, very different in different organisations. This means that there are often very few useful benchmarks.

Take two illustrative examples of how different corporate functions can be – in this case, the strategy function. One is a (disguised) logistics company with several related businesses. The strategy function is headed by an experienced executive with nearly 25 years experience in the company, and a staff of over a hundred. He is responsible for various activities relating to the trucks used by different business units – purchasing, route planning, dispatching, and maintenance.

Another is a company with several decentralised and independent hi-tech businesses. The strategy function is run by an ex-consultant who offers the businesses a consultancy service from his staff of 20 ex-consultants and individuals rotating through from the businesses. For major projects he is involved in hiring in external support if needed.

Benchmarking these functions would be a real apples to oranges exercise. They are so fundamentally different that benchmarks would be a waste of time. However, this doesn’t mean that it is impossible to diagnose whether or not they are doing a good job. What is needed is a contingency framework that explains what factors should be driving the design of a particular corporate function – a framework that explains the differences.

The key insight is that Corporate functions should focus on what is most important to the overall organisation – what we term “the corporate agenda”. For example, in the first company, there are significant synergies between the businesses – realising these synergies is one of the major items on the corporate agenda. In the second example, the corporate agenda includes ensuring that the hi-tech business units are continually scanning the environment and adjusting their strategies – the central strategy team help them do this. By aligning to the corporate agenda, corporate functions can ensure they are maximising the value they create.

A second factor has to be taken account of when designing corporate functions – the capabilities of the Head of the function and their department. For example, at the logistics company it was critical that the head of the function have a detailed understanding of the operations of the company. At the hi-tech business it was vital to have someone capable of designing and leading a series of strategy projects.

The implications include:

• When designing the role of a corporate function, start with the corporate agenda and the capabilities you have.
• Design your role to be a complement to the capabilities that exist in the business units (and other corporate functions and external providers).
• As the agenda changes, change your capabilities and/or adjust your role.
• If you desire best practices, make sure that you are making comparisons to companies with the same corporate agenda.

Do you agree? Do you have other approaches to designing or refining the role of corporate functions?

Author

Jo Whitehead

Director, Ashridge Strategic Management Centre

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Dr. Jo Whitehead is a Director of the Ashridge Strategic Management Centre, a widely recognised authority on strategy and general management issues within large companies. He teaches on executive strategy courses at Ashridge and London Business School, and provides executive education and consulting support to a number of major and mid-sized European companies.Previously he was a Vice President and Director of the Boston Consulting Group, where he worked for 20 years in the UK, US and as the global marketing and research director for the Energy and Utilities practice area. He is co-author of an upcoming book on corporate strategy, and has published What You Need to Know About Strategy, in 2011 and Think Again: Why Good Leaders Make Bad Decisions and How to Keep it from Happening to You, in 2009. Jo is Vice-Chairman of Cambridge University Musical Society as well as the founder of the England over 40’s Touch Rugby team.