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Our new study reflects the study design of previous years and further investigates organizational trends and capabilities of modern corporate headquarters
Corporate headquarters study, 1999-2013
1999 2002 2005 2008 2010 2013 201313 Management concept and size of corp. HQs Management concept, size of corp. HQs and trend toward centralization Management concept, size of corp. HQs and trend toward centralization + Germany as an attractive location for HQs Management concept, size of corp. HQs and trend toward centralization + Changing view of HQ's role Management concept, size of corp. HQ and trend toward centralization + Comparison of European countries as locations for HQ Management concept, size of corporate headquarters and trend toward centralization + Development of centralized control and decentralized management + Shift in the center of gravity + New organizational structures: Project and process orientation
Roland_Berger_Corporate_Headquarters_Short_version_20130502.pptx
86 companies of various size, industry and management concepts took part in the study
Study participants (n=86) by key attribute [%]
SIZE [employees] >50,000 25,000 to 11% 50,000 0 to 5,000 13% 41% 5,000 to 35% 25,000 INDUSTRY SECTOR Trade Services 8% 28% 65% Producing and manufacturing SIZE [sales in EUR m] >5,000 2,500 to 5,000 27% 13% 60% 0 to 2,500 NUMBER OF OPERATIONAL UNITS >6 1 to 3 34% 30% 36% 4 to 6 MANAGEMENT CONCEPT CLUSTERS FOR THE ANALYSES Strategic holding 30% 27% Operational holding COUNTRY OF ORIGIN Rest of world 23% 41% Europe (excl. Germany) 37% Germany 43% Integrated headquarters
Roland_Berger_Corporate_Headquarters_Short_version_20130502.pptx
In our new study on corporate headquarters, we highlight the concept of value adding capabilities and ways of developing them
Study overview: corporate headquarters Questionnaire focused on role and value contribution of corporate HQ
Basic information, incl. location of production, sales & support functions today and 2020 (center of gravity) Quantitative part: > FTE in CHQ and SSC per function > Degree of centralization per function > Degree of outsourcing per function > Costs of CHQ (and SSC) functions Qualitative part: > Role of CHQ (e.g. major roles today and 2020, approaches to add value) > Internationalization of CHQ (e.g. perceived necessity for internationalization) > Project and process orientation (e.g. methods to lead decentralized units; major challenges in leading them) 86 participants
Results include specific approaches and good practice examples for modern headquarters
CONCEPT OF VALUE ADDING CAPABILITIES
ACTION MAP
Modern corporate headquarters need to focus on value adding capabilities to overcome the parenting advantage paradox
Corporate headquarters need to show all stakeholders that they create value by "parenting" the businesses that they own and thus justify their existence Headquarters must permanently minimize costs but add more value at the same time, leaving the center with what we call the parenting advantage paradox
Increasing complexity in the business environment adds new challenges for the center and requires additional
Our study reveals a new view on headquarters: Five capabilities that truly add value beyond the traditional cost and efficiency focus
An action plan with approaches and good practices shows how modern corporate headquarters build value
Roland_Berger_Corporate_Headquarters_Short_version_20130502.pptx
HQ costs represent between 2% and 7% of sales Although shared services and outsourcing are important cost levers, HQs are not expected to shift to other geographies
The cost of corporate headquarters is a significant burden. The average cost of headquarters ranges between 2% and almost 7% of sales depending on management concept and industry cluster shared service center function. Most shared service centers are still located in Europe (80%). Offshoring to Asia/Pacific expected to speed up from 4% today to 10% in 2020 participants
50% of companies exploit economies of scale using shared services, with IT being the most frequent
Outsourcing remains on 2010 levels at approx. 30% The IT function is most frequently outsourced by the study HQ locations are not following the shift in sales markets and production footprint towards Asia
Consequently, 60% of the participants think they need to further internationalize their headquarters. For most companies this means involving HQ in international projects and transferring international employees to HQ. Only 14% are planning to internationalize by relocating functions abroad
Source: Roland Berger
Roland_Berger_Corporate_Headquarters_Short_version_20130502.pptx
The need to have more international HQs shows that virtual collaboration is becoming more important The role of HQ is changing and its value creation is considered in a new light
Almost all study participants will have more virtual collaboration. The objective is to enhance collaboration across departments and to ensure proximity to the business Study participants are well aware of the challenges presented by more collaboration. The key problems mentioned are poor communication and failure to align strategies and goals Today, HQ's primary role is that of Manager (40%) and Law Guardian (25%) 55% of study participants expect their HQ to play a stronger Business Partner role in the future. This overall shift sheds new light on the way
HQ creates value
Roland_Berger_Corporate_Headquarters_Short_version_20130502.pptx
Corporate headquarters are facing a paradox: They are expected to achieve more with less
Parenting advantage paradox
Corporate Headquarters ("the parent") 1
> The corporate headquarters in its "corporate parent" capacity must justify its existence > To do so, the parent should be able to demonstrate that its businesses perform better in aggregate than they would as a series of individual, standalone entities (avoid conglomerate discount of capital market evaluation) > In reality, HQs often lack the ability to show they add real value. They are consequently reduced to a cost burden that must meet contradictory expectations 1 COST CUTTING
!
Parenting advantage
Cost of CHQ
Valueadd
2
Source: Roland Berger; Campbell, A., Goold, M. & Alexander, M. (1995) Corporate Strategy: The Quest for Parenting Advantage, Harvard Business Review,Roland_Berger_Corporate_Headquarters_Short_version_20130502.pptx March - Apri
1 COST CUTTING
When companies look at their corporate headquarters, they rarely consider it more than simply a cost burden
Cost of corporate headquarters
PRESS RELEASES, 2010-12
Chile's Codelco cuts more than 100 HQ staff > Costs differ significantly by management concept and industry a systematic benchmarking allows the cost base to be challenged > Very few companies publish HQ costs as % of sales in their annual reports (e.g. Adidas 7.3%, Telekom 3.1%) > Cost transparency is the basis for cost saving efforts and helps raise cost awareness
6.6% 4.6% 3.2% 1.6% 1.5% 2.0% 1.2% 2.1% 1.0% 0.3% 0.2%
Merck Pharma closes Swiss HQ, cuts 580 jobs Telekom is planning to cut 1,300 further jobs at its Bonn headquarters by 2015 Around 700 jobs at Canadian retailer Loblaw could be cut as it plans to make its HQ "leaner" and "more efficient"
> In addition to the tangible cost of the HQ itself, it can create a lot of additional admin for its businesses. In the worst case, it even causes real harm by setting the wrong strategic course, etc.
Source: Roland Berger Press Research, Roland Berger Benchmarking Database Roland_Berger_Corporate_Headquarters_Short_version_20130502.pptx
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1 COST CUTTING
Companies are trying to cut overhead, and specifically HQ costs, in a number of ways
Typical levers and approaches to reducing overhead cost
Cumulative savings potential [%]
60 50 40 30 20 10 0
> Overhead cutting efforts usually use three generic levers Efficiency increase Economies of scale and synergies Labor arbitrage
> In most cases, overhead cost cutting efforts build on each other savings are therefore cumulative > To reduce the cost of the HQ, this logic was applied in two ways Centralization to achieve savings through the headquarters (bundling, shared services) Efficiency improvement and relocation to reduce the cost of the HQ (efficiency increase, labor arbitrage)
Shared service centers Bundling of entities Process optimization Spans & layers optimization Service level reduction Efficiency increase Economies of scale & synergies MAIN LEVER Labor arbitrage
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50% of companies exploit economies of scale using shared services IT is the most frequent shared service center function
TREND IN SHARED SERVICE CENTERS (SSC)
CC SSC BU BU BU
> Bundling support functions in shared services has become a standard way of cutting overhead cost > Shared service usage differs by function IT, Accounting and Human Resources represent the highest proportion of functions that are transferred to SSCs (albeit usually only to some extent) > In addition to exploiting economies of scale and synergies, SSCs are expected to deliver higher service process quality and standards
2005
2008
2010
2012
48%
12
Labor arbitrage through outsourcing remains on 2010 levels IT function most frequently outsourced
Prioritization/rationalization TREND IN OUTSOURCING
CC External service providers BU
> The share of companies that have outsourced corporate functions has declined in the past five years > Today, 1/3 of the survey participants use outsourcing as a lever for reducing labor costs > IT, Legal and Communications represent the highest proportion of functions (partly or entirely) performed by external vendors
BU
BU
2005
2008
53%
2010
2012
44%
32%
33%
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Increasingly complex business environments require higher value creation plus the skills and resources to achieve it
SHIFTING CENTERS OF GRAVITY: INTERNATIONALIZATION:
20% expect the highest share of total sales and production to be generated outside Europe and North America 80% expect HQ not to follow the shift but step up their capacity in Western Europe 53% expect a (very) strong increase in virtual and location independent working in the future
VIRTUAL COLLABORATION:
59% think their CHQ should become more international internally (more cross-border projects, more international employees at HQ) 55% see a stronger business partner role for their headquarters in the future
VARIETY OF TASKS: ROLE SHIFT:
69% see difficult or incomplete communication as major challenge in managing decentralized support functions 51% lack strategic alignment
DECENTRALIZED FUNCTIONS:
77% see that tasks of corporate headquarters are becoming more numerous/diverse
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To cope with the challenges at hand, corporate headquarters are expected to grow and further centralize tasks and responsibilities
Trend in centralization/decentralization Relative size of corporate headquarters [employee ratio1) in %]
5.6% 4.5% 3.0% 2.3% 0.9%
> Overall, the trend toward centralization of headquarters functions seems to continue > Employees working at corporate headquarters functions now represent an average of more than 5% of the entire workforce
Trend in centralization
"What basic trend do you see regarding centralization/decentralization?"
Increasing centralization, i.e. the scope of tasks and responsibilities of corporate headquarters will increase No major change Increasing decentralization, i.e. the scope of tasks and responsibilities of corporate headquarters will decrease No answer
57% 27% 8% 8%
2.8%
> Including capacity allocated to shared services units, centralized support functions account for more than 7% of total employees > Almost 2/3 of the study participants expect that the scope of tasks and responsibilities of their HQ will further grow
1999
2002
2005 2008
2010
2012
1) Avg. no. of FTEs in the corporate headquarters as a share of total FTEs in company; all companies; corporate center only, i.e. excl. shared services Source: Corporate Headquarters Study 1999-2012 Roland_Berger_Corporate_Headquarters_Short_version_20130502.pptx
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A new view on corporate headquarters: Value adding capabilities go beyond traditional roles and capabilities
Capabilities of corporate headquarters
Provide strategic direction
Ensure execution
FUNDAMENTAL CAPABILITIES
Focus is on resource allocation and compliance with legal requirements Strengthen innovation
Provide Purpose financing & identity Corporate governance Work in global networks
1 2 3
Manage portfolio
Manage complexity
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Corporate headquarters help shape corporate identity by promoting a common culture and shared values
Value created by corporate headquarters "Corporate headquarters must create value. How does your corporate headquarters do this?"1)
promotes a common company culture and company values (fostering identity) provides expertise/best practices or coordinates the pooling of expertise/best practices forms powerful units and initiates or manages projects (e.g. corporate office, compliance, etc.) offers internal services manages and coordinates internal and external service providers fosters networked operations and provides infrastructure (promoting virtual teams, etc.)
I fully agree
1) Multiple answers Source: Roland Berger; see also "Corporate Headquarters 2010" Roland_Berger_Corporate_Headquarters_Short_version_20130502.pptx
59% 51% 31% 22% 18% 14% 55% 49% 49% 57%
29% 37%
> Corporate headquarters significantly contribute to building an individual or collective sense of identity by establishing artifacts of a corporate culture based on a commonly shared set of values > Main effects of a common corporate culture and shared values are typically Better identification with the company Common objectives Clear value proposition to all employees Greater employee retention Greater mobility between entities > Although culture cannot be shaped directly, several factors can be influenced by HQ in order to develop a favorable culture, e.g. HR instruments, leadership structure etc.
67% 63%
I agree somewhat
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2 FUNDAMENTAL CAPABILITIES
Fundamental capabilities are consistent across all companies HQ composition can differ significantly by function
Fundamental capabilities and frequent functions FUNDAMENTAL CAPABILITIES
Manage portfolio: Diversification, divestments and optimization of existing portfolio Provide financing: Financing at best possible terms and risk management as key tasks Corporate governance: Best practice shapes company's structures, systems and people Report corporate activities: Main task to fulfill external requirements and to deliver meaningful management accounting Exploit synergies: Focus changed from transactions to end-to-end processes
> The fundamental capabilities of an HQ reflect the basic tasks the center needs to perform for the group itself and on behalf of the business units
> Whereas all companies have a dedicated centralized company management function, the other "classical" centralized support functions are not necessarily located at the center > The allocation of support functions to the HQ or to decentralized units reflects the overall management model of the company and the role of the center
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We have identified five value adding capabilities that characterize outstanding headquarters
Outstanding value adding capabilities
CAPABILITIES
PROVIDE STRATEGIC DIRECTION MANAGE COMPLEXITY STRENGTHEN INNOVATION WORK IN GLOBAL NETWORKS ENSURE EXECUTION
BEST PRACTICE1) 1. Set and communicate strategic priorities 2. Provide resources to achieve clearly defined goals 1. Balance centralized and decentralized interests (steering approach, degree of freedom, etc.) 2. Understand contradicting goals and help to solve resulting conflict 1. Provide expert knowledge (e.g. on trends, tools, etc.) 2. Share best practices 3. Foster joint development of new (client) solutions 1. Support collaboration across functions and organizational units (e.g. infrastructure) 2. Promote virtual teams/communities of practice/steering bodies 1. Drive change and foster implementation of global initiatives 2. Establish incentive/sanctioning mechanisms 3. Provide program management approach and tools
2)
2)
2)
2)
2)
1) Based on Roland Berger expert survey 2) Detailed as best practice example in comprehensive version of study
Source: Roland Berger Roland_Berger_Corporate_Headquarters_Short_version_20130502.pptx
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The "CHQ ACTION MAP" provides specific advice for building value adding capabilities
VALUE ADDING CAPABILITIES: PROVIDE STRATEGIC DIRECTION MANAGE COMPLEXITY ROLE
Set role(s) of CHQ to match company strategy (business requirements)
SIZE
Allocate/Balance resources to strategic priorities (capacity/cost)
PEOPLE
Build competency framework and career framework that reflects/support strategic priorities and apply in HR processes and instruments Create transparency on existing capabilities in the organization and support/ contribute to global succession management Foster centralizeddecentralized and crossfunctional job rotation/ staffing Identify talent and establish global talent pools; professionalize expatriate management within HR function Empower managers to become "true leaders" and to take ownership; train project management skills
STRENGTHEN INNOVATION
Act as engagement manager to obtain commitments and ensure they are met
Balance decision authority (centralized vs. decentralized); apply sanctioning mechanisms in a stringent way (corporate governance, compliance)
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We have the right set of methodologies to support analyses and safeguard sustainable implementation (1/3)
OVERALL ROLE STRUCTURE & PROCESSES
Organization audit
proDacapo (ABC)
REDUCTION
REDESIGN
Relocation
1 3 1 5 4 6 7
AUTOMATION
Elimination
3 1 3 1 2 5 4 6 7 1 1 3 5 4 6 7 2 5 4 6 7 1
Initial process
Integration
3 1 5 4 6 7
Automation
1 1 4 5 6 7
Outsourcing
Synchronization
4 1 1 3 5 6 7
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We have the right set of methodologies to support analyses and safeguard sustainable implementation (2/3)
SIZE SYSTEMS
BigBen/orga benchmarks
11
Sizing tool
2014 Sales target sizing
Role Properties Tier Field Sales Group Sales Director Sales Specialist Director Sales Manager Sales Representative Sales Specialist Total Direct Sales Direct Sales Director Direct Sales Manager Direct Sales Representative Resellers Total Export Group Export manager Export account manager Total Industry Team Industry Segment Director Pharma/Bio Industrial Academic IDIR Pharma/Bio Industrial Academic Business Developer Total 2 2 3 4 4 Reports to VP Sales Europe VP Sales Europe Group Sales Director Sales Manager Sales Specialist Director Layer 5 5 6 7 7 Band V V IV III III Level European European In-country In-country In-country Sales Group 1 Sales Group 2 0 0 6 51 8 0 0 4 26 5 Sales Group 3 0 0 7 64 9 Sales Group 4 0 0 5 38 7 Europe 4 0 0 0 8 2014 Proposal Total Quantity Total cost per role, USD
13
4 1,039,675.1 0 No role/quantity 22 3,266,757.5 179 14,929,359.3 37 3,831,044.8 242 23,066,836.6 1 3 33 4 41 1 4 5 259,918.8 467,082.9 1,852,083.3 420,185.0 2,999,270.0 108,808.8 303,254.5 412,063.3
Business planning/cases
15
2 3 4 4
VP Sales Europe Direct Sales Director Direct Sales Manager Direct Sales Director
5 6 7 7
V IV III III
0 1 8 1
0 1 6 1
0 1 12 1
0 0 7 1
1 0 0 0
Select Layer S elect BandSelect Level Select Layer S elect BandSelect Level
0 1
0 0
0 2
1 1
0 0 0 0 1 1 1 0 2 6 1 2
2 2 2 3 3 3 3
VP Sales Europe VP Sales Europe VP Sales Europe Industry Segment Director Industry Segment Director Industry Segment Director Industry Segment Director
5 5 5 6 6 6 7
V V V IV IV IV IV
0 0 0 1 0 2 0
0 0 0 0 0 1 0
0 0 0 1 0 2 0
0 0 0 2 0 2 0
1 1 1 6 6 8 2 25
10
SG&A database
12
14
16
proDacapo (BSC)
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We have the right set of methodologies to support analyses and safeguard sustainable implementation (3/3)
PEOPLE
17
HR Excellence
19
Questionnaire 2 excerpt "Competency model" Questionnaire excerpt "Talent assessment" Questionnaire excerpt "Level of standardization"
TM issue
HR Plann in g
C entralization
HR targets from global business plan Homogenous target groups Standardized planning framework Annual process Global recruiting (CoE, Shared Service) Global employer marketing approach Global staffing
Scoring
Decentralization
HR targets from local needs Heterogeneous target groups (Region) specific adaptations Process on a demand/ needs basis Local recruiting (HR representatives) Local recruiting initiatives Local staffing Individual process (per employee/demand)
A ssignment Integration with annual performance process Evaluatio n Standardized evaluation frameworks
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1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13.
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Transfer matrix
Cultural Audit:
Pas du tout d'accord
Le personnel a une vision claire des objectifs et de la transformation ncessaire Je supporterai personnellement le changement Dispose des approches, mthodes et outils ncessaires La direction a les incitants appropris pour encourager au changement Le personnel administratif et de support a une vision claire des objectifs Le personnel est prt revoir son rle et ses responsabilits La direction veut lancer un vrai programme de changement Des pressions externes poussent changer La direction a lexprience et les comptences pour russir le changement et y participer Le personnel a une vision claire des objectifs, des priorits et de la transformation ncessaire Le personnel administratif et de support est prt initier le changement et y participer La direction est prte revoir son rle et ses responsabilits Je sais en quoi la socit doit se transformer Des pressions internes poussent la socit changer
5 5 5 5 5 5 5 5 5 5 5 5
4 4 4 4 4 4 4 4 4 4 4 4
3 3 3 3 3 3 3 3 3 3 3 3
2 2 2 2 2 2 2 2 2 2 2 2
1 1 1 1 1 1 1 1 1 1 1 1
KULTURAUDIT
2.0 2.5 3.0 3.5 4.0 ... ... ... ... ... ... ... ... ... ... ...
Temperature Check
For further information on Roland Berger tools & methodologies don't hesitate to contact the authors of the study.
Roland_Berger_Corporate_Headquarters_Short_version_20130502.pptx
A Unternehmen A
B Unternehmen B
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Comparing apples with apples Our overhead benchmarking approach is based on five key success factors
Overhead benchmarking approach
4
Source: Roland Berger
Step further Use benchmark as starting point to ask the right questions
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For each specific benchmark analysis, we refer to our database of more than 350 companies
Data origin and customization
> More than 350 companies across all industries based on projects and studies > Customization by cluster Size (headcount) Industry Management concept > Benchmarking of individual functions Distribution by corporate center and shared services Consideration of the degree of centralization Consideration of the degree of outsourcing Addition of a "detailed view" at the level of subfunctions
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Benchmarking against a carefully selected panel and further discussion to estimate top-down potential
Sample company benchmark
Median1) 1st quartile1) Company X
METHOD > Function specific benchmarking based on full time equivalents (FTE) > Fine-tuning of the panel selection as essential key for appropriate benchmarking values
Function Organizat. Dev./Consulting Occupat. Safety/Env. Prot. Strategic Plan./Corp. Dev. Company Management Mergers & Acquisitions RESULT > Rough estimate of top-down potential > Focus functions define starting point for further analysis
Category
Strategic/corporate functions
Focus for further analysis
Finance functions
HR & supp.
Roland_Berger_Corporate_Headquarters_Short_version_20130502.pptx
Human Resources
Investor Relations
Communications
Accounting
Controlling
Insurance
Auditing
Finance
Taxes
Legal
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CONTACT
Roland Berger Strategy Consultants Dr. Tim Zimmermann, Senior Partner Roland Berger Strategy Consultants GmbH Mies-van-der-Rohe-Str. 6, D-80807 Mnchen, Germany Phone +49 89 9230-8362, E-Mail: tim.zimmermann@rolandberger.com Roland Berger Strategy Consultants Fabian Huhle, Principal Roland Berger Strategy Consultants GmbH Mies-van-der-Rohe-Str. 6, D-80807 Mnchen, Germany Phone +49 89 9230-8486, E-Mail: fabian.huhle@rolandberger.com
Fabian Huhle
Principal
Please cite the report as follows: Zimmermann, T; Huhle, F. 2013: Corporate Headquarters Study 2012 Developing value adding capabilities to overcome the parenting advantage paradox
Roland_Berger_Corporate_Headquarters_Short_version_20130502.pptx
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