There are four stages in the life cycle of corporate functions:

Stage 1 – Youth and Enthusiasm

A new corporate function, such as IT or risk management is generally created to provide guidance or economies of scale to the business divisions, bringing the company closer to its competitors’ cost levels. However, leaders may fail to think through the problems the new function may face:

1. The function may not have the same value for all business divisions.
2. Often its mandate is unclear.
3. New function draws some managers from other corporate functions and some from outside the company but insiders may lack the skills needed for this new function, while outsiders lack knowledge of the company and acceptance within its ranks. All of them are likely to struggle at the start.

What companies can do?

• New function heads should try multiple initiatives and focus on attracting some new clients. Set up “sharing events” with a few major companies. Some managers from the prospective client as well as some managers of present company would share their concerns and challenges along with skills and experience. The events may prove successful and bring in a small number of significant new clients, quickly establishing the function’s credentials inside the organization.
• Start with a few people. Find talented managers within the organization whose skill sets match the initial mandate and temporarily assign them to the function.
• Focus on selected parts of the company to build relationships and understand needs, especially if the function targets those divisions that are most enthusiastic about its activities.

Stage 2 – Adolescence and Ambition

When managers in corporate functions start to succeed and develop good relationships with business units, the function starts to develop a mix of activities, each of which requires a different relationship with the business divisions – the business divisions feel the burden of extra initiatives and their relationships with the function become more complex, goodwill may begin to evaporate. How should companies proceed?

• Explicitly link activities to sources of added value. The corporate strategy process is frequently more focused on portfolio issues than on how to add value to the businesses. Thus functional leaders push for more clarity about the main ways in which headquarters is expected to add value. Business division leaders complain about “too many unconnected initiatives.” So produce a table that clearly shows how each function contributes to each major source of added value and how each functional manager can support the other functions.
• Review performance and challenge plans. Most performance reviews for managers at corporate headquarters are just discussions between the boss and a subordinate and do little more than assess whether the latter performed the activities agreed upon in advance. Function heads should involve managers from the business divisions in these assessments.
• Stay lean. When corporate functions are unable to grow, limited resources force to focus on core tasks that had the highest impact for the company. They will most likely focus on the most valuable activities.

Stage 3 – Maturity and Best Practice

Once a corporate function is well established and its mandate is fairly stable, its bosses focus on improving performance. Because identifying objective performance measures is difficult, they typically use similar functions in reputable companies as benchmarks and start searching for best practices. But a focus on peers may divert attention from the specific needs of the internal business divisions. Therefore, take following steps:

• Reinforce relationships with business divisions.
• Bringing people into a corporate function from the business divisions. The new arrivals can educate their functional colleagues and provide a bridge to the units they came from.
• Give some division-level responsibilities to corporate function managers.
• Take feedback from their business units as an integral part of their functions’ strategic review processes.
• Separate policy from services activities.

Stage 4 – Change and the Struggle for Survival

At some point demand for the corporate function’s activities may change or dry up altogether. Managers in the function typically resist change for fear of losing power, reputation, influence or even their jobs. The processes and behaviours need to be avoided to help managers cope with a significant shift in mandate. Close engagement with the business divisions will help them recognise when they are adding less value. Following steps may therefore be required:

• Replace the leaders – Typically, the incumbent function head is part of the problem. Installing a new leader not only helps win support for change but also signals that change is under way, which makes it easier for the new leader to radically downsize, cut back unnecessary management systems and alter the team.
• “Zero-base” reviews – Downsizing is always difficult, especially if it happens in only one function. A zero-based review is effective in analysis of corporate functions: In other words, the default position is to eliminate an activity unless it is championed by clients of the corporate function and the value it adds is clear.
• Separate new value-adding activities – Set up new value-adding activities as a different function and require it to submit a new business case and gain fresh corporate sponsorship. One alternative to creating a different function is turning the additional activities into separate departments within the existing function.

Corporate functions have a life cycle and change continually. New ones are set up, existing ones grow, and long-established ones become redundant or need to adapt to new circumstances. Corporate executives can anticipate problems and put in place countermeasures to help functions add rather than subtract value.

–              Prof. (Dr.) N. K. Garg

(www.nkgposts.com)