The Best-Managed Firms Have Small Headquarters Staff

For further information:
Robert J. Kramer
(212) 339-0332
The Conference Board

For Immediate Release Release #4472A

MULTINATIONALS ARE RADICALLY REORGANIZING THEIR HEADQUARTERS TO STAY COMPETITIVE The Conference Board Finds The Best-Managed Firms Have Small Headquarters Staff

March 2 -- Global corporations are shrinking and reorganizing their headquarters operations to stay in front of the competition, according to a new report released by the Conference Board.

Eighty-five percent of the major companies surveyed have reorganized headquarters and 74% have revised the role of their headquarters since 1990. But nonfinancial services firms are an exception -- they've been less likely to downsize their headquarters.

The Conference Board report is based in part on a survey of 89 multinational corporations from Fortune magazine's Global 500 and the Financial Times' Europe 500 lists.

The Conference Board study finds that well-managed firms are more likely to have a small headquarters staff, consisting of 2% or less of their total employees. Not coincidentally, the best-managed companies were also more likely to have significantly revised the role of their corporate headquarters in the '90s.

The Conference Board study uses the Standard and Poor's Long-Term Issuer Credit Ratings (which rates a firm's overall capability and willingness to pay its financial obligations) and return on assets (which reflects a firm's relative efficiency in the utilization of its assets) to determine the efficiency of management.

"Even though corporate headquarters are downsizing, there is a simultaneous trend to strengthen the role of headquarters in certain functions, because of growing concerns about competition, globalization, and the impact of information technology," says Dr. Robert J. Kramer, an expert on corporate organization at the Conference Board and author of the report. " 'Management's dissatisfaction with certain business outcomes' is the leading reason that triggered HQ change in most respondents, followed closely by 'appointment of a new CEO.' "

Headcount reduction best characterizes the type of reorganization happening at headquarters. About 55% of the survey respondents said they reduced their number of headquarters employees, while 35% have relocated headquarters staff to different units or divisions. Some 32% have both outsourced one or more headquarters activities and reduced the number of levels of management between the CEO and business units. Other reorganization activities: the creating of shared services units (31%); centralizing specific functions at the corporate level (27%); and forming teams (14%). Twenty-three percent of the respondents initiated non-staff-related cost-reductions.

WHY AND HOW CORPORATE HEADQUARTERS ARE CHANGING

Seventy percent of survey participants say "providing enterprise leadership" is the most important way that headquarters adds value to a corporation. Other practices reported included "formulating a shared vision and values and strong company identity" (44%); "executing financial strategy" (38%); "ensuring company-wide access to technology, knowledge, and management talent" (29%); "improving business unit strategy and performance" (26%); and "controlling and monitoring performance" (26%).

"Greater speed" was the outcome most often cited (54%) by survey participants as a primary driver for changing the role of headquarters. Forty eight percent of the respondents said they reorganized headquarters to "bring about greater organizational clarity and enhance accountability." "Improving integration" was cited by 21% of survey participants.

The best-managed firms strengthen the roles of business development and procurement; increase best practices exchange and knowledge sharing; combine routine, high-volume, and transaction-based services with nonroutine strategic services in their shared services units; provide more leadership including fostering cooperation and synergy between business units; and improve integration.

The specific headquarter roles that companies are strengthening, according to the survey results, are: executive selection and development (92%); best practices exchange (86%); strategic planning (84%); government and public relations (83%); finance (80%), and information technology (76%).

Other major findings: * Three times as many companies now transfer employees regularly between corporate headquarters functions and business units and divisions than do not. * Sixty-five percent of respondents include one or more shared services operations. Very few companies allow managers to freely select alternative service providers from either within or outside the corporation, although almost half allow this under certain conditions. * Compared with European-based companies, the headquarters of North American-based firms have more responsibilities for: community affairs, government relations, regulatory affairs, employee benefits, pensions, organization development, workforce diversity, patents and licensing, purchasing/procurement, and real estate management.

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Source: Organizing for Global Competitiveness: The Corporate Headquarters Design Report #1233-99-RR, [email protected], The Conference Board