Pergamon
PII:
European Management Journal Vol. 19, No. 1, pp. 83–91, 2001
 2001 Elsevier Science Ltd. All rights reserved
Printed in Great Britain
S0263-2373(00)00073-6
0263-2373/01 $20.00
Redesigning the
Corporate Centre
MICHAEL GOOLD, Ashridge Strategic Management Centre, UK
DAVID PETTIFER, PricewaterhouseCoopers
DAVID YOUNG, Ashridge Strategic Management Centre, UK
The authors report the results of a recent large
study of corporate centre transformation: a question
which is often an early priority when a new chief
executive takes office. This article summarises their
approach to corporate centre design which maximises value creation.
Recognising that there are differences in the pattern
of headquarters between countries, the authors base
their recommendation for a corporate centre design
process on three different rôles played by headquarter staff: mimimum corporate parent rôle,
value-added parenting rôle, and shared services
rôle. A case study of Burmah Castrol is described
as an example of the method  2001 Elsevier
Science Ltd. All rights reserved
Keywords:
Strategy
Corporate
headquarters,
a fresh statement about the essential mission and
responsibilities of the corporate centre.
Sometimes these efforts lead to radical change and
a new and more effectively implemented corporate
strategy. More often, unfortunately, they have less
success. They result in changes that are only cosmetic
or temporary, with little lasting impact. Or else they
cause real change, but end up by damaging corporate
performance and internal relationships, not improving them. What is more, proposed changes to the corporate centre are liable to meet entrenched opposition from managers who fear they will lose out.
They defend the status quo strenuously and find a
whole variety of reasons for not changing. Corporate
centre re-designs are easy to set up, but much harder
to bring to a satisfactory completion.
Parenting,
When new chief executives take office, one of their
early priorities is often to reassess the rôle and composition of the corporate centre. They know that the
corporate headquarters represents a significant overhead, and may well be looking for ways to make it
more cost effective. They are frequently embarking
on new corporate strategy directions, and may be
concerned about whether the corporate staff is appropriate to support them. They face probing questions
from investors and analysts about spin-off and
demerger options and the justification for the group,
and so need a clear added-value rationale for the
existence of the corporate centre. All of these concerns may be made more urgent by rumbling discontent in the business divisions about the excessive cost
and influence, or the downright ineffectiveness, of
corporate centre departments.
For all these reasons, corporate centre re-design is
frequently high on the chief executive’s agenda. Project teams are set up to examine every corporate
centre function and process, targets for cost reduction
and downsizing are established, and work begins on
European Management Journal Vol 19 No 1 February 2001
A major problem is that straightforward benchmarking against other companies is not likely to provide much help, since the corporate centres of successful companies do not follow any single model.
Some companies have large staffs, which they believe
are more than justified by their value to the company.
Companies such as Lucent or Unilever, with large
corporate functions in areas such as R&D, Human
Resources and IT, have staffs of several thousand.
Other companies are convinced that lean headquarters are the right answer. For example, Tyco
International, Nucor, and Virgin all have fewer than
50 corporate centre staff. Benchmarks that indicate
extensive downsizing and outsourcing are balanced
by others that suggest stronger headquarters influence or more extensive shared services.
In order to push through a successful corporate
centre transformation, it is necessary to design a staff
that responds to the specific needs of the company
and is fit for the purpose it is intended to serve. For
several years now, we have been developing an
approach to help companies to do this. At Ashridge
Strategic Management Centre, we have carried out
extensive research on the rôle of the corporate centre
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RE-DESIGNING THE CORPORATE CENTRE
and its contribution to successful corporate-level strategies. Recently, we have completed a major project
that has gathered data on over 600 companies in
seven different countries, providing fresh information on the size, composition and determinants of
headquarters staffs (see Sidebar). At PricewaterhouseCoopers, the Corporate Centre Transformation
practice has undertaken consulting projects for several major clients that were reassessing their corporate centres. In this article, we summarise the
approach to corporate centre design which we have
devised. We believe the approach leads to real
change and results in corporate centres that focus on
value creation and are genuinely fit for purpose.
Sidebar: The Ashridge Surveys
During the period from late 1997 to 1999, Ashridge
Strategic Management Centre (ASMC) led a major
international research collaboration on the size and
structure of corporate headquarters staffs. Data was
gathered on over 600 companies, located in the UK,
the USA, France, Germany, the Netherlands, Japan
and Chile. The research partners were Michael Goold
and David Young (ASMC, UK), David Collis (Yale
University, USA), Georges Blanc (HEC, France), Rolf
Bühner (University of Passau, Germany), Jan Eppink
(Free University, Netherlands), Tadao Kagono, (Kobe
University, Japan), and Gonzalo Jiménez Seminario
(University Adolfo Ibañez, Chile). The research was
sponsored by PricewaterhouseCoopers. Reports on
the UK research, Effective Headquarters Staff and
Benchmarking Corporate Headquarters Staff, were published in 1999 by ASMC, and a report on the international comparisons, Corporate Headquarters: An
International Analysis of their Roles and Staffing, was
published by Financial Times Prentice Hall in 2000.
A major finding from the research was that there are
large differences between companies in the size and
composition of their headquarters staffs. For
example, the size of corporate headquarters varied
from about 10 to well over 1000 for companies with
10,000 employees in total. And, while some companies avoid headquarters staffs in functions such as
R&D and marketing altogether, others have substantial departments in these areas. These differences
reflect different views about the right rôle and
responsibilities for headquarters. There is no standard model for successful corporate headquarters.
There are however four key factors that account for
many of the differences between headquarters. These
factors are company size, the amount of functional
influence exerted by the headquarters, the level of
linkages between businesses in the portfolio, and the
corporate policy on shared services. Bigger companies, with stronger functional influence and more
linkages between their businesses, or with a policy
of providing extensive shared services tend to have
84
larger, more multi-functional headquarters. For
example, headquarters size increases by about 60–70
per cent with each doubling of company size, and
companies in which shared services staff represent 40
per cent or more of headquarters have more than
three times as many HQ staff in total as those in
which they represent 20 per cent or less. Other factors, such as industry sector or geographical spread,
also matter, but are less strongly or less directly correlated with headquarters size and structure.
There are also differences in the pattern of headquarters between countries. In general, the European
countries surveyed were remarkably similar. But
headquarters in the US and, in particular, in Japan
were larger. US companies appear to have bigger and
more influential staffs in areas such as IT, purchasing,
marketing and R&D. In Japan, the human resources
function is particularly strong and large. US companies are more satisfied with the performance of their
headquarters, and are in most cases increasing their
size and influence, and the amount of services they
provide. In Europe, and even more in Japan, there is
less satisfaction with HQs, and the trend is to
reduce staffing.
Three Rôles of the Corporate Centre
The essential starting point in any corporate centre
re-design is to recognise that headquarters staff play
three very different rôles (see Table 1).
The first rôle, which we call the minimum corporate
parent rôle, involves discharging the legal and regulatory obligations of the company and meeting minimum standards of due diligence in corporate governance. This rôle has limited ability to create value, but
is necessary for any corporation. It should, however,
be possible to discharge the minimum corporate parent activities with relatively few staff. Most companies greatly overestimate the size of the staff necessary for the minimum corporate parent rôle, so a
pressure for leanness and benchmarking against
leading-edge companies are likely to be good disciplines.
The second rôle, which we call value-added parenting, is about how the corporate parent influences and
adds value to the businesses. It is therefore closely
related to the company’s corporate strategy, which
should lay out the value-added rationale for why it
makes sense for all the businesses in the group to fall
under common ownership. Staff who add real value
for the businesses, for example by helping to develop
and share core competences, are clearly justified, and
it may well be desirable to maintain large staffs in
functional areas that are important sources of value.
But staff groups in this rôle that do not have a
demonstrable added-value rationale should be
downsized or eliminated, since there will otherwise
European Management Journal Vol 19 No 1 February 2001
RE-DESIGNING THE CORPORATE CENTRE
Table 1
Three Rôles of Corporate Headquarters
Rôle
Examples
Characteristics
Minimum corporate parent
Raising finance, basic control, compiling and publishing
accounts, submitting tax returns
Essential
Value-added parenting
Strategic guidance, stretching targets, leveraging corporate
resources, facilitating synergies
Shared services
Information systems, payroll, training, transaction processing
be a danger of excessive costs and misdirected influence.
The third rôle, which we call shared services, is about
providing centralised services to the businesses.
Companies’ policies concerning shared services differ
widely. Some decentralise most or all services to the
businesses, believing that centralised services are seldom truly cost effective and responsive to business
needs. Others prefer to outsource services to third
parties. Yet others believe that shared services at the
centre, at least in selected areas, can be highly effective, whether due to focused management attention,
economies of scale, or opportunities for standardisation. One way to downsize the corporate centre is
certainly to decentralise or outsource shared services,
which often employ large numbers of people. But,
with increasing emphasis on cost competitiveness,
the trend amongst many leading companies seems
rather to be in favour of centralising services, provided that they are set up as separate units with a
dedicated focus on service provision and customer
responsiveness.
The justification for corporate centre staffs is fundamentally different for each of the three rôles. The
design process therefore needs to give separate consideration to each of them.
Minimum Corporate Parent Rôle
For any corporate parent, there are some unavoidable
tasks, such as obligatory legal and regulatory requirements and basic governance functions.
Legal and regulatory tasks include, for example, preparing annual reports, submitting tax returns, and
ensuring that relevant legislation on issues such as
health and safety or the environment is observed.
Any corporate entity must discharge these compliance responsibilities.
It is also necessary to undertake basic governance
European Management Journal Vol 19 No 1 February 2001
Not easily devolved to divisions
Discretionary
Believed by corporate managers to
add value to the business divisions
Needed by divisions
Could be devolved or outsourced
Centralisation believed to provide
economies of scale, scope or
specialisation
functions and show due diligence in representing
shareholder interests. The corporate parent must
establish a structure for the company, appoint the
senior management, raise capital and handle investor
relations. It must also implement some form of basic
control process, so that it can authorise major
decisions, guard against inappropriately risky or
fraudulent decisions, and check that delegated
responsibilities are being satisfactorily performed.
The extent of these necessary governance and due
diligence tasks is hard to determine precisely. The
strict legal requirements are limited, so it is more a
matter of what the chief executive feels obliged to
do in order to satisfy his or her fiduciary duties to
the shareholders.
We call these unavoidable activities the minimum
corporate parent rôle. They are the bare minimum
necessary to maintain the corporate entity in existence.
A vital question concerns the size of the staff needed
for minimum corporate parent activities. The Ashridge Strategic Management Centre survey research
has allowed us to estimate the numbers of staff
required. These numbers are strikingly low. For
example, a company with 10,000 employees in total
can handle minimum corporate parent activities with
only about 15 staff, while a company with 50,000
employees needs only about 35 staff for these tasks
(see sidebar).
Table 2 shows the total number of staff in the departTable 2
Lean Minimum Corporate Parent Staffs
Company size (no. of
employees)
BAT
ITT
Ocean
Nucor
141,500
58,497
11,400
6800
No. of staff in minimum
corporate parent
departments
44
55
17
17
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RE-DESIGNING THE CORPORATE CENTRE
ments mainly concerned with minimum corporate
parent activities (general management, legal, financial reporting and control, treasury and tax) for four
companies with lean headquarters, BAT, ITT, Ocean
and Nucor. Since the staff in these departments will
be carrying out some activities that go beyond minimum corporate parent requirements, the numbers
probably overstate the true size of the minimum corporate parent staff in each case.
Through statistical analysis of this information, we
were able to identify the factors that are most significant drivers of corporate headquarters staff. From the
analysis, we produced ‘ready reckoners’ for the total
corporate centre staff and for each department that
calculate ‘par’ (i.e. median) staff numbers for any
company, adjusted for a variety of factors reflecting
its size, the nature of its businesses, and the policies
of its corporate centre.1
What is more, significant economies of scale in minimum corporate parent activities are possible. The size
of minimum corporate parent staff tends to increase
by no more than about 50 per cent with each doubling of company size. Large companies should have
a lower proportion of minimum corporate parent
staff than small ones.
Par staffing of minimum corporate parent activities
can be assessed by focusing on general corporate
management, together with the treasury, taxation,
financial reporting and control, and legal departments. These are the main departments concerned
with minimum corporate parent activities, and are
present in over 90 per cent of all companies. Staff
numbers in these departments are similar in the USA,
the UK, France, Germany and the Netherlands. To
benchmark staff numbers involved in minimum corporate parent activities, we used our ready reckoners
to estimate par staffing for these departments, on the
assumption that the departments are not trying to
influence the businesses, responsibilities that have
more to do with value-added parenting than with the
minimum corporate parent rôle. Since these departments perform other tasks (e.g. service provision)
that go beyond the minimum corporate parent rôle
in many companies, we also used lower quartile
numbers as our benchmarks.
Putting a focus on minimum corporate parent activities achieves three purposes. Firstly, it brings out
how small a truly lean corporate headquarters can be.
The benchmarks derived from our survey represent a
challenge for most companies: how could we carry
out the minimum necessary tasks of the corporate
centre in a professional manner with a staff of no
more than, say, 20 people? This forces some toughminded new thinking about headquarters.
Secondly, the discipline of squeezing down minimum corporate parent staff numbers reduces inadvertent value destruction. Due diligence is often a
matter of checking what the businesses are planning
or doing, a responsibility which even well-intentioned and competent corporate staffers with time on
their hands can easily convert into unproductive
interference and second guessing. To avoid this sort
of value destruction, planning and control activities
that simply fulfil minimum corporate parent
responsibilities should be strictly limited.
Thirdly, the minimum corporate parent staffing provides a good baseline for designing the corporate
centre. Although there are some obligatory tasks that
any headquarters must carry out, these tasks account
for only a small proportion of most corporate centre
staff numbers. Any staff over and above those
needed for minimum corporate parent tasks must
then be justified with a clear value-added rationale.
Sidebar: Minimum Corporate Parent
Staff
The ASMC surveys gathered detailed data on the
size, cost, rôles and departmental composition of
headquarters staff. They also collected information
on overall company sizes, the nature of the businesses in each company (e.g. relatedness, geographical spread) and the policies of the corporate centre
(e.g. influence levels, linkages between business).
86
The resulting benchmarks for European companies,
are shown below. US benchmarks are approximately
25 per cent higher.
Company size
Staff required
(# of employees) for minimum
corporate
parent rôle
2000
5
5000
9
10,000
15
20,000
23
50,000
43
100,000
65
Minimum
corporate parent
staff per 000
employees
2.5
1.8
1.5
1.1
0.9
0.6
Other common departments (present in over 80 per
cent of companies) are corporate planning, government and public relations, internal audit, and human
resources. Using similar assumptions in the ready
reckoners for these more discretionary departments
adds around five to minimum corporate parent staff
numbers for a company with 10,000 employees and
around 15 for a company with 50,000 employees.
To be more specific, a company with 20,000
employees that aspires to carry out the minimum corporate parent activities as leanly as possible should
be able to manage with no more than 20–25 people,
including support staff, made up approximately as
follows:
European Management Journal Vol 19 No 1 February 2001
RE-DESIGNING THE CORPORATE CENTRE
4–5 General Management
3–4 Legal
5–6 Financial Reporting, Control, Internal Audit
3–4 Treasury and Tax
2 Planning
2 Human Resources
2 Government and Public Relations
Truly lean corporate centres might do without the
Planning, HR, and Government and PR departments.
It is evident that the minimum corporate parent staff
numbers needed can be very low.
Value-Added Parenting Rôle
Any valid corporate strategy needs to be based on
some clear ideas about how value can be added by
the corporate parent. If there are no important
sources of parenting value-added2, the businesses
would almost certainly be better off operating independently, and a break-up should be considered. The
value-added parenting rôle of the corporate centre is
therefore vital.
Different companies concentrate on very different
sources of parenting value-added. Pfizer and
Corning spend heavily on corporate R&D, and have
seen big pay-offs in terms of new product development. Dow emphasises manufacturing excellence,
and has a strong corporate manufacturing function
to influence its businesses and co-ordinate multibusiness manufacturing sites. Rio Tinto adds high value
through improved planning of mining operations,
using the expertise of its corporate technical staff for
this purpose. BP Amoco has pushed hard to create a
high performance culture throughout the company
by setting stretching targets and agreeing personal
performance contracts between business unit heads
and the CEO. Virgin leverages its widely recognised
corporate brand into a whole variety of businesses,
from airlines through financial services to internet
access.
Some sources of parenting value-added depend on
corporate centre staff support. For Pfizer, Corning,
Dow and Rio Tinto, high quality staff groups in the
relevant functional areas are essential to creating and
delivering the value. But other sources of parenting
value have less to do with corporate staff. In BP, the
performance culture depends much more on line
management than on finance or planning staffs. And
in Virgin, the value of the brand is enhanced much
more by Richard Branson personally, than by the
activities of the tiny corporate staff.
It is not surprising, therefore, that the Ashridge surveys show a wide variation in the size and departmental composition of value-added parenting staffs.
Since the corporate strategy for adding value differs
from company to company, the appropriate level and
European Management Journal Vol 19 No 1 February 2001
nature of staff groups in the value-added parenting
rôle is bound to differ. This means that simple benchmarking of the size and cost of these staffs is likely
to be misleading, since it does not take account of the
corporate strategy differences.
What is clear from the Ashridge research, however,
is that the level and nature of corporate functional
influence is a driving factor in shaping headquarters
staff. For example, companies that guide most IT
decisions from the centre and have most of the IT
staff at the headquarters have IT departments that
are over ten times larger than companies with a more
decentralised approach.3 Corporate centres in the
USA tend to be substantially larger than those in Europe, mainly because US companies generally have
more influential and hence bigger staffs in functions
such as IT, purchasing, marketing and R&D.4
Size of staff, however, is only one indicator of effectiveness in delivering the desired influence. Indeed,
the surveys show that large headquarters staffs are
not generally rated more effective in supporting corporate strategy than small ones. It is the skills of the
staffs and the value-added from their activities that
matter more than their numbers or cost.
Most companies accept the logic of focusing on the
added-value of the corporate centre. Surprisingly
few, however, make this a key design criterion or
attempt to measure it. We believe that all corporate
function heads should be required to identify what,
if any, value their departments intend to add, and
how many staff in their departments are playing a
value-added parenting rôle. They should also be
expected to report on the value they have actually
added at least annually. Shell has recently adopted
this discipline for its corporate centre, and it has
sharpened thinking about the real sources of parenting value-added, and about the staff resources
needed to support them. The opinions of business
managers should be given strong weight in making
the assessments of value-added, and can provide a
salutary balance to the views of overoptimistic corporate staffers.
Large corporate centre staffs in the parenting valueadded rôle may therefore be fully justified, provided
they are genuinely needed to support value creation
opportunities. It would clearly be wrong for a Pfizer,
a Lucent, a Dow, or a Rio Tinto to cut back on the
staff groups that are critical to their corporate strategies. But where the value-added rationale is vague
or unconvincing, or where the evidence suggests that
the actual impact on performance has been limited
or even negative, staff in the parenting value-added
rôle are ripe for downsizing or elimination.
A crucial challenge for corporate centre re-designers
is to identify what important opportunities exist for
the parent to add value. In what areas could the businesses improve their performance most markedly,
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RE-DESIGNING THE CORPORATE CENTRE
and what can the parent do to help? What unusual
skills or resources does the parent possess, and how
could they be used to leverage business results? This
is usually much more a matter of finding highly company-specific
opportunities
rather
than
implementing general good management practice. A
generally well-designed budget process is seldom a
key source of added-value, whereas a performance
contract process designed specifically to allow John
Browne to challenge BP’s oil industry managers to
achieve top performance can be far more powerful.
Identifying some major opportunities for valueadded parenting is a pre-condition for a successful
corporate centre re-design.5
Shared Services Rôle
Shared services are activities carried out centrally on
behalf of the divisions or business units of a company. The services may be standard, process-driven
transactional activities, such as payroll or payments
processing, or they may be more complex, professionally-driven expert services, such as applications software development or business intelligence. The divisions or businesses, which would
have to carry out or buy in the services themselves
if they were not provided by the centre, normally
have some control over the work done.
Shared services staff can account for a high proportion of total headquarters staff. They represent, on
average, 43 per cent of total HQ staff in the UK. In
companies with a strong commitment to shared services, these numbers can be even higher. (see Sidebar:
Re-designing the Corporate Centre at Burmah
Castrol).
Historically, many companies have been concerned
about whether their shared services were really cost
effective and responsive. Functional heads have often
run shared services as parts of their departmental
empires rather than as client-responsive services for
the businesses, and business managers have complained that their needs were disregarded and that
better and more cost-effective services could be
bought in from third party providers. Many corporate chief executives have therefore sought to reduce
the size and scope of shared services, and, particularly, to consider outsourcing alternatives. One of
the easiest ways of downsizing headquarters has
been to squeeze the large numbers of people providing shared services.
More recently, the trend to cut back on shared services has begun to reverse. Increased pressure on cost
competitiveness, the drive for service improvements,
and new technology applications are making companies think again about the potential benefits from
centralised services, and a new, stronger concept of
88
shared services has emerged. Under this concept, the
shared services are provided by organisationally distinct, business-like units, separated out from other
functional or departmental activities, and often run
by someone in a dedicated general management rôle.
The strong definition implies something very different from a traditional corporate centre service function, with a much more dedicated, customer-responsive and performance-driven approach. Many
proponents of shared services, such as Dupont, Shell
and ABB, believe that the benefits of shared services
only really emerge under this type of approach (see
Sidebar: Dupont’s Global Services Business).
The rationale for the renewed enthusiasm for shared
services is that, with appropriate management, they
are capable of yielding very large performance
improvements. For example, 20–50 per cent cost savings, together with improvements in service levels,
are quoted by some supporters of shared services.6
The main source of these performance improvements
seems to be the focused management attention that
shared service units can give to activities that were
previously neglected or poorly managed. Ciba Specialty Chemicals was able to achieve a 50 per cent
headcount reduction in their new Business Support
Centres (finance and IT), while achieving faster and
more error-free reporting, on increased volumes of
sales. This was achieved through giving more attention to process improvements, adoption of best practices, and better staff morale and development.
It is therefore not so much a matter of centralising
services to reap economies of scale as creating a unit
or units whose whole purpose is to provide the relevant services effectively and responsively (the
strong concept of shared services). If the services are
just one part of the responsibilities of a function head,
who may well be much more interested in advising
the CEO and setting corporate functional policies
than in service provision, they will not get the dedicated attention they need. Equally if the services are
imposed on the businesses with little attempt to
benchmark them against outside providers, to take
account of business needs, or to measure their performance, they are not likely to be customer-responsive or cost-effective. Old-style shared services that
are insulated from market pressures and are lowstatus, low-attention parts of monolithic departmental empires remain good candidates for downsizing
or outsourcing. But new-style, strong form shared
services may well be justified, even if they represent
a large proportion of the corporate-level headcount.
Sidebar: Dupont’s Global Services
Business
Dupont has been a leader in shared services for some
years, and, in early 1999, set up a new, separate
European Management Journal Vol 19 No 1 February 2001
RE-DESIGNING THE CORPORATE CENTRE
organisation, called the Global Services Business
(GSB). It covers a wide range of services, including
accounting, legal services, people processes, and
sourcing and value chain processes, and employs
6000 people globally, over 6 per cent of Dupont’s
total workforce.
GSB’s mission is ‘to help Dupont businesses do business better’. To achieve its mission, it is attempting
to operate, as far as possible, like a business itself. In
other words, it is driven by the demands from its
Dupont customers, recognises that it must deliver
value in excess of its charges and better than outside
suppliers, and concentrates on reliability and responsiveness. Business unit heads sit on the GSB’s advisory board, together with GSB senior executives, service level agreements govern the relationship
between GSB and its customers, and regular customer satisfaction surveys are carried out. In this
way, customer focus is central to everything GSB
does.
Businesses are free to buy services from GSB or to go
elsewhere. They are charged for actual consumption
at an agreed, fixed rate or price. These prices are
based on shared forecasts of usage. Transparency of
services provided, costs and prices are important to
the relationship between GSB and its customers.
In addition to professionalism in service offerings
and service processes, a critical element in GSB’s success is staff attitudes. The people in GSB are far more
motivated as part of a dedicated, customer-responsive, cutting-edge, quasi-business than they were in
the old central functions. The combination of professionalism, expertise and commitment is already
beginning to yield major performance improvements.
Summary
Corporate centre re-designs are an integral component of many new corporate strategies and transformation processes. But these re-designs often fail to
achieve the effectiveness, agility and value-added
that are desired. As a result, enthusiasm for the task
flags, line managers lose respect for the corporate
centre, and corporate staffs become demoralised
and demotivated.
The remedy is to base the corporate centre design
process on the three rôles we have described.7 In the
sidebar, we describe the use of the approach at Burmah Castrol.
Sidebar: Re-designing the Corporate
Centre at Burmah Castrol
In 1998, Burmah Castrol embarked on a re-design of
its corporate centre. At the time, its turnover was £3
billion, and it had four global business units in Lubricants and six global business units in Speciality
European Management Journal Vol 19 No 1 February 2001
Chemicals. The corporate centre (‘everything that
isn’t part of a business’) had a staff of around 400
people.8
Burmah Castrol began with an activity analysis that
showed that 80 per cent of the staff were engaged in
shared services, with much smaller numbers concerned with minimum corporate parenting and
value-added parenting. Laying out who was playing
which rôles was vital. ‘Previously, people were not
clear about the nature of their responsibilities. In HR,
for example, individuals were unsure if they were
supposed to be advising the businesses what to do
(parenting) or asking them what they wanted
(services). If you can get clarity on the rôles, everything else follows’, stated Jonathan Vickers, the
leader of the transformation project.
Benchmarking of the minimum corporate parent
activities showed that Burmah Castrol was broadly
in line with its peer group in terms of numbers. Furthermore, there were no evident shortcomings in the
professionalism with which these tasks were being
carried out. Only modest changes in these areas
were needed.
Identifiying major sources of parenting value-added
was harder. The CEO and the senior corporate management worked through a long list of possible
sources of value-added, but concluded that many of
them had limited potential, or entailed downside
risks of excessive costs or negative influence. Some
important opportunities did, however, emerge,
including the development of managers to run small
local operations as part of global businesses, and the
sharing of best practices concerning ‘customer intimacy ’ (applications development, relationship management, service responsiveness). By contrast, it was
decided that some other parenting activities should
be eliminated, because they were never likely to create positive net value-added, including ‘the parenting that we didn’t even know we were doing’.
The sources of parenting value-added were then
extensively discussed and refined with the business
managements, yielding a much clearer sense of
where the real value lay and how to get at it. This
led on to re-design of the corporate centre to
implement the parenting value-added rôle more
effectively.
The re-design also paid particular attention to the
shared services, since they accounted for such a large
part of the total corporate centre. Discussions with
both the providers and users of the services rapidly
showed that there were problems to be addressed
and differences in perspective between the centre and
the businesses. ‘We don’t feel that what we do is
appreciated’ (Service Department). ‘We have conflicting priorities and no way to resolve them’
(Service Department). ‘What do they do at the centre?
No, really, I don’t know’ (Business).
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RE-DESIGNING THE CORPORATE CENTRE
The cost effectiveness and importance of each service
were assessed through a series of workshops involving both service providers and business users,
together with a benchmarking process. This led to the
elimination of some unwanted services, outsourcing
of some commodity items, and the establishment of
a new Services Centre for the remaining services.
The Services Centre was set up to be culturally and
organisationally separate from the rest of the corporate centre, with a single general manager in charge
reporting to the CEO. It included all the servicerelated activities of the IT, HR, Legal and Accounting
departments, but not their parenting value-added or
minimum corporate parent activities. The Services
Centre established service contracts with the businesses, using simple charging mechanisms and giving ultimate control to the businesses. This created
better mutual understanding, and led to lower costs.
The Services Centre’s attitude has also become more
service oriented and customer responsive.
The result of the re-design has been a more effective
corporate centre, better attuned to the needs of Burmah Castrol. Headcount is down by about 10 per
cent. But the real benefit has had much more to do
with added value and effectiveness than with simple
downsizing and cost reduction.
The first step is to establish the staff needed for the
minimum corporate parent rôle. This is a matter of
ensuring that all corporate obligations can be professionally discharged, while weeding out unnecessary activities that may be value destroying. Aggressive benchmarking of staff numbers against
comparable companies is desirable to provide some
reference points.
porate centre value added also need to be designed,
but must take account of the costs and the risks of
misguided interference as well as the upside potential.
The third step is to focus attention on shared services.
The service activities of central departments need to
be broken out and tested for cost effectiveness and
responsiveness. This will involve benchmarking
against other possible providers, as well as consulting the business users. The potential benefits
from setting up a separate, dedicated shared services
organisation need to be considered before making
decisions on whether and how to provide each service centrally. If shared services are set up or
retained, the businesses should have some freedom
to opt out if they are dissatisfied with the services
provided. This means that shared services will only
survive in the long run if they are delivering good
value to their business customers.
Designing the corporate centre in this way gives a
much sharper justification for the existence of different sorts of staffs, allows both headquarters managers and business managers to see what staff rôles
are worthwhile, and identifies the skills and competences needed. By thinking through the three rôles,
it is possible to create a genuinely fit-for-purpose corporate centre that supports the corporate strategy
and delivers real value.
Notes
1. For a full description of the ready reckoners see Young et
al. (2000); Young and Ullmann (1999).
2. The PricewaterhouseCoopers’ term is corporate centre
value propositions.
3. See Young and Ullmann (1999, p. 75).
4. See Young et al. (2000, Ch. 6).
5. See Goold et al. (1994, Ch. 12) for a fuller discussion of
how to identify value-added parenting opportunities.
6. Gunn Partners Inc., for example, have carried out survey
research with 30 companies that supports these conclusions. See Gunn Partners (undated).
7. See Pettifer (1998) for a fuller description of such a process.
8. As part of the general trend to consolidation in the oil
industry, in July 2000 BP Amoco acquired Burmah Castrol, and Burmah Castrol ceased to have a separate corporate headquarters.
The second step is to identify the major intended
sources of value added by the corporate centre, each
of which should have the potential to make a measurable impact on corporate results (e.g. 10 per cent or
better uplift in profits). Once these sources of parenting value-added have been laid out, it is essential to
think through in detail how they will be
implemented, and, in particular, to design the staff
resources and processes needed to support them.
Companies that can find no major parenting value
added opportunities should consider demerger, or
else retrenchment of the corporate centre to minimum corporate parent activities only.
References
Provided that some large sources of parenting valueadded have been identified, it is also appropriate to
include other secondary sources of value-added in
the design of the corporate centre. Corporate purchasing, for example, may not add enough value to
provide a rationale for the group’s existence. But if
we are going to have a corporation at all, there may
well be some value available from centralising selective areas of purchasing. The staffs and processes
required to support these secondary sources of cor-
Goold, M., Campbell, A. and Alexander, M. (1994) CorporateLevel Strategy. John Wiley and Sons, Chichester.
Gunn Partners (undated) Introduction to Shared Services. Gunn
Partners Inc., Boston.
Pettifer, D. (1998) Corporate Centre Transformation. PricewaterhouseCoopers, London.
Young, D. and Ullmann, K.D. (1999) Benchmarking Corporate
Headquarters Staff. Ashridge Strategic Management
Centre, London.
Young, D. (2000) Corporate Headquarters: An International
Analysis of their Roles and Staffing. Financial
Times/Prentice Hall, Englewood Cliffs, NJ.
90
European Management Journal Vol 19 No 1 February 2001
RE-DESIGNING THE CORPORATE CENTRE
MICHAEL GOOLD, Ashridge Strategic Management
Centre, 17 Portland Place,
London W1N 3AF. michael.goold@ashridge.org.uk
Michael Goold is a director
of the Ashridge Strategic
Management Centre. His
research interests are concerned with corporate strategy and the management of
multi-business companies, and he runs the Centre’s
programme on Strategic Decisions. His publications
include Synergy: Why Links Between Business
Units Often Fail and How to Make Them Work
(Capstone, 1998), Corporate-Level Strategy: Creating Value in the Multibusiness Company (John
Wiley and Sons, Inc, 1994) and Strategic Control:
Milestones for Long-Term Performance (Financial
Times/Pitman, 1990).
DAVID PETTIFER, PricewaterhouseCoopers,
1
Embankment Place, London,
WC2N 6NN, UK.
David Pettifer is a Leading
Partner in the Global Strategic Change Practice of
PricewaterhouseCoopers
where he is responsible for
assisting major clients with
the design and implementation of value-focused corporate centres. He has published several articles on Corporate Centre Transformation and leads PwC’s relationship with Ashridge
Strategic Management Centre.
DAVID YOUNG, Ashridge Strategic Management
Centre, 17 Portland Place,
London W1N 3AF.
David Young is an associate
of Ashridge Strategic Management Centre and an
independent consultant. He
has led ASMC’s research on
the size, structure and rôle
of corporate headquarters
staff over the last seven years, and his management
guides, Effective Headquarters Staff and Benchmarking Corporate Headquarters Staff are recognised as the premier publications in their field.
European Management Journal Vol 19 No 1 February 2001
91