Corporate headquarters regaining importance in 2008, while outsourcing trend abates
05/03/2009
Survey by Roland Berger Strategy Consultants of 57 German companies shows outsourcing becoming less important overall, but there's an even bigger outsourcing push in certain functions

Fuente: www.consultant-news.com  Publicación: 04.03.2009

A new study by Roland Berger Strategy Consultants shows that the importance of German corporate headquarters is rising again. Of the 57 companies surveyed, 73% said they were again recentralizing operations. The role of outsourcing is generally on the decline, but not in all areas. In certain functions unrelated to the core business, companies are outsourcing much more than they were three years ago. Greater use is being made of shared services for internal functions like IT or accounting.

There is a clear correlation between the overall size of a corporate group and the management approach, on the one hand, and the sizing of its headquarters, on the other: the bigger a company and more strongly it directs its business units, the bigger the relative size of the HQ. The proportion of employees working at the headquarters has almost returned to the average level recorded back in 2002 (2008: 2.8%, 2005: 2.3%, 2002: 3.0%). And corporate headquarters are becoming more confident about their leadership role: Most HQ staff see themselves as "managers" rather than pure "service providers".

"German companies again value their headquarters very highly," observes Tim Zimmermann, an author of the study and a Partner at Roland Berger Strategy Consultants. "In contrast to the last study conducted in 2005, this time we've found a trend back towards centralization of decision-making and services in the management of companies. Outsourcing of services has generally declined across the board. But in a few areas that aren't part of the executive functions we discovered an even more determined push to outsource work."

The share of bought-in services averages 38% in legal functions. It is much higher in the areas of insurance (73%) and general services (76%). The proportion of companies that have outsourced corporate functions has fallen from 53% in 2005 to 44%. Meanwhile, the proportion of companies with internal shared services has risen from 38% (2005) to 49% (2008). "The main arguments given for a shared services solution are cost-cutting and simplified processes that avoid the expenses and risks associated with external interfaces," says Zimmermann.

Highly directive management styles demand large corporate headquarters

The size of a company's HQ in relation to its overall size depends on the type of management concept followed: The bigger a company and the stronger the control over operational units, the larger the headquarters. The proportion of a company's employees working at the headquarters has on average risen to 2.8%, almost back up to the level recorded in 2002 (3.0%). A closer look shows that the management style adopted by each company plays a critical role here. Companies with highly integrated leadership have the highest proportion of employees working at their headquarters, averaging 11%. For companies with an operational holding organization, this share is way down to around 3%. "As for companies with a strategic management holding organization, on average only 1.1% of total staff work at the HQ – and the bigger the group the smaller the percentage," notes Zimmermann.

Corporate headquarters – "manager" rather than "service provider"

"Looking at the function of headquarters for the company as a whole, we can distinguish four roles," says co-Author Maren Hauptmann, a Principal at Roland Berger, "manager, law guardian, business partner and service provider." Most corporate HQs see themselves as the group's "manager", while the fewest believe they are purely a "service provider." "This reflects a high claim to managerial authority on the part of group headquarters, although many companies fall short in practice," says Hauptmann. "In principle, individual functions can of course perform more than one role at a time. But the challenge here is to define processes and responsibilities clearly and make them work."

Trends in individual functions

The individual functions in corporate HQ are subject to competing demands. They are caught between the role of manager and business partner, on the one hand, and efficient service provider for the operational units, on the other. The Human Resources function, for instance, plays a growing role within management. No longer reduced to the role of "girl Friday", the HR Business Partner now sits alongside senior management, advising on all the strategic questions that concern staff recruitment, development and dismissals. The modern controller also has an enhanced function. He is now expected to see what's coming up ahead and not just stare into the rearview mirror. The ability to spot risks and provide and interpret the data managers need to make decisions is a central part of today's successful controlling function. As for the modern IT function, here too the days of purely technical support are gone. IT people are required to come up with holistic solutions. All these role changes in "traditional corporate center functions" are being driven by the renewed importance of corporate headquarters and, with it, their increasing size. New roles also present some major challenges in designing the right organizational solutions.