Redesigning the corporate centre

European Management Journal Vol. 19, No. 1, pp. 83–91, 2001 2001 Elsevier Science Ltd. All rights reservedPergamon

Printed in Great Britain0263-2373/01 $20.00PII: S0263-2373(00)00073-6

Redesigning theCorporate CentreMICHAEL GOOLD, Ashridge Strategic Management Centre, UKDAVID PETTIFER, PricewaterhouseCoopersDAVID YOUNG, Ashridge Strategic Management Centre, UK

The authors report the results of a recent largestudy of corporate centre transformation: a questionwhich is often an early priority when a new chiefexecutive takes office. This article summarises theirapproach to corporate centre design which maxi-mises value creation.

Recognising that there are differences in the patternof headquarters between countries, the authors basetheir recommendation for a corporate centre designprocess on three different roles played by head-quarter staff: mimimum corporate parent role,value-added parenting role, and shared servicesrole. A case study of Burmah Castrol is describedas an example of the method 2001 ElsevierScience Ltd. All rights reserved

Keywords: Corporate headquarters, Parenting,Strategy

When new chief executives take office, one of theirearly priorities is often to reassess the role and com-position of the corporate centre. They know that thecorporate headquarters represents a significant over-head, and may well be looking for ways to make itmore cost effective. They are frequently embarkingon new corporate strategy directions, and may beconcerned about whether the corporate staff is appro-priate to support them. They face probing questionsfrom investors and analysts about spin-off anddemerger options and the justification for the group,and so need a clear added-value rationale for theexistence of the corporate centre. All of these con-cerns may be made more urgent by rumbling discon-tent in the business divisions about the excessive costand influence, or the downright ineffectiveness, ofcorporate centre departments.

For all these reasons, corporate centre re-design isfrequently high on the chief executive’s agenda. Pro-ject teams are set up to examine every corporatecentre function and process, targets for cost reductionand downsizing are established, and work begins on

European Management Journal Vol 19 No 1 February 2001 83

a fresh statement about the essential mission andresponsibilities of the corporate centre.

Sometimes these efforts lead to radical change anda new and more effectively implemented corporatestrategy. More often, unfortunately, they have lesssuccess. They result in changes that are only cosmeticor temporary, with little lasting impact. Or else theycause real change, but end up by damaging corporateperformance and internal relationships, not improv-ing them. What is more, proposed changes to the cor-porate centre are liable to meet entrenched oppo-sition from managers who fear they will lose out.They defend the status quo strenuously and find awhole variety of reasons for not changing. Corporatecentre re-designs are easy to set up, but much harderto bring to a satisfactory completion.

A major problem is that straightforward bench-marking against other companies is not likely to pro-vide much help, since the corporate centres of suc-cessful companies do not follow any single model.Some companies have large staffs, which they believeare more than justified by their value to the company.Companies such as Lucent or Unilever, with largecorporate functions in areas such as R&D, HumanResources and IT, have staffs of several thousand.Other companies are convinced that lean head-quarters are the right answer. For example, TycoInternational, Nucor, and Virgin all have fewer than50 corporate centre staff. Benchmarks that indicateextensive downsizing and outsourcing are balancedby others that suggest stronger headquarters influ-ence or more extensive shared services.

In order to push through a successful corporatecentre transformation, it is necessary to design a staffthat responds to the specific needs of the companyand is fit for the purpose it is intended to serve. Forseveral years now, we have been developing anapproach to help companies to do this. At AshridgeStrategic Management Centre, we have carried outextensive research on the role of the corporate centre

RE-DESIGNING THE CORPORATE CENTRE

and its contribution to successful corporate-level stra-tegies. Recently, we have completed a major projectthat has gathered data on over 600 companies inseven different countries, providing fresh infor-mation on the size, composition and determinants ofheadquarters staffs (see Sidebar). At Pricewaterhou-seCoopers, the Corporate Centre Transformationpractice has undertaken consulting projects for sev-eral major clients that were reassessing their corpor-ate centres. In this article, we summarise theapproach to corporate centre design which we havedevised. We believe the approach leads to realchange and results in corporate centres that focus onvalue creation and are genuinely fit for purpose.

Sidebar: The Ashridge Surveys

During the period from late 1997 to 1999, AshridgeStrategic Management Centre (ASMC) led a majorinternational research collaboration on the size andstructure of corporate headquarters staffs. Data wasgathered on over 600 companies, located in the UK,the USA, France, Germany, the Netherlands, Japanand Chile. The research partners were Michael Gooldand David Young (ASMC, UK), David Collis (YaleUniversity, USA), Georges Blanc (HEC, France), RolfBuhner (University of Passau, Germany), Jan Eppink(Free University, Netherlands), Tadao Kagono, (KobeUniversity, Japan), and Gonzalo Jimenez Seminario(University Adolfo Ibanez, Chile). The research wassponsored by PricewaterhouseCoopers. Reports onthe UK research, Effective Headquarters Staff andBenchmarking Corporate Headquarters Staff, were pub-lished in 1999 by ASMC, and a report on the inter-national comparisons, Corporate Headquarters: AnInternational Analysis of their Roles and Staffing, waspublished by Financial Times Prentice Hall in 2000.

A major finding from the research was that there arelarge differences between companies in the size andcomposition of their headquarters staffs. Forexample, the size of corporate headquarters variedfrom about 10 to well over 1000 for companies with10,000 employees in total. And, while some compa-nies avoid headquarters staffs in functions such asR&D and marketing altogether, others have substan-tial departments in these areas. These differencesreflect different views about the right role andresponsibilities for headquarters. There is no stan-dard model for successful corporate headquarters.

There are however four key factors that account formany of the differences between headquarters. Thesefactors are company size, the amount of functionalinfluence exerted by the headquarters, the level oflinkages between businesses in the portfolio, and thecorporate policy on shared services. Bigger compa-nies, with stronger functional influence and morelinkages between their businesses, or with a policyof providing extensive shared services tend to have

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larger, more multi-functional headquarters. Forexample, headquarters size increases by about 60–70per cent with each doubling of company size, andcompanies in which shared services staff represent 40per cent or more of headquarters have more thanthree times as many HQ staff in total as those inwhich they represent 20 per cent or less. Other fac-tors, such as industry sector or geographical spread,also matter, but are less strongly or less directly cor-related with headquarters size and structure.

There are also differences in the pattern of head-quarters between countries. In general, the Europeancountries surveyed were remarkably similar. Butheadquarters in the US and, in particular, in Japanwere larger. US companies appear to have bigger andmore influential staffs in areas such as IT, purchasing,marketing and R&D. In Japan, the human resourcesfunction is particularly strong and large. US compa-nies are more satisfied with the performance of theirheadquarters, and are in most cases increasing theirsize and influence, and the amount of services theyprovide. In Europe, and even more in Japan, there isless satisfaction with HQs, and the trend is toreduce staffing.

Three Roles of the Corporate Centre

The essential starting point in any corporate centrere-design is to recognise that headquarters staff playthree very different roles (see Table 1).

The first role, which we call the minimum corporateparent role, involves discharging the legal and regu-latory obligations of the company and meeting mini-mum standards of due diligence in corporate govern-ance. This role has limited ability to create value, butis necessary for any corporation. It should, however,be possible to discharge the minimum corporate par-ent activities with relatively few staff. Most compa-nies greatly overestimate the size of the staff neces-sary for the minimum corporate parent role, so apressure for leanness and benchmarking againstleading-edge companies are likely to be good disci-plines.

The second role, which we call value-added parent-ing, is about how the corporate parent influences andadds value to the businesses. It is therefore closelyrelated to the company’s corporate strategy, whichshould lay out the value-added rationale for why itmakes sense for all the businesses in the group to fallunder common ownership. Staff who add real valuefor the businesses, for example by helping to developand share core competences, are clearly justified, andit may well be desirable to maintain large staffs infunctional areas that are important sources of value.But staff groups in this role that do not have ademonstrable added-value rationale should bedownsized or eliminated, since there will otherwise


Table 1 Three Roles of Corporate Headquarters

Role Examples Characteristics

Minimum corporate parent Raising finance, basic control, compiling and publishing Essentialaccounts, submitting tax returns

Not easily devolved to divisionsValue-added parenting Strategic guidance, stretching targets, leveraging corporate Discretionary

resources, facilitating synergiesBelieved by corporate managers toadd value to the business divisions

Shared services Information systems, payroll, training, transaction processing Needed by divisionsCould be devolved or outsourcedCentralisation believed to provideeconomies of scale, scope orspecialisation

be a danger of excessive costs and misdirected influ-ence.

The third role, which we call shared services, is aboutproviding centralised services to the businesses.Companies’ policies concerning shared services differwidely. Some decentralise most or all services to thebusinesses, believing that centralised services are sel-dom truly cost effective and responsive to businessneeds. Others prefer to outsource services to thirdparties. Yet others believe that shared services at thecentre, at least in selected areas, can be highly effec-tive, whether due to focused management attention,economies of scale, or opportunities for standardis-ation. One way to downsize the corporate centre iscertainly 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 seemsrather to be in favour of centralising services, pro-vided that they are set up as separate units with adedicated focus on service provision and customerresponsiveness.

The justification for corporate centre staffs is funda-mentally different for each of the three roles. Thedesign process therefore needs to give separate con-sideration to each of them.

Minimum Corporate Parent Role

For any corporate parent, there are some unavoidabletasks, such as obligatory legal and regulatory require-ments and basic governance functions.

Legal and regulatory tasks include, for example, pre-paring annual reports, submitting tax returns, andensuring that relevant legislation on issues such ashealth and safety or the environment is observed.Any corporate entity must discharge these com-pliance responsibilities.

It is also necessary to undertake basic governance


functions and show due diligence in representingshareholder interests. The corporate parent mustestablish a structure for the company, appoint thesenior management, raise capital and handle investorrelations. It must also implement some form of basiccontrol process, so that it can authorise majordecisions, guard against inappropriately risky orfraudulent decisions, and check that delegatedresponsibilities are being satisfactorily performed.

The extent of these necessary governance and duediligence tasks is hard to determine precisely. Thestrict legal requirements are limited, so it is more amatter of what the chief executive feels obliged todo in order to satisfy his or her fiduciary duties tothe shareholders.

We call these unavoidable activities the minimumcorporate parent role. They are the bare minimumnecessary to maintain the corporate entity in exist-ence.

A vital question concerns the size of the staff neededfor minimum corporate parent activities. The Ash-ridge Strategic Management Centre survey researchhas allowed us to estimate the numbers of staffrequired. These numbers are strikingly low. Forexample, a company with 10,000 employees in totalcan handle minimum corporate parent activities withonly about 15 staff, while a company with 50,000employees needs only about 35 staff for these tasks(see sidebar).

Table 2 shows the total number of staff in the depart-

Table 2 Lean Minimum Corporate Parent Staffs

Company size (no. of No. of staff in minimumemployees) corporate parent

departments

BAT 141,500 44ITT 58,497 55Ocean 11,400 17Nucor 6800 17


ments mainly concerned with minimum corporateparent activities (general management, legal, finan-cial reporting and control, treasury and tax) for fourcompanies with lean headquarters, BAT, ITT, Oceanand Nucor. Since the staff in these departments willbe carrying out some activities that go beyond mini-mum corporate parent requirements, the numbersprobably overstate the true size of the minimum cor-porate parent staff in each case.

What is more, significant economies of scale in mini-mum corporate parent activities are possible. The sizeof minimum corporate parent staff tends to increaseby no more than about 50 per cent with each doub-ling of company size. Large companies should havea lower proportion of minimum corporate parentstaff than small ones.

Putting a focus on minimum corporate parent activi-ties achieves three purposes. Firstly, it brings outhow small a truly lean corporate headquarters can be.The benchmarks derived from our survey represent achallenge for most companies: how could we carryout the minimum necessary tasks of the corporatecentre in a professional manner with a staff of nomore than, say, 20 people? This forces some tough-minded new thinking about headquarters.

Secondly, the discipline of squeezing down mini-mum corporate parent staff numbers reduces inad-vertent value destruction. Due diligence is often amatter of checking what the businesses are planningor doing, a responsibility which even well-inten-tioned and competent corporate staffers with time ontheir hands can easily convert into unproductiveinterference and second guessing. To avoid this sortof value destruction, planning and control activitiesthat simply fulfil minimum corporate parentresponsibilities should be strictly limited.

Thirdly, the minimum corporate parent staffing pro-vides a good baseline for designing the corporatecentre. Although there are some obligatory tasks thatany headquarters must carry out, these tasks accountfor only a small proportion of most corporate centrestaff numbers. Any staff over and above thoseneeded for minimum corporate parent tasks mustthen be justified with a clear value-added rationale.

Sidebar: Minimum Corporate ParentStaff

The ASMC surveys gathered detailed data on thesize, cost, roles and departmental composition ofheadquarters staff. They also collected informationon overall company sizes, the nature of the busi-nesses in each company (e.g. relatedness, geographi-cal spread) and the policies of the corporate centre(e.g. influence levels, linkages between business).


Through statistical analysis of this information, wewere able to identify the factors that are most signifi-cant drivers of corporate headquarters staff. From theanalysis, we produced ‘ready reckoners’ for the totalcorporate centre staff and for each department thatcalculate ‘par’ (i.e. median) staff numbers for anycompany, adjusted for a variety of factors reflectingits size, the nature of its businesses, and the policiesof its corporate centre.1

Par staffing of minimum corporate parent activitiescan be assessed by focusing on general corporatemanagement, together with the treasury, taxation,financial reporting and control, and legal depart-ments. These are the main departments concernedwith minimum corporate parent activities, and arepresent in over 90 per cent of all companies. Staffnumbers in these departments are similar in the USA,the UK, France, Germany and the Netherlands. Tobenchmark staff numbers involved in minimum cor-porate parent activities, we used our ready reckonersto estimate par staffing for these departments, on theassumption that the departments are not trying toinfluence the businesses, responsibilities that havemore to do with value-added parenting than with theminimum corporate parent role. Since these depart-ments perform other tasks (e.g. service provision)that go beyond the minimum corporate parent rolein many companies, we also used lower quartilenumbers as our benchmarks.

The resulting benchmarks for European companies,are shown below. US benchmarks are approximately25 per cent higher.

Company size Staff required Minimum(# of employees) for minimum corporate parent

corporate staff per 000parent role employees

2000 5 2.55000 9 1.810,000 15 1.520,000 23 1.150,000 43 0.9100,000 65 0.6

Other common departments (present in over 80 percent of companies) are corporate planning, govern-ment and public relations, internal audit, and humanresources. Using similar assumptions in the readyreckoners for these more discretionary departmentsadds around five to minimum corporate parent staffnumbers for a company with 10,000 employees andaround 15 for a company with 50,000 employees.

To be more specific, a company with 20,000employees that aspires to carry out the minimum cor-porate parent activities as leanly as possible shouldbe able to manage with no more than 20–25 people,including support staff, made up approximately asfollows:


4–5 General Management3–4 Legal5–6 Financial Reporting, Control, Internal Audit3–4 Treasury and Tax2 Planning2 Human Resources2 Government and Public Relations

Truly lean corporate centres might do without thePlanning, HR, and Government and PR departments.It is evident that the minimum corporate parent staffnumbers needed can be very low.

Value-Added Parenting Role

Any valid corporate strategy needs to be based onsome clear ideas about how value can be added bythe corporate parent. If there are no importantsources of parenting value-added2, the businesseswould almost certainly be better off operating inde-pendently, and a break-up should be considered. Thevalue-added parenting role of the corporate centre istherefore vital.

Different companies concentrate on very differentsources of parenting value-added. Pfizer andCorning spend heavily on corporate R&D, and haveseen big pay-offs in terms of new product develop-ment. Dow emphasises manufacturing excellence,and has a strong corporate manufacturing functionto influence its businesses and co-ordinate multibusi-ness manufacturing sites. Rio Tinto adds high valuethrough improved planning of mining operations,using the expertise of its corporate technical staff forthis purpose. BP Amoco has pushed hard to create ahigh performance culture throughout the companyby setting stretching targets and agreeing personalperformance contracts between business unit headsand the CEO. Virgin leverages its widely recognisedcorporate brand into a whole variety of businesses,from airlines through financial services to internetaccess.

Some sources of parenting value-added depend oncorporate centre staff support. For Pfizer, Corning,Dow and Rio Tinto, high quality staff groups in therelevant functional areas are essential to creating anddelivering the value. But other sources of parentingvalue have less to do with corporate staff. In BP, theperformance culture depends much more on linemanagement than on finance or planning staffs. Andin Virgin, the value of the brand is enhanced muchmore by Richard Branson personally, than by theactivities of the tiny corporate staff.

It is not surprising, therefore, that the Ashridge sur-veys show a wide variation in the size and depart-mental composition of value-added parenting staffs.Since the corporate strategy for adding value differsfrom company to company, the appropriate level and


nature of staff groups in the value-added parentingrole is bound to differ. This means that simple bench-marking of the size and cost of these staffs is likelyto be misleading, since it does not take account of thecorporate strategy differences.

What is clear from the Ashridge research, however,is that the level and nature of corporate functionalinfluence is a driving factor in shaping headquartersstaff. For example, companies that guide most ITdecisions from the centre and have most of the ITstaff at the headquarters have IT departments thatare over ten times larger than companies with a moredecentralised approach.3 Corporate centres in theUSA tend to be substantially larger than those in Eur-ope, mainly because US companies generally havemore influential and hence bigger staffs in functionssuch as IT, purchasing, marketing and R&D.4

Size of staff, however, is only one indicator of effec-tiveness in delivering the desired influence. Indeed,the surveys show that large headquarters staffs arenot generally rated more effective in supporting cor-porate strategy than small ones. It is the skills of thestaffs and the value-added from their activities thatmatter more than their numbers or cost.

Most companies accept the logic of focusing on theadded-value of the corporate centre. Surprisinglyfew, however, make this a key design criterion orattempt to measure it. We believe that all corporatefunction heads should be required to identify what,if any, value their departments intend to add, andhow many staff in their departments are playing avalue-added parenting role. They should also beexpected to report on the value they have actuallyadded at least annually. Shell has recently adoptedthis discipline for its corporate centre, and it hassharpened thinking about the real sources of parent-ing value-added, and about the staff resourcesneeded to support them. The opinions of businessmanagers should be given strong weight in makingthe assessments of value-added, and can provide asalutary balance to the views of overoptimistic cor-porate staffers.

Large corporate centre staffs in the parenting value-added role may therefore be fully justified, providedthey are genuinely needed to support value creationopportunities. It would clearly be wrong for a Pfizer,a Lucent, a Dow, or a Rio Tinto to cut back on thestaff groups that are critical to their corporate stra-tegies. But where the value-added rationale is vagueor unconvincing, or where the evidence suggests thatthe actual impact on performance has been limitedor even negative, staff in the parenting value-addedrole are ripe for downsizing or elimination.

A crucial challenge for corporate centre re-designersis to identify what important opportunities exist forthe parent to add value. In what areas could the busi-nesses improve their performance most markedly,


and what can the parent do to help? What unusualskills or resources does the parent possess, and howcould they be used to leverage business results? Thisis usually much more a matter of finding highly com-pany-specific opportunities rather thanimplementing general good management practice. Agenerally well-designed budget process is seldom akey source of added-value, whereas a performancecontract process designed specifically to allow JohnBrowne to challenge BP’s oil industry managers toachieve top performance can be far more powerful.

Identifying some major opportunities for value-added parenting is a pre-condition for a successfulcorporate centre re-design.5

Shared Services Role

Shared services are activities carried out centrally onbehalf of the divisions or business units of a com-pany. The services may be standard, process-driventransactional activities, such as payroll or paymentsprocessing, or they may be more complex, pro-fessionally-driven expert services, such as appli-cations software development or business intelli-gence. The divisions or businesses, which wouldhave to carry out or buy in the services themselvesif they were not provided by the centre, normallyhave some control over the work done.

Shared services staff can account for a high pro-portion of total headquarters staff. They represent, onaverage, 43 per cent of total HQ staff in the UK. Incompanies with a strong commitment to shared ser-vices, these numbers can be even higher. (see Sidebar:Re-designing the Corporate Centre at BurmahCastrol).

Historically, many companies have been concernedabout whether their shared services were really costeffective and responsive. Functional heads have oftenrun shared services as parts of their departmentalempires rather than as client-responsive services forthe businesses, and business managers have com-plained that their needs were disregarded and thatbetter and more cost-effective services could bebought in from third party providers. Many corpor-ate chief executives have therefore sought to reducethe size and scope of shared services, and, parti-cularly, to consider outsourcing alternatives. One ofthe easiest ways of downsizing headquarters hasbeen to squeeze the large numbers of people provid-ing shared services.

More recently, the trend to cut back on shared ser-vices has begun to reverse. Increased pressure on costcompetitiveness, the drive for service improvements,and new technology applications are making compa-nies think again about the potential benefits fromcentralised services, and a new, stronger concept of


shared services has emerged. Under this concept, theshared services are provided by organisationally dis-tinct, business-like units, separated out from otherfunctional or departmental activities, and often runby someone in a dedicated general management role.The strong definition implies something very differ-ent from a traditional corporate centre service func-tion, with a much more dedicated, customer-respon-sive and performance-driven approach. Manyproponents of shared services, such as Dupont, Shelland ABB, believe that the benefits of shared servicesonly really emerge under this type of approach (seeSidebar: Dupont’s Global Services Business).

The rationale for the renewed enthusiasm for sharedservices is that, with appropriate management, theyare capable of yielding very large performanceimprovements. For example, 20–50 per cent cost sav-ings, together with improvements in service levels,are quoted by some supporters of shared services.6

The main source of these performance improvementsseems to be the focused management attention thatshared service units can give to activities that werepreviously neglected or poorly managed. Ciba Speci-alty Chemicals was able to achieve a 50 per centheadcount reduction in their new Business SupportCentres (finance and IT), while achieving faster andmore error-free reporting, on increased volumes ofsales. This was achieved through giving more atten-tion to process improvements, adoption of best prac-tices, and better staff morale and development.

It is therefore not so much a matter of centralisingservices to reap economies of scale as creating a unitor units whose whole purpose is to provide the rel-evant services effectively and responsively (thestrong concept of shared services). If the services arejust one part of the responsibilities of a function head,who may well be much more interested in advisingthe CEO and setting corporate functional policiesthan in service provision, they will not get the dedi-cated attention they need. Equally if the services areimposed on the businesses with little attempt tobenchmark them against outside providers, to takeaccount of business needs, or to measure their per-formance, they are not likely to be customer-respon-sive or cost-effective. Old-style shared services thatare insulated from market pressures and are low-status, low-attention parts of monolithic departmen-tal empires remain good candidates for downsizingor outsourcing. But new-style, strong form sharedservices may well be justified, even if they representa large proportion of the corporate-level headcount.

Sidebar: Dupont’s Global ServicesBusiness

Dupont has been a leader in shared services for someyears, and, in early 1999, set up a new, separate


organisation, called the Global Services Business(GSB). It covers a wide range of services, includingaccounting, legal services, people processes, andsourcing and value chain processes, and employs6000 people globally, over 6 per cent of Dupont’stotal workforce.

GSB’s mission is ‘to help Dupont businesses do busi-ness better’. To achieve its mission, it is attemptingto operate, as far as possible, like a business itself. Inother words, it is driven by the demands from itsDupont customers, recognises that it must delivervalue in excess of its charges and better than outsidesuppliers, and concentrates on reliability and respon-siveness. Business unit heads sit on the GSB’s advis-ory board, together with GSB senior executives, ser-vice level agreements govern the relationshipbetween GSB and its customers, and regular cus-tomer satisfaction surveys are carried out. In thisway, customer focus is central to everything GSBdoes.

Businesses are free to buy services from GSB or to goelsewhere. They are charged for actual consumptionat an agreed, fixed rate or price. These prices arebased on shared forecasts of usage. Transparency ofservices provided, costs and prices are important tothe relationship between GSB and its customers.

In addition to professionalism in service offeringsand service processes, a critical element in GSB’s suc-cess is staff attitudes. The people in GSB are far moremotivated as part of a dedicated, customer-respon-sive, cutting-edge, quasi-business than they were inthe old central functions. The combination of pro-fessionalism, expertise and commitment is alreadybeginning to yield major performance improvements.

Summary

Corporate centre re-designs are an integral compo-nent of many new corporate strategies and trans-formation processes. But these re-designs often fail toachieve the effectiveness, agility and value-addedthat are desired. As a result, enthusiasm for the taskflags, line managers lose respect for the corporatecentre, and corporate staffs become demoralisedand demotivated.

The remedy is to base the corporate centre designprocess on the three roles we have described.7 In thesidebar, we describe the use of the approach at Bur-mah Castrol.

Sidebar: Re-designing the CorporateCentre at Burmah Castrol

In 1998, Burmah Castrol embarked on a re-design ofits corporate centre. At the time, its turnover was £3billion, and it had four global business units in Lubri-cants and six global business units in Speciality


Chemicals. The corporate centre (‘everything thatisn’t part of a business’) had a staff of around 400people.8

Burmah Castrol began with an activity analysis thatshowed that 80 per cent of the staff were engaged inshared services, with much smaller numbers con-cerned with minimum corporate parenting andvalue-added parenting. Laying out who was playingwhich roles was vital. ‘Previously, people were notclear about the nature of their responsibilities. In HR,for example, individuals were unsure if they weresupposed to be advising the businesses what to do(parenting) or asking them what they wanted(services). If you can get clarity on the roles, every-thing else follows’, stated Jonathan Vickers, theleader of the transformation project.

Benchmarking of the minimum corporate parentactivities showed that Burmah Castrol was broadlyin line with its peer group in terms of numbers. Fur-thermore, there were no evident shortcomings in theprofessionalism with which these tasks were beingcarried out. Only modest changes in these areaswere needed.

Identifiying major sources of parenting value-addedwas harder. The CEO and the senior corporate man-agement worked through a long list of possiblesources of value-added, but concluded that many ofthem had limited potential, or entailed downsiderisks of excessive costs or negative influence. Someimportant opportunities did, however, emerge,including the development of managers to run smalllocal operations as part of global businesses, and thesharing of best practices concerning ‘customer inti-macy ’ (applications development, relationship man-agement, service responsiveness). By contrast, it wasdecided that some other parenting activities shouldbe eliminated, because they were never likely to cre-ate positive net value-added, including ‘the parent-ing that we didn’t even know we were doing’.

The sources of parenting value-added were thenextensively discussed and refined with the businessmanagements, yielding a much clearer sense ofwhere the real value lay and how to get at it. Thisled on to re-design of the corporate centre toimplement the parenting value-added role moreeffectively.

The re-design also paid particular attention to theshared services, since they accounted for such a largepart of the total corporate centre. Discussions withboth the providers and users of the services rapidlyshowed that there were problems to be addressedand differences in perspective between the centre andthe businesses. ‘We don’t feel that what we do isappreciated’ (Service Department). ‘We have con-flicting priorities and no way to resolve them’(Service Department). ‘What do they do at the centre?No, really, I don’t know’ (Business).


The cost effectiveness and importance of each servicewere assessed through a series of workshops involv-ing both service providers and business users,together with a benchmarking process. This led to theelimination of some unwanted services, outsourcingof some commodity items, and the establishment ofa new Services Centre for the remaining services.

The Services Centre was set up to be culturally andorganisationally separate from the rest of the corpor-ate centre, with a single general manager in chargereporting to the CEO. It included all the service-related activities of the IT, HR, Legal and Accountingdepartments, but not their parenting value-added orminimum corporate parent activities. The ServicesCentre established service contracts with the busi-nesses, using simple charging mechanisms and giv-ing ultimate control to the businesses. This createdbetter mutual understanding, and led to lower costs.The Services Centre’s attitude has also become moreservice oriented and customer responsive.

The result of the re-design has been a more effectivecorporate centre, better attuned to the needs of Bur-mah Castrol. Headcount is down by about 10 percent. But the real benefit has had much more to dowith added value and effectiveness than with simpledownsizing and cost reduction.

The first step is to establish the staff needed for theminimum corporate parent role. This is a matter ofensuring that all corporate obligations can be pro-fessionally discharged, while weeding out unnecess-ary activities that may be value destroying. Aggress-ive benchmarking of staff numbers againstcomparable companies is desirable to provide somereference points.

The second step is to identify the major intendedsources of value added by the corporate centre, eachof which should have the potential to make a measur-able impact on corporate results (e.g. 10 per cent orbetter uplift in profits). Once these sources of parent-ing value-added have been laid out, it is essential tothink through in detail how they will beimplemented, and, in particular, to design the staffresources and processes needed to support them.Companies that can find no major parenting valueadded opportunities should consider demerger, orelse retrenchment of the corporate centre to mini-mum corporate parent activities only.

Provided that some large sources of parenting value-added have been identified, it is also appropriate toinclude other secondary sources of value-added inthe design of the corporate centre. Corporate pur-chasing, for example, may not add enough value toprovide a rationale for the group’s existence. But ifwe are going to have a corporation at all, there maywell be some value available from centralising selec-tive areas of purchasing. The staffs and processesrequired to support these secondary sources of cor-


porate centre value added also need to be designed,but must take account of the costs and the risks ofmisguided interference as well as the upside poten-tial.

The third step is to focus attention on shared services.The service activities of central departments need tobe broken out and tested for cost effectiveness andresponsiveness. This will involve benchmarkingagainst other possible providers, as well as con-sulting the business users. The potential benefitsfrom setting up a separate, dedicated shared servicesorganisation need to be considered before makingdecisions on whether and how to provide each ser-vice centrally. If shared services are set up orretained, the businesses should have some freedomto opt out if they are dissatisfied with the servicesprovided. This means that shared services will onlysurvive in the long run if they are delivering goodvalue to their business customers.

Designing the corporate centre in this way gives amuch sharper justification for the existence of differ-ent sorts of staffs, allows both headquarters man-agers and business managers to see what staff rolesare worthwhile, and identifies the skills and com-petences needed. By thinking through the three roles,it is possible to create a genuinely fit-for-purpose cor-porate centre that supports the corporate strategyand delivers real value.

Notes

1. For a full description of the ready reckoners see Young etal. (2000); Young and Ullmann (1999).

2. The PricewaterhouseCoopers’ term is corporate centrevalue 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 con-clusions. See Gunn Partners (undated).

7. See Pettifer (1998) for a fuller description of such a pro-cess.

8. As part of the general trend to consolidation in the oilindustry, in July 2000 BP Amoco acquired Burmah Cas-trol, and Burmah Castrol ceased to have a separate cor-porate headquarters.

References

Goold, M., Campbell, A. and Alexander, M. (1994) Corporate-Level Strategy. John Wiley and Sons, Chichester.

Gunn Partners (undated) Introduction to Shared Services. GunnPartners Inc., Boston.

Pettifer, D. (1998) Corporate Centre Transformation. Pricewater-houseCoopers, London.

Young, D. and Ullmann, K.D. (1999) Benchmarking CorporateHeadquarters Staff. Ashridge Strategic ManagementCentre, London.

Young, D. (2000) Corporate Headquarters: An InternationalAnalysis of their Roles and Staffing. FinancialTimes/Prentice Hall, Englewood Cliffs, NJ.


MICHAEL GOOLD, Ash- DAVID PETTIFER, Price-ridge Strategic Management waterhouseCoopers, 1Centre, 17 Portland Place, Embankment Place, London,London W1N 3AF. michael- WC2N 6NN, [email protected]

David Pettifer is a LeadingMichael Goold is a director Partner in the Global Stra-of the Ashridge Strategic tegic Change Practice ofManagement Centre. His PricewaterhouseCoopersresearch interests are con- where he is responsible forcerned with corporate strat- assisting major clients withegy and the management of the design and implemen-

multi-business companies, and he runs the Centre’s tation of value-focused corporate centres. He has pub-programme on Strategic Decisions. His publications lished several articles on Corporate Centre Transform-include Synergy: Why Links Between Business ation and leads PwC’s relationship with AshridgeUnits Often Fail and How to Make Them Work Strategic Management Centre.(Capstone, 1998), Corporate-Level Strategy: Cre-ating Value in the Multibusiness Company (JohnWiley and Sons, Inc, 1994) and Strategic Control:Milestones for Long-Term Performance (FinancialTimes/Pitman, 1990).

DAVID YOUNG, Ash-ridge Strategic ManagementCentre, 17 Portland Place,London W1N 3AF.

David Young is an associateof Ashridge Strategic Man-agement Centre and anindependent consultant. Hehas led ASMC’s research onthe size, structure and roleof corporate headquarters

staff over the last seven years, and his managementguides, Effective Headquarters Staff and Bench-marking Corporate Headquarters Staff are recog-nised as the premier publications in their field.


Documents

Redesigning the corporate centre