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MCKINSEY

Redefining corporate functions to better support strategy and growth

Redefining corporate functions to better support strategy and growth

mckinsey.com

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Over the past decade, companies have struggled with organizational designs that vary widely in how centralized or decentralized they are across functions. These organizational redesigns are often prompted more by who is designing them than by objective, fact-based decisions about what maximizes v...

In large, global multi-business companies, this dynamic may result in a struggle between functional leaders trying to achieve standardization and scale, and business leaders who feel they are paying for a large corporate overhead that is not sufficiently responsive to their needs. Underlying thes...

Functions in an organization continuously shift between centralized and decentralized modes, first centralizing to achieve efficiency, then giving power back to business units to spur responsiveness and accountability.

Organizations implement tenuous “we’ll both do it” models that rely on c...

we believe companies need a new approach to set up functions that maximize business value and successfully serve business units. This approach is based on three core beliefs:

  • Organizations should flip the script on traditional value assessment of functions and define functions by l...

Safeguarding functions include those protecting the company from threats to survival by maintaining basic controls. These functions are almost always led by a corporate entity. Typically, they involve decisions inappropriate for a single business unit to make and often involve legal, risk, regula...

Shaping functions include those supporting the implementation of the organization’s strategic priorities and requiring one voice across the enterprise, such as branding, strategy and business development, communications, R&D, and centers of excellence (CoEs). The top team must always set the valu...

Sharing functions serves needs across business units (for example, payroll, IT, and accounting). Sometimes, these functions can be aggregated to provide efficiencies of scale. Other times, they can be distributed within business units when needs are dissimilar. Sharing functions should be highly ...

Putting these core beliefs into practice requires organizations to take three key steps: define the organizational strategy and ground it in how functions deliver value at the enterprise and busines-unit levels, take a BU-back approach to function design, and move quickly to determine how to allo...

Organizations must first determine the kind of business leaders they need to consult to understand the design requirements of a given function. To gain this perspective, executives must take a step back and 

Companies should identify the unique characteristics of the markets they operate in and the competitive dynamics within them. How do companies meet the needs of their core customers? How do business units differ in their response to those needs? What products do business units offer, what differe...

The next step is to determine how functions best fit into that narrative. Organizations must answer the following questions:

  • What are the key decisions that business-unit leaders need to make, and what do they need to control?
  • What markets, products, and customer bases might r...

The reason organizations struggle to define central functions is that they move too quickly to define how functions could add value rather than grounding decisions more fully in the needs of business units.

Organizations often struggle to define their organizational strategies. They create ...

Organizations should adopt a business-unit lens, or BU-back approach, when designing functions. Because value creation primarily happens within business units, activities of corporate functions should reflect the needs of business units. Functions should be set up only when a business unit absolu...

This business-unit leader has little to no control over most functions. Instead, this type focuses on pursuing business development and sales, often playing a role with a light touch in product development and in adapting products to local customer bases. This leader operates well with fully cent...

This type of leader has control over functions, typically those requiring more localized oversight. Strong centralized functions best support this type of executive. For example, Procter & Gamble’s business-unit leaders are responsible for a range of functions such as product development, brandin...

The empowered general manager controls most profit and loss (P&L) functions and plays a prominent role in shaping and executing the value agenda. However, this leader looks to centralized functions to support a narrow range of shared needs. There are two ways to set up functions in support of thi...

This type of leader controls nearly all the functions (except essential safeguarding functions responsible for risk mitigation), must manage P&L statements, and substantively drives the value agenda. These executives are often found in private-equity companies, for example, which require severabl...

Once organizations have a clear view of what type of corporate-function setup is required, they can choose from nine different options:

  • Fully centralized
  • Fully centralized shared services
  • Strong CoE, with some execution resources informally assigne...

The balance between centralization and decentralization is a frequent, ongoing negotiation between business units and functions. Taking a BU-back approach grounds functional design in the needs of business units and enables organizational leaders to align on a common vision. Spending time up fron...

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