Idea in Brief
The Problem
Corporate functions are growing in importance as a source of value, but many companies are dissatisfied with their performance.
Why It Happens
These functions face varying challenges at different points in their life cycle. Early on, for example, function managers may be uncertain about their mandate. Later they may overextend and become mired in complexity or lose sight of the concerns of the business they serve.
The Solution
The authors offer advice for each life-cycle stage. Initially managers should keep the function small and prove its value to just a few parts of the company. Later they should explicitly link their activities to sources of added value and focus on relationships with the company’s line managers to preserve relevance.
As companies with business units or divisions have become better able to standardize and centralize their operations, traditional headquarters functions such as finance, HR, IT, marketing, and strategy have increased in size and influence. Meanwhile, new functions, in areas such as risk management and compliance, are emerging. In a survey of 761 of the largest corporations in North America and Europe, which we conducted in collaboration with the Harvard Business School professor David Collis, almost a third of companies reported an increase in the number of corporate functions—and fewer than 10% reported a reduction—from 2007 to 2010. Leaders at three out of four companies believed that the influence of their corporate functions had grown.