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A new look for the corporate center: reorganizing to maximize value

A new look for the corporate center: reorganizing to maximize value At most large companies today, the activities and structure of the corporate center are based on a traditional functional support model that is no longer appropriate for maximizing the value of the company. In the modern corporation, thought should be given to organizing the center not around support functions, but around clearly defined value‐creating activities. The resulting structure would look very different from the traditional model, but would give the CEO added leverage for achieving superior performance over time. Most companies actually do recognize the need for change and have attempted, with varying success, to modify or adapt the traditional corporate center structure to contemporary needs. For example, in many companies, some form of a business development function has been added to the center, and IT has been elevated from a narrow technical function to a broader information management role. Some companies have also created corporate‐based centers of excellence, such as marketing and knowledge management, to leverage competitive advantages spanning multiple business units. And in almost all companies, the role of the CFO has been expanded from reporting, treasury, audit and tax to include a more “strategic” scope of responsibilities. In our view, these modifications, while directionally helpful, cannot overcome the inherent shortcomings of the traditional corporate center: it is imperfectly aligned with the objectives, the complexity and the scale of the modern corporation. Consequently, we believe top management should consider redefining the activities and changing the structure of the center to become a powerful enabler of, and not an obstacle to, superior performance. To improve the performance of the corporate center, top management needs to address two challenging tasks: first, how to create a new model of the center and, second, how to replace the old model of the center. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Business Strategy Emerald Publishing

A new look for the corporate center: reorganizing to maximize value

Peter Kontes
Journal of Business Strategy , Volume 25 (4): 7 – Aug 1, 2004
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Publisher
Emerald Publishing
Copyright
Copyright © 2004 Emerald Group Publishing Limited. All rights reserved.
ISSN
0275-6668
DOI
10.1108/02756660410547359
Publisher site
See Article on Publisher Site

Abstract

At most large companies today, the activities and structure of the corporate center are based on a traditional functional support model that is no longer appropriate for maximizing the value of the company. In the modern corporation, thought should be given to organizing the center not around support functions, but around clearly defined value‐creating activities. The resulting structure would look very different from the traditional model, but would give the CEO added leverage for achieving superior performance over time. Most companies actually do recognize the need for change and have attempted, with varying success, to modify or adapt the traditional corporate center structure to contemporary needs. For example, in many companies, some form of a business development function has been added to the center, and IT has been elevated from a narrow technical function to a broader information management role. Some companies have also created corporate‐based centers of excellence, such as marketing and knowledge management, to leverage competitive advantages spanning multiple business units. And in almost all companies, the role of the CFO has been expanded from reporting, treasury, audit and tax to include a more “strategic” scope of responsibilities. In our view, these modifications, while directionally helpful, cannot overcome the inherent shortcomings of the traditional corporate center: it is imperfectly aligned with the objectives, the complexity and the scale of the modern corporation. Consequently, we believe top management should consider redefining the activities and changing the structure of the center to become a powerful enabler of, and not an obstacle to, superior performance. To improve the performance of the corporate center, top management needs to address two challenging tasks: first, how to create a new model of the center and, second, how to replace the old model of the center.

Journal

Journal of Business Strategy – Emerald Publishing

Published: Aug 1, 2004

Keywords: Organizational structures; Organizational design; Strategic management; Value added; Corporate governance

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