At too many large companies, corporate functions like HR and IT don’t get enough strategic direction from the CEO. Four basic steps can help.
Few CEOs give enough direction to the heads of their corporate-level functions. That’s the conclusion of a survey we conducted of more than 50 function heads at some of Europe’s leading companies. We are referring here to larger companies in which corporate-level functions such as finance, human resources, information technology, strategy, purchasing and legal provide policies, controls and services to decentralized operating divisions. Fortunately, some CEOs have found ways to address the problem. In our survey, fewer than one in 10 function heads felt they had received sufficient guidance on how their function should contribute to the company’s overall strategy. Instead, they were expected to develop their own ideas and functional strategies. In addition, although many heads of corporate functions had key performance indicators, these rarely assessed the overall contribution of their function. Rather, the KPIs measured performance on specifics, such as corporate HR’s rollout of an executive development program. They did not address the function’s overall performance by, for example, asking the operating division managers whether the function is adding value. The result of this undermanagement is mixed performance. While some corporate functions fulfill their roles highly effectively and win praise from the heads of operating units, most do not. In fact, one of the most common complaints from operating managers is that corporate functions are bureaucratic and interfering, making the operating divisions’ work harder rather than easier. Without sufficient guidance, corporate functions can become — often unintentionally — self-serving. Instead of developing policies and processes to give divisions the practical support they want and need, corporate functions measure themselves against industrywide best practices or implement initiatives that increase their influence or simplify their own work. The result is often a lack of cooperation from operating managers. One newly appointed IT head told us that the team he inherited had lost touch with the company’s operating businesses. “IT was pursuing an agenda that made sense to IT, but it made no business sense,” he said. The function’s main initiative was a centralized enterprise resource planning system that was too inflexible to serve the company’s smaller units and likely to cost twice the original estimate.