When subsidiary managers at global organizations are ignored or constrained by a parochial mindset at headquarters, the whole company can suffer. Here’s how one company set out to change that dynamic.
In 2007, Irdeto B.V., a Netherlands-based developer of security software for digital media providers, was eager to increase its market share in the Asian market. The company had been in China for nearly a decade and boasted a substantial regional office in Beijing. But its market share in China was under attack from Chinese competitors, including China Digital TV, which held a 40% market share compared to Irdeto’s 22%. Despite frequent visits by then-CEO Graham Kill and the sales director, the company worried that it would miss out on the anticipated market growth in China and other parts of Asia.
In Kill’s view, one of Irdeto’s problems was that too much power was concentrated in the head office in the Netherlands. Managers there conducted themselves as if they knew best, and branch offices and subsidiaries tended to defer to Amsterdam. Such dynamics undermined the company’s ability to understand remote markets, learn from them, and adapt to them. We call this malady the “headquarters knows best” syndrome.
In our experience, similar narrow-mindedness holds back many organizations in their efforts to turn global presence into a real source of competitive advantage. In this article, we explore the manifestations and costs associated with this way of thinking — and ways companies have addressed the problem. Many of the things companies have done are fairly predictable, such as decentralizing global responsibilities, changing the reporting relationships, internationalizing senior management, and creating cross-national teams. In Irdeto’s case, the company tried a more extreme remedy: It created two headquarters, one in the Netherlands and the other in China. While this was expensive — and something Kill’s successor ultimately did away with in 2015 — our study of the company indicated that the decision to operate out of dual headquarters provided an effective way to realign the focus of the company, and it had significant positive effects on Irdeto’s performance. (See “About the Research.”) We offer a broad set of recommendations to help executives overcome the “headquarters knows best” syndrome and position themselves more effectively for global growth.