Magazine Winter 2016 Research Feature

Fighting the “Headquarters Knows Best” Syndrome

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.

Cyril Bouquet, Julian Birkinshaw, and Jean-Louis Barsoux Reading Time: 22 min 

Topics

Permissions and PDF
Outsourcing Business Headquarters Remote Work

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.

Topics

About the Authors

Cyril Bouquet is a professor of strategy at IMD in Lausanne, Switzerland. Julian Birkinshaw is a professor of strategy and entrepreneurship at London Business School. Jean-Louis Barsoux is a senior research fellow at IMD.

References (14)

1. C. Bouquet, J.-L. Barsoux, and O. Levy, “The Perils of Attention From Headquarters,” MIT Sloan Management Review 56, no. 2 (winter 2015): 16-18.

2. Ibid.

Show All References

Tags:

Reprint #:

57215

More Like This

Add a comment

You must to post a comment.

First time here? Sign up for a free account: Comment on articles and get access to many more articles.

Comment (1)
Shyamsunder Panchavati
In my long innings as a management professional, I suffered because of this syndrome at the headquarters. 

Even a clerk cum typist or a management assistant would carry airs of being knowledgeable.

I found this attitude more with the newly recruited management trainees.

However when I moved into the C-suite, I tried my best to counsel the staff  at the headquarters to respect the skills and Knowledge of the people at the regional and other offices and allow the decisions to be taken at the Regional level.

BEING AT THE REGIONAL OFFICE DOES NOT MAKE YOU A LESSER SOUL THAN THE ONES AT THE HEADQUARTERS.

I also agree to the view that when the Headquarters does too much, the people at regional offices begin to shun responsibilities and pass on the buck to the headquarters for all decision making and problem solving. then the Headquarters have to delegate back to the Regional office involving a huge waste of time and loss of revenue.

Regional problems are best solved at Regional levels. Similarly Regional strategies are best planned and executed and monitored at Regional level. 

The organizations should recruit managers at Regional level, people who in their view have the ability to make decision and solve problems. People having experience of working in cross culture environment can be trusted for these positions. It is not always possible to get local talent steeped in the organization culture.

Nice and timely article.

Thanks for sharing.

Shyam
undefined