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.
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.
3. S. Zaheer, “Overcoming the Liability of Foreignness,” Academy of Management Journal 38, no. 2 (April 1995): 341-363.
4. C. Bouquet and J. Birkinshaw, “Weight Versus Voice: How Foreign Subsidiaries Gain Attention From Corporate Headquarters,” Academy of Management Journal 51, no. 3 (June 2008): 577-601.
5. See B.A. Pasternack and A.J. Viscio, “The Centerless Corporation: A New Model for Transforming Your Organization for Growth and Prosperity” (New York: Simon & Schuster, 1998).
6. C.K. Prahalad and H. Bhattacharyya, “Twenty Hubs and No HQ,” Strategy+Business 50, no. 1 (spring 1998): 1-6; and C.K. Prahalad and H. Bhattacharyya, “How to Be a Truly Global Company,” Strategy+Business 64, no. 3 (autumn 2011): 55-62.
7. J. Birkinshaw, T. Ambos, and C. Bouquet, “The Corporate HQ as a Boundary Spanner: Insights From a Process Study” (unpublished manuscript, 2015).
8. For an academic treatment of this argument, see R. Gulati and P. Puranam, “Renewal Through Reorganization: The Value of Inconsistencies Between Formal and Informal Organization,” Organization Science 20, no. 2 (March-April 2009): 422-440.
9. See J.-F. Manzoni, “Building and Nurturing a High-Performance–High-Integrity Corporate Culture,” in “Performance Measurement and Management Control: Global Issues,” ed. A. Davila, M.J. Epstein, and J.-F. Manzoni (Bingley, U.K.: Emerald, 2012), 41-64.
10. See T.D. Wilson, “Strangers to Ourselves: Discovering the Adaptive Unconscious” (Cambridge, Massachusetts: Harvard University Press, 2002).
11. Managing such transitions fairly is particularly important because evidence from forgiveness research suggests that onlookers may treat justice violations more harshly than the victims themselves, with negative implications for morale and commitment to further changes. See, for example, J.D. Green, J.L. Burnette, and J.L. Davis, “Third-Party Forgiveness: (Not) Forgiving Your Close Other’s Betrayer,” Personality and Social Psychology Bulletin 34, no. 3 (March 2008): 407-418.
12. T.J. Allen and G. Henn, “The Organization and Architecture of Innovation: Managing the Flow of Technology” (Burlington, Massachusetts: Butterworth-Heinemann, 2006): 152.
13. K.E. Weick, “Making Sense of the Organization” (Oxford, U.K.: Blackwell Business, 2001), 444-448.
i. See J. Birkinshaw, D. Crilly, C. Bouquet, and S. Lee, “How Do Firms Manage Strategic Dualities? A Process Perspective,” Academy of Management Discoveries, forthcoming; and J. Birkinshaw, T. Ambos, and C. Bouquet, “The Corporate HQ as a Boundary Spanner: Insights From a Process Study” (unpublished manuscript, 2015).