Three tests to unravel value of corporate headquarters

02 March 2016

Is there a way of reducing the risks of unproductive interference by head offices? In a recent McKinsey & Company article, the consulting firm explores ways of measuring when engagement by central management adds or subtracts value to projects through three tests. The evaluation of the different stakeholders provides the key to making a judgement as to whether centralised intervention will create long term value.

The value added by corporate headquarters has come under scrutiny in recent years, as many were found to be under performing in a range of capabilities. While there are various areas in which corporate headquarters can add considerable value to a company’s operations, including its role in preparing financial statements, paying taxes, or conducting internal audits, the very real risk of value destruction remains a possibility in more discretionary projects; ranging from misguided influence, bureaucracy, delays, and time wasting.

To mitigate such risks and improve the decision making process, in terms of whether a project warrants centralised management, McKinsey & Company recently released an article titled ‘Knowing when corporate headquarters adds rather than subtracts value’, which considers a litmus test for deciding whether centralised intervention is warranted. The three tests ask whether the project adds significant value (the added-value test), whether there are risks of unintended value subtraction (the subtracted-value test), and whether the initiative will encounter barriers to implementation (the barriers-to-implementation test). 

implementation barriers

Three tests
The first of the three tests asks whether the project is expected to create considerable value for the company, thereby justifying centralised oversight. Headquarters should, according to the firm, only busy themselves with significant opportunities. The consultancy places a number of 10% or up on overall performance values such as sales, profits, return on assets, or value to beneficiaries, although the consultancy suggests that this is open to the discretion of the firm. Critical to this test is knowing how much value is expected from the project and when it provides enough justification for headquarter involvement: the number should be large enough to make the risk of subtracting value worth taking. Such an evaluation may take the form of breaking a project into component parts and quantifying the various added performance values.

The second test asks operational managers to provide an assessment of the risks associated with centralised interference in the project. These managers may have better insight into the risks of such influence than the optimistic central executives. The third test involves an assessment of the barriers to implementation of the project. So long as a project being pushed by the central headquarters faces less than three barriers of nine key barriers, there is a reasonable likelihood of its success.

Value judgement
The research highlights that keen judgement is required to assess whether a discretionary project will benefit from addition centralised support, or whether it is best left to decentralised management. The research suggests that central management might be better at spotting where additional value may be gleaned due to their company-wide perspective, while decentralised management can better inform how such a strategy might subtract value from local context conditions and implementation barriers. Clarity in terms of the role of the various stakeholders in a project need to be clear, the consultancy noting that “Without clarity, power struggles and competing agendas can emerge when companies fail to communicate the different roles that headquarters, functions, and businesses should play.”

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How First Consulting generates more insight using fewer reports

08 March 2019

Organisations are continuously investing in more advanced data collection and manipulation methods to enable smarter and more informed business decisions. In order to maximise their business value, companies understand the growing need for performance related insights from their data. First Consulting, a consultancy firm specialised in business change, has helped many clients in the utilities sector to deliver effective change through improved use of their data.

Most utilities firms are structured in such a way that every business unit has a team of analysts who are responsible for providing relevant data insights to their business colleagues. The business analysis teams form the link between business decision making and IT by translating business requests into meaningful actions and delivering information via reports.

Typically, the business user will receive a unique report for each information request, with each new report requiring individual, tailored support from the analyst team. This limits the productivity of the analyst teams and minimises their ability to address new data requests. The growing demand for information puts additional pressure on these teams, as a significant amount of time is required simply to gather and update the required data. This has caused reporting portfolios to expand dramatically. However, due to the analysts’ already stretched capacity, reports do not always deliver the most vital information and documentation is often incomplete.

Redesigning information delivery

At First Consulting, business consultants work in close collaboration with their clients to improve the mechanism for the delivery of information and analysis in response to business requests. The improved structure focuses on providing information per role type, rather than per request. As such, one dashboard is designed for each organisational role type, with all the relevant information presented in a single overview. This allows all individuals of a given role type to open a single dashboard and view what they need, as opposed to collating a large range of disparate links and unique reports which, previously, were all required to enable business decision making.

Moving from unique reports for each request, to reusing KPIs in a select group of dashboards

By implementing this new way of working, clients are able to reduce the reporting portfolio from over 100 reports to fewer than 20 dashboards (see figure above). In addition, the capacity for data maintenance can be reduced significantly by using modular KPIs, allowing for the re-use of data across multiple dashboards.

Changing while everyday work continues

In order to deliver effective change, it is essential that day-to-day processes remain unaffected whilst transitioning to a new reporting landscape. First Consulting achieves this by embedding business consultants within the client’s analysis team to gain feedback and determine exactly what visuals are necessary within the dashboards. This focuses effort on the outcome (such as what should be presented in the final dashboard) and allows a broad range of requirements to be considered in the business context and combined, where appropriate.

Key users and stakeholders are involved from the outset to help define what makes a high-quality dashboard. Adopting this approach helps the team to produce an optimal output that contains the key business information for the appropriate roles in an easy-to-use format.

Once it is clear what should be included in the final dashboard and how this should be presented, the team works according to the priorities set out by the product owner. This ensures that analysts work on the requirements which deliver the most value and which form the most coherent dashboards.

Main results

The advantages of implementing straightforward, no-nonsense solutions using fewer reports are particularly noticeable for the business and for the analyst teams:

  • Making adjustments is easier and maintaining and updating data costs less time
  • Management information is displayed in one location and is displayed according to defined standards, facilitating decision making
  • There is greater capacity within the business for complex analysis and project support

First Consulting combines process, technology, and implementation consulting to deliver impactful and value-adding solutions. The firm has more than 200 consultants based in the UK and the Netherlands.