CHQ redesigns during times of crisis

Conventional wisdom holds that companies often maintain too large corporate headquarters (CHQ) and should slim down CHQ size during economic crises. Yet, others argue that, especially in crises times, a strong corporate hand is needed to help businesses navigate through tough waters.

This article looks at how companies have resolved this apparent conflict between economic pressures and the design of their CHQ during the most recent global economic crisis (2007-10). Specifically, it investigates how companies have adjusted their CHQ and its service provision. Based on a surveyed sample of more than 700 of the largest companies in North America and Europe, the article reveals the following three patterns of CHQ change:

  • Companies scaled up their CHQ rather than trimming them
  • Corporate managers tightened their strategic and functional control
  • Companies grated divisions more authority in less strategic areas of decision-making

Striving for the right balance between the CHQ and the rest of the organization has been a fundamental management challenge for decades.

Irrespective of current trends, managers should act with care when adjusting their CHQ. Due to the distinct strategic role of the CHQ, the effect of any changes to it will be amplified throughout the organization. Managers need to keep this in mind, particularly when trimming down and scaling up their company’s CHQ. Too large a change either way can carry risks and potential costs. If companies cut too deeply, they may not have the capabilities and resources to support their corporate strategy in the best possible manner. CHQ austerity may prevent them from identifying strategic opportunities that could transform their fortunes. On the other hand, a large and overly active CHQ can also become a serious burden and destroy rather than add value.

Finding the right pace of change is not the only challenge when implementing adjustments to the CHQ. The different choices and direction of CHQ change come with specific risks, opportunities, drivers and barriers and the article identifies some examples of each.

Corporate managers need to assess the choices at hand in light of their company’s specific circumstances and strategies. The survey results presented in this article indicate that managers have apparently come to this conclusion when contemplating how they should respond to the most recent economic crisis (2007-10). With their CHQ changes, they broke with historical patterns and overruled conventional wisdom.

The complete article was written by:

  • Sven Kunisch
    PhD candidate, Institute of Management, University of St. Gallen, Switzerland
  • Dr. Markus Schimmer
    Postdoc, Institute of Management, University of St. Gallen, Switzerland
  • Prof. Dr. Günter Müller-Stewens
    Professor and Managing Director, Institute of Management, University of St. Gallen, Switzerland

Read the full articlepdf1.11 MB

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