Redefining Corporate Functions to Better Support Strategy and Growth | McKinsey

HR Effectiveness

A common challenge of organization design is determining the extent to which corporate functions should be (de)centralized to maximize business value. On the one hand, centralized functions enable scalability, consistency, and standardized metrics. Conversely, decentralized corporate functions can provide business units with the advantage of speed, control, and adaptability. But as pointed out in this article, the decision to centralize or decentralize functions is often prompted more by who is designing them rather than objective, fact-based decisions about what maximizes value. This article provides criteria for decision-makers of organization design when choosing a centralized or decentralized model. It bases decisions on the strategic rationale for the current design and on how it drives business value. One recommendation from the authors is to identify what type of business unit leaders it needs to maximize value and how empowered and focused they need to be in the context of the overarching strategy. The chart illustrates how four primary archetypes of business-unit leaders can help determine the degree to which corporate functions should be (de)centralized to best support the business. For another resource on organization design, check out Rupert Morrison’s recently released book, Data-driven Organization Design: Delivering Perpetual Performance Gains Through the Organizational System.

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