Downsizing is the undisputed global management trend of the moment, says The Economist in a feature in the current edition that discusses what some companies are doing to reduce costs beyond the job cuts that have been making the news recently.
The Economist describes what companies like Nortel have been doing to cut costs. Action that firm has taken includes cutting 1,300 jobs â€“ among them those of their chiefs of marketing and technology â€“ and devolving activities like marketing and R&D to business units.
The Economist says â€œevery companyâ€™s situation is unique, and there is no single, perfect division of labour between HQs and other offices.â€
As someone who, in a previous life, worked at the HQ of a company where employees elsewhere openly and disparagingly referred to it as the Ivory Tower (not too original, I know), I agree with that view.
So itâ€™s the moving functions out of the headquarters to the operating units that is the thought-provoking element for me in The Economistâ€™s feature, where the continuing (and worsening) economic downturn will force companies to determine exactly what their headquarters actually contribute to the business.
Too few CEOs know that, The Economist says.
[â€¦] The amount of ignorance that still exists is striking: in a survey of 20 large British firms conducted earlier this year by Maxxim Consulting, only four chief executives knew how much their head offices cost to run, or how many people were in them.
I found the most compelling example in The Economistâ€™s story to be that of Smiths Group, a global technology company, and what the new boss, Philip Bowman, did earlier this year â€“ before the credit crunch really took hold â€“ after he concluded that the firmâ€™s London HQ was overbearing and overstaffed:
[â€¦] Given that Smithsâ€™ business units had little in common, he says he saw no sense in having a large head office and has since pushed many of its activities back into the firmâ€™s different divisions.
As a result of these changes, the number of head-office staff has fallen from 100 to 50. Smiths has also taken the unusual step of detailing the cost of its HQ in its accounts: Â£35m ($70m) in the year to August. The idea, says Mr Bowman, is to create an extra incentive to drive the cost down. The London HQâ€™s remaining employees have been moved from a run-down building on the outskirts of the cityâ€”which Mr Bowman describes as â€œan absolute rabbit warrenâ€â€”to a modern, open-plan office in the centre. Smithsâ€™ boss reckons this will help break down the â€œsilo mentalityâ€ that existed under the previous regime.
Pressures to prove that HQ adds value to the business and breaking down barriers â€“ not bad goals for any organization, credit crunch or not.