Corporate Benchmarking Study Final White Paper

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Study of organization of corporate strategy groups of top Fortune 500 companies

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Corporate Benchmarking Study Final White Paper

  1. 1. Strategic Planning and Business Development Group American Express SPG White Paper on Corporate Strategy Groups During Q4 2004, American Express’ Strategic Planning Methodology Group (SPG) conducted a benchmarking study of other The benchmarking study was interview corporate strategy groups to reflect on our own organization based and more qualitative than quantitative. To find the appropriate and processes, and to learn current best practices. The issues groups to interview we first took the raised are likely to be relevant for many corporate strategy intersection of the Fortune 500 and the groups, and we have therefore written this paper to share what Fortune ‘100 Best Companies to Work we learned. For’. We wanted half the companies to be in financial services and all to be The paper is organized around four major questions : leaders in their industry. As a result, we interviewed individuals at both junior • What type of strategy group does your company need? and senior levels in 26 corporate • Are you shaping the strategy of your company? strategy groups in the following industries: • Do you know how much value you are adding? - Financial services • Do you have the appropriate talent strategy? - Technology - Media/entertainment - Consumer goods - Pharmaceuticals The sampling was not scientific and the percentages mentioned in this paper are not statistically significant. What type of strategy group does your company need? During our study, we learned that there are many different types of corporate strategy groups – in fact no two groups were exactly alike. Rather, each group’s unique natureDoes your strategy group reflected the needs, structures and culture of the company, the industry andhave the right focus and role? other more idiosyncratic elements. In assessing a strategy group, we asked about the functions performed by the corporate strategy group, and its role vis-à-vis other groups with strategy functions such as business unit strategy groups and external consultants. The role of the corporate strategy group The most frequent responsibilities of the groups we interviewed are internal management consulting, corporate planning and M&A. These functional roles are not exclusive and some strategy groups perform two, even three of those roles. In general, we found that strategy groups can be grouped into three Main types of corporate strategy groups categories: “Internal Consulting Boutiques”, “Corporate 60% Planners” and “M&A Groups”. Internal Consulting Boutiques generally work on the same types of projects an external strategy consulting 20% 20% firm would. These groups are usually in companies with separate groups for M&A and corporate planning. Internal Corporate M&A group However, in some cases, they are also involved in the Consulting planner corporate planning process and/or the corporate M&A Boutique process. 1
  2. 2. Strategic Planning and Business Development Group Corporate Planners manage the corporate planning process with a strategic rather than a financial focus. These groups also work on strategy projects emanating from the planning process. “M&A Groups” are corporate strategy groups who work mainly on investment and divestment issues. They identify targets and manage investment bankers, and often work on ad hoc strategy projects as well. They are usually found in companies whose growth opportunities are primarily external. Relationship with business unit strategy groups and external consultants The optimum size of a corporate strategy group depends mainly on how centralized the strategy function in the company is (i.e. how big the business unit strategyDoes your company have the right groups are) and how much strategy work is outsourced to externalresource balance between the corporate consultants. The size of the corporate strategy groups we benchmarkedstrategy group and other strategyfacilitators? varied greatly. About half the groups had less than 10 people, while the largest had 60. The Internal Consulting Boutiques were usually the largest, with an average size of 22 people. The Corporate Planners were the smallest (8 on average), the M&A Groups had an average size of 16. Centralized versus decentralized? We found that most companies have strategy groups or functions at both the corporate and business unit levels. We tried to understand in particular what the value added by a corporate strategy group is relative to a business unit strategy group. The most frequently Most companies have strategy at mentioned benefits of a corporate strategy group were: unique both the corporate and BU levels cohesive role, rare skills and resources, and easy access to top 77% leadership. In some cases, part of the corporate group’s mandate is to play a cohesive role that a business unit group cannot play. As one interviewee put it, his group “looks after the cohesion of the 15% overall company strategy and solves cross-business unit issues”. 8% Arguably, only a corporate strategy group can play this role. Corporate BU level Both level only only Corporate and In other cases, the value added comes from the talents and skills BU level of the people a corporate group is able to attract compared to business unit groups. One interviewee commented “because of the exposure and overview of all the company’s businesses, the corporate group can attract top strategy consultants”. Because corporate groups have resources with unique skills, they can complement the business unit strategy groups on specific projects. Additionally, corporate strategy groups can help a business unit group get access to the CEO and other top leaders. “The involvement of the corporate strategy group on a project can contribute to greater exposure and more legitimacy, and generate faster buy-in of recommendations” noted one interviewee. 2
  3. 3. Strategic Planning and Business Development Group Make or buy? Through our interviews, we learned that there are two main types of roles that strategy groups playHow should your company with regard to external consultants. In some cases, a small corporate strategyuse external consultants? group operates as an interface with consulting firms, owning the relationships, managing the output and syndicating the recommendations. These groups often have other roles and might complete smaller projects entirely in-house. In other cases, larger groups with the ability to complete full scale consulting projects in-house “compete” with external consultants for projects. Are you shaping the strategy of your company? Although it is difficult to benchmark a strategy group’s influence on its company’s strategy, useful insights can be gained from the answers to the following questions: Do you report to the right person? Do you have the right client service model? Are you working on the right projects? Appropriate reporting line Head of group reports to More than half the strategy groups we talked to report directly to the 55% CEO, especially the Internal Consulting Boutiques. However a significant minority (21%) report to the 21% CFO, particularly in the case of Is your reporting line appropriate for your organization? 17% 7% Corporate Planners and M&A Groups, while the rest report either to another CEO CFO CTO / Others corporate-level executive (COO/CTO) or someone in the chairman’s COO office or an executive VP. Reporting directly to one of the company top executives is not a prerequisite for shaping the strategy of the company but advantages include: • giving legitimacy and authority to address cross-business unit issues • allowing group members to be less biased toward a particular issue or line of business • being part of the value proposition to current and prospective employees Adopting the right client service model We define the client of the group as the person who commissions the project the group works on. We found that 45% of groups work on assignments mainly “ordered from the top”, usually from the CEO or the executive committee. Most of these groups Most internal consulting boutiques operate at are Corporate Planners or M&A Groups. That does not both business unit and corporate level mean that these strategy groups work only on corporate Who is your client? level issues such as portfolio management or cross- 45% 45% business unit issues. The group can be “ordered from the top” to lead a project in a specific market or business unit, but in these cases the group’s approach is likely to be more directive than supportive as the business unit did 10% not request the group’s involvement. A minority (10% of groups benchmarked) are mainly Mainly CEO Mainly BU Both & executive heads asked by regional or business unit heads to work on committee 3
  4. 4. Strategic Planning and Business Development Group issues for them. These groups are exclusively Internal Consulting Boutiques and are positioned in the company as “service providers” for the regions or business units. Since their involvement is mainly based on demand from the business units or regions, their working style tends to be supportive rather than directive. The rest (45%) works for both the CEO and the business units. Most of these groups are Internal Consulting Boutiques, and follow both “ordered from the top” and “service provider” models. We see some benefits in combining “ordered from the top” and “service provider” models: the assignments coming from the CEO allow the group to focus on the main issues on the CEO agenda. On the other hand, the “service providers” mentioned that working onDoes your client mix allow you to coverthe main strategy issues facing your projects ordered by a specific business unit or region allowed them tocompany? work on key issues even before they appear on the CEO’s radar screen (e.g. business development opportunities in a specific region). [We found groups working exclusively for the CEO but who wanted to develop client relationships with the business units or the regions’ heads as well.] The strategy group’s client mix has an impact on the type of issue the group works on and also on the way it operates in the company (“ordered from the top” versus “service provider”). One model is not necessarily better than the other. But it is important for a corporate strategy group to understand what the most suitable model for it is given its mission and the company’s culture. Sourcing the right projects Most groups are mainly asked by their internal clients for help, which is consistent with the two main operating models we saw in the previous section: “ordered from the top” and “service provider”. However some groups also proactively suggest ideas or issues to work on. These groups mentioned that this is a way to help the company’s leaders to step back and think about longer term strategic issues. In some cases, this is a core part of the value they add to the organization. In order to help the CEO or business unit heads identify the key issues, corporate strategy groups are usually involved in forums or processes that keep them alert to the main challenges facing the organization: • Presence at the executive committee meetings or regular meetings with the top leaders to discuss their main priorities Does your project sourcing process allow you to work on the key issues for the • Regular meetings with the business unit strategy groups or company in a comprehensive and functions systematic manner? • Involvement in the corporate planning process, especially if business unit and market strategies are discussed and validated during this planning process These forums and processes are particularly useful in complex organizations with multiple businesses and geographies. 4
  5. 5. Strategic Planning and Business Development Group Do you know how much value you are adding? Measuring value Not surprisingly, every group we talked to thought it added significant value to its company. However most groups do not measure their value added quantitatively. Many Could your group benefit from a groups have formal or informal feedback but very few have a comprehensive more rigorous and comprehensive set of metrics and none has any ROI measure. Some groups use proxies such set of metrics? as number of requests from past clients or some connection to the company’s total shareholder return or stock performance. Charging for value We found that most groups are pure corporate cost centers though some groups use transfer prices to allocate costs to the client business unit group. Only one group has a full charge-out model and one group has a hybrid cost center/charge-out model. Some groups had tried unsuccessfully to move to a charge-out model. One group charged too little –“we moved away from a charging model after low pricing resulted in overwhelming demand”. Another group could not get clients to pay – “our attempt to move to a charging model was unsuccessful due to lack of demand.” Although very few groups charge out for their services, there are several benefits to this model: it is a very efficient prioritization tool; it keeps the group focused on deliveringCould your group benefitfrom a charge-out model? value; it enables the group to be viewed differently within the organization, i.e., not overhead, etc. The charge-out model is particularly appropriate for groups acting as “service providers” as the bulk of their assignments come from the business units. Do you have the appropriate talent strategy? Supporting the company’s talent strategy Almost half of the groups we spoke to (48%) didn’t have any role in their company’s talent strategy. The other groups fall into two main buckets: “bring new talent into company” (35%), and “groom internal talent” (10%). A few groups (6%) have a dual role—bring in new talent as well as groom internal talent. More than half of groups have a role in A handful of groups stated that their role in the company’s the their company’s talent strategy talent strategy was more important than their functional 48% Does your group play a role role. Some companies used the in your company’s talent corporate strategy group as a 35% strategy? cultural change agent: to bring in different perspectives and 10% backgrounds as well as increase the cultural and ethnic 6% diversity of the potential future leaders of the company. No role Bring in Groom Both Other companies used rotations in the group to help line internal new talent talent managers develop strategic thinking or to retain top performers from the pre-MBA, “analyst” pool. 5
  6. 6. Strategic Planning and Business Development GroupTargeting the right people for the groupIn our study we tried to understand the backgrounds of people that corporate strategy groups hire aswell as where they hire from. Most groups recruit ex-consultants Given that most of the groups we talked to serve as internal consulting boutiques, it is not surprising that the most 92% frequent background that groups look for is management consulting: more than 90% of groups recruit ex-consultants. 42% We found quite a few groups following a more diversified 38% recruiting strategy for specific reasons. Close to half the groups (42%) hire ex-investment bankers. These groups Consultants Investment Others either serve the corporate M&A function or are Internal banking Consulting Boutiques or Corporate Planners at companies with investment banking divisions. More than a third of thegroups (38%) look for more specialized backgrounds such as finance, pricing or negotiations. Oneinterviewee said that his group did not look for the consulting skill set but was more interested in“background variety and people able to build consensus and find compromise. Consultants are goodat cracking a problem but not really at managing buy-in.”Since most groups look for people with management consulting backgrounds, they usually gooutside the company to find these people: 59% of groups recruit externally only.Recruiting : external vs. internal However a significant minority of groups (17%) only recruit internally. It allows them to select people with a proven and observed track record and people who already know the company. 59% Additionally, some groups use rotations in the corporate strategy group as a reward for high performers in other parts of the 17% 24% company. A strong culture of hiring from within in some companies leads to internal hiring for the corporate strategy group. Recruit Recruit Both Almost a quarter of groups (24%) recruit both internally and externally internally externally.Most of the larger groups and quite a few of the mid-size groups, given their larger hiring needs,recruit at business schools and undergraduate institutions as well.Attracting the right people With the right value propositionIn our study we tried to understand precisely why people join corporate strategy groups. In otherwords, what is the value proposition that these groups offer their people? The three most frequentlycited value propositions are: overview of multiple business units, transition into line managementwithin an industry (from professional services) and interaction with the top leadership of thecompany. Main reasons for joining a Corporate Strategy Group We found that moving on from the corporate strategy group 56% 52% to a line management position is a key value proposition in 48% many groups and people usually don’t stay in those groups 30% 26% 6 Exposure Transition Top leaders Money Work life to multiple into industry interaction balance BUs
  7. 7. Strategic Planning and Business Development Grouplonger than for two to three years. However, some groups let people stay for five years or more, andsome even offer a long-term career in the group.In many groups transitioning into line management is the responsibility of the employee – the groupprovides little or no support. Where the group does help, the smaller groups rely on a personal, adhoc approach from the group’s Do you have the right value proposition leadership. The bigger groupsusually provide more formal and can you deliver on it? support and have processes inplace to aid the transition. In particular, some groups usesecondments into business units. A few groups even cultivate a strong alumni network in thecompany which helps transitioning people out.Of the three most cited value propositions (overview of business units, transition into industry andinteraction with top leadership), providing the transition into industry is toughest and depending onthe size of the group, requires infrastructure, dedicated time from management , etc. Groups that dohave a track record of transitioning employees have a more attractive employee value proposition. With a targeted communication strategyGroups recruiting externally considered their external reputation to be important, and particularlywith business school students and specialized head hunters. As part of this study, we also spoke tocareer counselors at top business schools in the US and Europe. We found that there is no commonunderstanding among business schools of who the top corporate strategy groups are. Reputation ofcorporate strategy groups seems to be mainly driven by presence and recruiting activity at eachindividual school. _______________________As previously mentioned, no two corporate strategy groups are alike in terms of role, organization orprocesses. For our group, the point of this benchmarking study was not to find the perfect model;rather, it was to identify and reflect on the key questions by looking at the main points of differenceswith other groups. The same applies to this paper: more than the general trends, we think the mostimportant takeaway for the reader is how to best answer the questions raised for your own group. 7

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