The question in today’s economy is how to define and demonstrate the value creation potential of a corporate function and move beyond the cost center model. Despite numerous articles on leaning out corporate processes, none provided me a road map of how to translate individual actions and transactions into a total system for value creation. This system also needed to be translatable to the business. Ultimately, the answer comes from the principles of business itself—strategy and execution. I recently was interviewed for ACC’s Leading Practices Guide on Moving Beyond the Cost Center Model. I thought it would be helpful to share some additional perspectives on strategic planning and execution for corporate functions.
In this post, I will discuss how your company’s corporate function can evolve from an assembly of high quality professionals acting individually, to a high-performing team that can leverage its size by using tested business principles to create and execute a strategy. The goal – to be a corporate service that adds to, not detracts from your company’s bottom line – is a worthy goal. As with most things, the fundamentals are critical. Then, it is about basic strategy, execution and continuous improvement.
First, the Fundamentals:
There are four fundamentals to take on the journey towards value creation. First, know the business you serve to the same degree or better than other business managers, and understand its value creation drivers. Second, be fluent in business as a second language. Third, assess the processes and resources available through the business and leverage them to good advantage. Finally, build a superior team of people who will create and execute a strategy that generates value for the business.
To “know” the business you serve is the mantra of effective corporate support functions. Use corporate projects and meetings to develop and challenge ideas, and suggest some of your own. Participate actively in the business as a whole, and become as good of a business manager as your internal clients. Most importantly, learn what creates value for your business and apply these drivers to the selection of the work you perform.
Next, be fluent in business as a second language. This is vital to your credibility as a business leader, and ensures that you can translate your support function’s concepts and strategy into business value terms. An example would be in the finance area–many corporate support functions (except finance!) feel vulnerable when others are discussing financial concepts and often will refrain from a financial discussion to avoid making a mistake. Using your business fluency helps the two-way dialogue with business partners, leading to choices that are consistent with enterprise-wide objectives and increasing your value to the organization.
Third, learn how the business support resources and processes existing in the company can relieve your team of non-core work. Leveraging these resources and processes allow greater focus on value-creating core activities. It also helps the department forge collaborative relationships with other corporate services and exposes department members to key business processes.
Last, assemble a superior team of people with a good complement of skills. Like the businesses we serve, having a high-performing group is all about finding, developing and retaining great people. And, if your team develops terrific business leaders, there is no greater value that you can bring to your company!
Next, Develop your Strategy:
Core to any strategy is alignment within the functional leadership team and with the business. Using your company’s purpose, mission and values as your guide, you can begin to answer the questions: Who are you as a group? Where are you going? How are you going to get there? What are your next steps?
As its next element, a corporate support strategy needs a “functional business plan” to identify how it should focus resources to support the company’s overall business strategy. Start with the 3 or 4 key unique things that you do as a group that gives you a competitive edge. These strategic “pillars” define the function’s key characteristics. These pillars direct your performance and are the basis of your strategic choices.
Work also to elaborate the drivers of value creation for the department. These drivers are criteria for the selection of the initiatives the department chooses, both short and long term, to execute its strategic objectives. For example, cost effectiveness, prevention and claims management are some of the ways a department bring value to the enterprise. But, these drivers cannot be viewed out of context; they need to align further with the company’s overall strategy.
A brief word on the “bottom line” focus of the strategy is appropriate. In the end, enhancing shareholder value is a principal goal of the business. Of course, the function provides critical services and infrastructure and enhance enhancing the organization. Nevertheless, the executive leadership of most companies wants to understand how much the enterprise spends on internal and external services and how the department influences the use or investment of that spending. That “influence” factor is the foundation of the definition of the value a department creates.
Therefore, a corporate function can never ignore its outside spending, or attribute it to things beyond its control. In response to this reality, you should consider setting one and three-year objectives for spending, and create targets for reduction. And, simply because support spending is often a necessary expense, it should still be viewed as a business investment. Like any investment, business leaders want to see the yield of what is spent.
The strategic initiatives the team selects should be specific, measurable and support the company’s strategy. Consider setting initiatives annually at an offsite event. The team comes prepared with the company’s goals in hand and does pre-work around “hot” issues on the horizon, based on discussions with internal clients and other key stakeholders. As the initiatives are debated and set as a team, the team aligns naturally to them and commits to their importance. Each initiative has an “owner” who is responsible to communicate, track and complete the initiative on-time. Of course, like all business initiatives, the company’s performance management systems will reinforce behaviors that align with the strategy.
At the same session, it is important to establish metrics or measures of success. Metrics are often a difficult concept for lawyers, because lawyers believe that their work is more art than science. While setting the metrics is often tough, they are critical to the successful implementation of the strategy and continuous improvement of the processes that support the strategy. Metrics are the measuring tool that the department uses to communicate its role and outputs in business terms.
Now, Execute the Strategy
Once the strategy is in place and the initiatives are chosen, the challenge and exhilaration of implementation begins. Why exhilaration? Because it is at this stage you can transform the department from something that acts like a profit center, to something that is a profit center.
First, communicate the initiatives. The communications take many forms, both written and verbal. Keep the messages simple and uncomplicated, and use the language of the business. For example, when we discuss cost reduction targets, we link them to the company’s objectives to standard financial measures, like return on investment. This communications plan, which is more marketing than law, also promotes the support team’s performance culture within the organization.
Common sense dictates that an effective strategy is one that the team can deliver. To enhance the team’s alignment and ability to deliver, I suggest meeting regularly to debate issues and leverage the collective intelligence of the team. Up-front planning leads to productive meetings and effective team dynamics. These meetings also create individual accountability to the team to complete the initiatives and mitigate the risk that initiatives fall victim to the daily routine.
As the initiatives proceed, it is important to continue to communicate progress made to date and changes to the scope of the initiatives or outcomes expected. This step reinforces the importance of the initiatives to the organization and confirms their relevance to the company’s objectives. Communication is the key to creating buy-in to the value creation concepts and creates a sense the department is committed to helping the business. It also helps to create allies who will be business partners in other initiatives.
Finally, celebrate your wins and thank those in the company who have contributed to your success as a team. Acknowledging and rewarding the support of the team members and others in the organization is important currency in keeping the team motivated. Communicate (again) the outcome of the initiative and then seek feedback on what went right and what could be improved. Use this information to improve the processes, team dynamics and execution methods.
Corporate functions do not have to be “cost centers” and devoid of monetary value to the organization. Approach your function with the same (or greater) discipline of your P&L brethren. Above all, recognize that your function is an essential function of corporate growth and your mindset should be to enable and not destroy value. Promoting your sense of accountability and adopting a value-creation mentality is vitally important to your success in supporting the business or organization you serve.
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Susan M. Diehl
Partner and Advisor
Susan Diehl is a is a partner with Trinitas Advisors, an executive coaching firm that helps business leaders build the leadership alignment they need to win more, grow faster and succeed longer. She can be contacted at firstname.lastname@example.org.