Managing Functions

Management is required to run all types of management and is necessary for a well-organized life. Good management is the foundation of any successful organization.

Whether management is an art or science will continue to debate. However, most management thinkers agree that some formal academic management background aids in successful management. Almost all CEOs are university graduates. As a result, all educational institutions should offer business degree programs.

Strategy weather

There’s a strategy secret that no one tells you: every organization has one, whether or not it’s written down or the result of an official strategic-planning process. It can be deduced from the organization’s actions because strategy is essentially the logic that determines what you choose to do and not do in service of a specific goal. It could have changed over time. Without discussion and exploration, the choices could have emerged. The actions taken may be ineffective in achieving the desired result. Nonetheless, the strategy exists.

When Finance mandates that all investments must payout in cash within seven years, it makes a strategic decision. IT makes a strategic decision when it decides to outsource application development. It believes that lowering costs through outsourcing is more effective to create value than developing applications in-house. And when HR decides to standardize hiring practices across the globe, it is making a strategic decision. It has chosen to pursue scale benefits from a shared approach over benefits from regional customization.

Put the function first

The servile strategy has some unfavorable outcomes for those who work under it, so it’s no surprise that many functional leaders take a radically different approach, particularly in large organizations. Leaders in this imperial strategy prioritize the function’s work while paying little attention to how it aligns with the needs of the business or the firm’s overall strategy. The risk and compliance team constructs a massive apparatus around risk assessment. It then seeks to insert itself into corporate decision-making wherever possible. The finance team creates sophisticated reporting systems that generate vast amounts of financial data that may or may not be relevant to the work of the business units.

Still, rarely back this up with evidence other than pointing to companies known for excellence in the function’s domain: IT benchmarks Google, Finance Goldman Sachs, procurement Walmart, and logistics FedEx. And they imitate those companies regardless of whether their company’s strategy resembles the benchmark in any way. Meanwhile, disgruntled line managers complain that functions divert corporate resources away from units and toward activities that make little difference to the company’s market competitiveness. Unsurprisingly, the result is a function that serves itself rather than its customers, much as a monopoly business would.

Furthermore, such functions are monopolies on some level: Senior management frequently prohibits or strongly discourages business units from using outside vendors for HR, Finance, or other services. The issue is that imperial functions are all too prone to monopoly flaws like bloat, arrogance, and overreach. And, like all monopolies, they will inevitably face a backlash.

It does not have to be the case. Corporate functions can and frequently contribute significantly to a company’s competitive advantage.

How to Create Effective Functional Strategy

The first two questions a functional leader should consider when developing a strategy are related to defining the problem: First, what is the function’s implicit current strategy, as reflected in its daily decisions? Second, what are the rest of the corporation’s strategic priorities, and is the role critical?

Asking these questions forces functional leaders to confront what is. It isn’t working in their current strategy (whether implicit or explicit). Perhaps there are disconnects between their design and the company’s strategy, causing the function’s choices to be out of sync with organizational needs. In attempting to serve all aspects of the company, the procedure may underscore those critical to its success. Perhaps the process isn’t assisting the company in developing the necessary organizational capabilities to deliver on the corporate strategy.

As important as the exercise is as a first step, don’t get too caught up in these questions. The temptation to conduct extensive research documenting what your organization is doing in detail, what functions competitors are doing, and so on is vital. Exploring solutions to a problem is far more valuable than obsessing over it. A reasonable expectation is that after a few hours of discussion, a group of intelligent people should answer the two questions to a satisfactory level using their existing knowledge. For example, it wouldn’t take much in-depth analysis for executives at a car company to determine whether safety and reliability or branding and design were their company’s primary challenges.

Building Strategies for Supporting Functions

Not all functional strategies areas directly link to a company’s competitive advantage as the talent function at Four Seasons. In cases where the link is tenuous, it is still critical to understand the function’s choices and its role in helping the company win overall. Put, supporting operations must be efficient and cost-effective for the firm to invest in its sources of competitive advantage.

Take a look at a typical risk-and-compliance function. Special risk assessment and mitigation is a source of competitive advantage for some businesses. However, even though the part is critical to the firm’s survival, this is not the case for most people. The process also has options for whom to serve and what offers to make. It can, for example, choose to help frontline employees or business-unit leaders, the CEO, or the board of directors. It may consider all those groups to be potential customers. However, it must first determine the core consumer with whom it wishes to win. A compliance unit that sees the firm’s main risks as health and safety issues, for example, may want to concentrate on factory managers.

Conclusion

Functions do not have to be corporate overlords’ servants, nor should they be petty tyrants establishing their empires. Parts, like business units, can use strategy to guide and align their actions, more effectively allocate resources, and dramatically improve the competitive value they provide. They make decisions every day, just like the rest of the company, and developing a cohesive strategy to guide them can become vital business engines.

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