Article published in the Philadelphia Business Journal on December 3, 2023. Revised 8:00 pm.
In complex organizations with multiple lines of business, the question of centralization versus decentralization of staff resources is frequently raised. When should a staff service be centralized at corporate and when should it report into a business? What does a business do when it is not receiving the support it needs from a corporate staff unit? I wrote a column on this subject in June 2019. This is an update of that column.
Many companies consider the question of centralization versus decentralization only when expenses need to be reduced. This question also needs to be addressed even in good times. What’s the criterion to decide whether to centralize or decentralize?
If the service, whether provided by employees or outside contractors, is mission critical to the success of the business unit by being part of that unit, that service should report directly into the business unit. Otherwise, the service should be centralized.
Resources that are typically centralized are HR, IT, legal and finance. This ensures that there are common standards and consistent policies and practices across the organization to meet legal and regulatory obligations.
In the case of finance, a common approach is to embed a finance manager in business units and have them physically located within the unit. This ensures team cohesiveness and responsiveness to the finance needs of the business while ensuring that corporate finance standards are met.
The most frequent complaints from business units about corporate staff units are, “I am not getting the support I need, the support I am getting is not worth what I am being charged, and I can buy the same service on the outside cheaper.” When business unit general managers are being held accountable for bottom line results, these complaints cannot just be dismissed. They must be addressed.
Business units are the internal customers of corporate staff units. Occasionally, some staff units don’t realize this and don’t give the business units the support that they need. Staff units should be doing everything they can to be responsive to the business units they serve. Business units and staff units must partner and collaborate to achieve success for the business units and by extension, the company as a whole.
If you can’t get what you need from a corporate staff unit to help you meet your goals, you need to tell the leader of that staff unit. If that doesn’t work, take the issue to your boss and if necessary, eventually to the CEO of the company.
I would not be bashful in taking this issue up the organization for resolution. Just do it in a politically sensitive way. Your goals are one element of the CEO’s goals, and the CEO is evaluated by the board on the results of the entire company. The CEO will want to help you get what you need to achieve your goals.
If a corporate staff service continues to fall short in providing the needed support, the business unit should be permitted to hire that support from outside and have it report directly to the business unit.
The overall objective is to do what is right for the company. By applying the principles above, the right centralization/decentralization decisions will be reached for the company.
Stan Silverman is founder of Silverman Leadership and author of “Be Different! The Key to Business and Career Success.” He is also a speaker, advisor and widely read nationally syndicated columnist on leadership. He can be reached at firstname.lastname@example.org.