A New Perspective on the Role of the Center

Over the past two years, the Organization practice of The Boston Consulting Group has been striving to understand how the corporate center—otherwise known as headquarters—can create value by shaping organizational behavior and interactions, raising operational capabilities, and improving overall performance. During our research, we interviewed more than 35 senior executives and conducted a Web survey of executives from a diverse set of companies. In addition, we analyzed BCG’s Corporate Center Benchmarking Database of information from more than 400 companies and reviewed more than 60 BCG projects investigating the role of the center.

Through our analysis, we developed several models describing how corporate centers can help steer the businesses they oversee to greater growth and profitability. Contrary to conventional wisdom, which holds that corporate centers are cumbersome and bureaucratic, we believe that they can inject vitality and creativity into the organization. We are pleased to present our findings in this report.

All athletic movement begins at the center. The hips provide the power that allows baseball players to drive a ball hundreds of feet, soccer players to kick a ball nearly as far, and dancers to spring into the air in seeming defiance of gravity. Although it may appear that power comes from a flick of the wrist, a knee flexing, or a calf constricting, those actions are the last of an integrated set of movements that begin at the center of the body.

Ideally, the corporate center would have the same direct connection to the business units it supports, guiding their moves and powering their outstanding performance. In reality, however, the corporate center rarely functions so gracefully. Bureaucratic and inefficient are two words that often describe the performance of the corporate center.

Today the role of the center is more relevant than ever. Globalization, technology, and the speed of innovation are forcing companies to be increasingly nimble. If the center sends out the wrong message, interferes with creative local initiatives, or imposes bureaucracy, it actually destroys value. It is no wonder, then, that nearly all senior executives cite the role of the center as one of the top five issues on their agenda.

In the following pages, we identify the challenges that executives face as they envision what they want their center to be and how they hope to achieve that vision. We also identify four models for the corporate center that are suited to today’s business realities. Although the models suggest varying levels of engagement between the center and the business units, all four require that the center be lean and active. How can that be? This report explores the apparent contradiction between the center’s size and its ambitions. It also illustrates how a center’s role and its ability to create value are related more to the quality of its staff and the clarity of its purpose than to its size.