Within large corporates, there can exist an uneasy power relationship between the Group Centre and its Divisional MDs. The Group Centre holds the investment purse strings, but the divisions are held to account to bring in the profit upon which Group relies.
The Divisional MDs may balk at being told what to do by ‘non-accountable functionaries’ at the Centre. Meanwhile, the Directors in the Centre, who may have originally led a division, despair at how uni-dimensional the MDs see the world and how focused they are on their own division, at the expense of the benefit of the corporate whole.
So who should have what power, and how should it be exercised? To understand this fully, it is useful to first learn how a Group Centre comes into being, and how that affects the power dynamics of today.
The Birth of a Group Centre
A typical journey is one of a single integrated business realising that in order to survive and flourish, it needs to diversify into adjacent or new revenue streams. And it does that through acquisition and the creation of new divisions, with each focused on a particular market.
To begin with, the acquiring business leaders attempt to manage the core business, whilst also oversee the newly acquired. But over time this can prove unsustainable, and so they start to carve out a Group Centre, that oversees a set of divisions.
As they diversify further into more divisions, they need to decide on how much involvement Group has with each division. This can range from being very heavy hands-on, to being very light touch, as seen in diagram 1. Overall, the trend is usually to move from the heavy left to the lighter right:
“So who should have what power, and how should it be exercised ?”
Along this journey, Corporates experience growing pains from moving between a single integrated business to a heavily managed set of Divisions, and then onto a more lightly managed Group.
From a single integrated business to heavily managed divisions
A corporate with heavily managed divisions arises when there is a belief that hard synergies can be gained between the businesses. These could be operational synergies, when the divisions run similar processes, or corporate service synergies such as Finance, IT and HR, where the transactional services can be centralised and provided for each division. In this scenario, the Centre has a stronger influence over the performance of the divisions. It has ‘hard’ power, with executive accountabilities for the delivery of part of the division’s value chain.
On top of their informal power, there can be additional power and influence owing to the people put into the Group Centre roles still acting as if they are managers of a single division, having a dominant logic on how the divisions should be run. This can lead to a set of disenfranchised Divisional MDs.
Risk of disenfranchising your Divisional MDs
In the early days, the Group Centre is typically made up of the ex-leaders of the original core business. Given that they have often been successful in running that business, and they are the acquirer of a new business, their dominant logic in how the new divisions should be run is to be in the same way as the core business.
So the Group Centre leaders may carry on behaving in the same way as they did when running the original core business, and use the same management techniques for running the new Divisions.
In short, they find it difficult to adjust their mindset from being full hands-on managers, to allowing the Divisions a degree of independence.
“the degree of power-play that takes place in part relates to the perception that the Divisional MDs have of how much freedom they actually have.”
So a power struggle ensues. The leaders of the acquired Divisions, who may have previously had the freedom of running their own business, may have the shock of being ‘managed’ by its new owner, making them feel inhibited and constrained. And yet, the MDs of the Divisions see themselves as the value creators. A feeling of inequality and resentment can then arise.
The tension increases further when the Group Centre pushes for centrally-identified synergies between the divisions. However, these potential group synergies may sub-optimise the performance of individual Divisions, who are primarily measured (formally or informally), on their individual profitability.
And so a power battle ensues, between the Centre and the Divisions, on who has the dominant say – the Division or Group.
It’s a matter of perception
OE Cam has observed that the degree of power-play that takes place in part relates to the perception that the Divisional MDs have of how much freedom they have. In some cases, we have seen Divisional MDs feel oppressed or inhibited by the Group Centre, when in reality, they have a relatively good level of freedom. In others, we have seen MDs quite happy with their relationship with the Centre, when in fact they have relatively low levels of freedom. As one Group CEO once put it – it is the art of giving them illusion of freedom – that they are the kings of their land when in fact much of the strategic and synergistic decisions are actually out of their hands.
Moving from heavily managed divisions to lightly managed divisions
At some point in a corporate’s history, they might realise that it is better to shift towards a lighter form of management. This can occur when they realise that mandating synergies between Divisions does little to make it happen. And indeed much of the synergies have been found wanting. So instead they adopt a more ‘consenting adults’ approach, providing more accountability to the Divisional MDs, allowing them to decide if they want to collaborate or not between businesses.
Meanwhile, the central functions such as Strategy and Human Resources became more advisory – again allowing the MDs to make the final decision with less interference from the Centre. To succeed, the Group Centre needs to shift from relying on hard power to using more soft power, where Group Corporate Services has to balance:
- Defining policies and frameworks to which the divisions are to conform
- Providing advisory services but allowing the divisions to make the decision
- Being a transactional service provider to the divisions – their internal customers
This requires strength in softer skills – being highly influential with strong communication and interpersonal skills. They need to be a thought leader, with excellent stakeholder management ability, be able to build strong relationships with key internal customers, and be emotionally intelligent with the ability to influence and drive through their ideas.
Risk of a disenfranchised Group Centre
For some Group Corporate Directors they find balancing these three roles very challenging, especially if they have been used to operating within a heavily managed corporate structure. And if they had been previously been promoted out of a business with the promise of greater authority, to a role that is now more advisory rather than directory, with no ownership of any meaningful processes then the new role is not particularly attractive for them.
In that case, the Corporate Directors may respond in one of two ways: either to continue telling and directing rather than advising and providing a service (as described in Hazel McLaughlin’s article as hanging on to coercive power), and so enflame the power struggle with the divisions; or they don’t feel this role, with softer rather than harder power, is for them and so become disenfranchised, stop contributing, or leave.
So how to ensure a healthy Group / Divisional relationship? – Reaching a new settlement
As a Corporate grows its portfolio of Divisions, how best to avoid these risks, and instead develop a healthy relationship between Group and Division? In our experience, at certain times in the development of a Corporate, OE Cam can help re-establish a new settlement between Group and Division on the best way to run the business:
- Building a common agreement of where value is or can be created – with Group as lead or Division as lead, and with cross-divisional collaboration
- Being clear on the different roles played by Corporate and Divisional leaders
Linking these to Mark Goodridge’s lead article, this is establishing the logic of how decisions will get made in the Corporate – the ‘logos’. Then to build on this, there is the need to develop the ’ethos and pathos’ – the character and emotional intelligence of the leaders in order for them to navigate the divide between Group and Division.
Outstanding leadership to navigate the divide
So, what makes leaders outstanding in their delivery against individual P&L accountability requirements, whilst at the same time being outstanding at getting the best from, and giving the best to, the corporate centre? And, what makes Group Functional Directors outstanding in their interface with business divisions? We believe part of the answer is in defining the right set of character strengths that best fit the business that will allow them to deal with the inevitable power tensions within a Corporate.
“this is establishing the logic of how decisions will get made in the Corporate – the logos…”
OE Cam has recently defined the character strengths of leaders for one FTSE 100 corporate to help them maximise the effectiveness of its leaders in their interface between the corporate centre, and business divisions, so that “the whole will be greater than the sum of its parts”. In other words, we defined those dimensions that make leaders outstanding in navigating the relationship between the Centre and the Divisions.
Character strengths differ from the traditional definition of competencies, in that they describe attributes, attitudes, aptitudes and personality variables that do not easily lend themselves to assessment by traditional competency based methodologies. These methodologies have been important in providing benchmark comparisons of capability, but it is unlikely that they have captured the essence of character strengths.
OE Cam enhanced assessment methodology to identify the character strengths needed to thrive in a Corporate
OE Cam has developed an enhanced and evolved assessment methodology that builds on the competency based methodologies of the past. It explicitly focuses on profiling an organisation for its defining character strengths and then identifying and assessing the “DNA” of an individual’s character strengths, against that profile. In this way, we can identify the best leaders, and develop the skills needed – both Corporate and Divisional – to thrive within a particular operating model.
OE Cam’s enhanced process is thorough and incisive. It comprises both leading edge methodologies to identify a core set of business-critical character strengths, and, the ERCONICTM personal history semi structured interview methodology focused on understanding and identifying individual motives and drivers. This is combined with the use of psychometric tools. These are then mapped onto and compared with the desired character strengths. This combines to help build as full a picture as possible of what makes them distinctive.
It is an assessment we make benchmark against numerous business leaders across a variety of business contexts, to help them differentiate, navigate and thrive in a corporate setting.