A friend asked my opinion about “functional stewardship”. I assume the name comes from an attempt to justify centralizing certain functions for the good of maintaining state of the art capability in the function, or avoiding causing the mission of the function from becoming corrupted by conflicting priorities. The question on functional stewardship is whether a function(s) in a large corporate environment, such as quality, finance, human resources, etc., should be centralized across a broad group of business units or geographical affiliates.

I grew up mostly as a “line manager”. You know what that means (at least what I think it means), I was accountable for all or some portion of getting product to customers. If it didn’t happen on time and to customer requirements, or within financial expectations, then it was my fault. Therefore I have a natural bias toward non-line managers because I felt their reporting relationship in some very frustrating situations caused them to be insensitive to my accountabilities. It was my personal experience that when some non-line managers were empowered by their centralized status, they at times leveraged that status to demonstrate/maintain their power to the detriment of the companies overall success. No doubt they disliked me too because I was not sensitive to their priorities.

That being said and revealing my bias for all to see, I will return to the original question of whether it is appropriate to centralize certain functions. First let’s start with a perfect situation. Ideally, companies create business units as the ideal entrepreneurial yet accountable structure for growing a business. The Business Unit Leader(BUL) is accountable to have all needed functions working as a team and focused on the strategies of that business. The leader is accountable for insuring compliance to all policy/legal/ethical standards, for execution to growth and financial expectations, and meeting additional corporate requirements as may be imposed by his/her manager. This is ideal and when done correctly with the right managerial practices will achieve far higher success rates than any other way.

This is not to say there is not a requirement for corporate service functions. Functional group at the corporate level are better positioned to insure consistency across functions, business units and affiliates creating fairness and a highly efficient organization.The corporate service functions often are accountable to create policy or standards which achieve this affect. In addition, the work within a function at the corporate level is often very different from the work in a business unit or affiliate. Therefore we need to be clear about this difference and the LoWa of the work.

Often the work inside a business unit or affiliate is about implementation of policy or standards, rather than development of policy or standards.  A typical mistake in many corporation is made in the hand-off of corporate policy or standard. (Oh no! I am stepping up on my soapbox and my blood-pressure is rising). In implementing policy or standards, CEO’s are often either ignorant of good accountability management, or just lazy. They centralize the function so corporate groups are accountable for both policy or standard development and for its implementation. All this while not holding the BUL accountable for following the policy or standard. The proper way is for the CEO to hold the corporate function accountable to bring him/her an appropriate policy or standard, which the CEO then takes to all his/her direct reports and holds each accountable for implementation. In this way the policy or standard is implemented without putting various functions with conflicting priorities.

Nevertheless, there may be a valid reason for centralization. It may well be impractical from a cost and logistics standpoint to replicate every position needed in a given function to every business unit. For example, should each unit have its own accounts payable unit when a centralized group could handle 5 business units at half the cost. These functions are best centralized, but the service provider (accounts payable in this example) must be managed as a service provider and the management must be held accountable to provide good service to the business unit as well as meet the policy or standard of the corporation. Read the Post 12; Working Across the Organization, to get more insights on how to manage such situations. Occasionally, such as quality units in the pharmaceutical industry, a governmental organization (such as the FDA) may mandate centralized groups. In such cases the same rules of a service provider applies and needs to be managed carefully to avoid conflicting priorities.

It should be understood that most functional groups were created for purposes of supporting business processes. When they become far removed from the business, it may be difficult for people in such a functional group to remember the original purpose.





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