Acting where it makes a difference: The corporate center that can flex

| Article

In the postpandemic next normal, general and administrative (G&A) functions are under pressure to become more digital, more agile, and better aligned to the needs of the wider business. The changes required to make those shifts must take place right across the organization, but the corporate center has a critical part to play in their success or failure. In a McKinsey survey of almost 300 global CXOs, 90 percent told us they believe that the corporate center will be a driver of change or a role model for the rest of the organization. And 70 percent of executives also expect corporate centers to become more relevant in the face of emerging demands.

As we have described elsewhere, those demands include the ability to react swiftly to a changing environment; basing those reactions on a thorough understanding of business needs; ensuring decisions are rapidly evaluated against internal and external data; and deploying resources flexibly when needed. To achieve these things, G&A functions will need to build a stable backbone for standard operations, together with a nimbler approach that can address change. The corporate center has a key role to play in realizing these adaptations.

Are you set up to succeed?

Corporate centers take different forms, depending on the strategic goals of the organization and the role it requires the center to play in achieving those goals. As we noted in our article on corporate-center efficiency, companies have traditionally used one of three main archetypes. The “financial holding” corporate center took a hands-off approach, steering groups of highly independent businesses with a focus on investment and divestment decisions. At the other extreme, the “operator” used centralized skills and resources to run shared operations for the entire company. The most common archetype occupied the middle ground. “Strategic drivers” would steer the organization’s overall strategy, providing guidelines and policies but leaving execution autonomy to the business.

While any of these traditional archetypes can find ways to add agility to their operating models, a new generation of corporate centers has made it part of their DNA. In our work, we have identified two innovative archetypes. “Dynamic entrepreneurs,” popular among start-up incubators, take a more active approach than strategic drivers, with a selective focus on building infrastructure to support the organization’s priorities, and aggressively managing their portfolios (see sidebar, “What does it mean to be a dynamic entrepreneur?”).

Most recently, we have seen the emergence of the “adjustor” archetype evolving among tech giants, a corporate center that frequently modifies its steering model according to the type and maturity of the businesses within the portfolio. An adjustor may even perform a different type of role for different parts of one business. Indeed, it is the flexibility of these innovative archetypes that make them an interesting option for organizations facing increasingly complex and fast-moving environments (see sidebar, “What does it mean to be an adjustor?”).

Building the corporate center of the future

About two-thirds of the executives in our survey say that their organization is not ready to meet its current targets. And 75 percent say they have already kicked off programs to improve the efficiency and/or effectiveness of G&A activities. We believe that the transition to future operating models will require even greater changes to the corporate center. This belief is common both among corporate-center executives and business unit leaders.

These future models will be designed to simplify business administration by eliminating the functional silos that characterize many G&A activities today. This will pave the way for work to be planned and executed along the end-to-end journeys taken by business stakeholders. And companies will increasingly use flexible, project-based resources that can quickly be redeployed to support changing business priorities.

Of today’s corporate-center archetypes, some are better equipped than others to take a leadership role in the transition to these future G&A models. Companies using the operator model, for example, are well positioned to break down functional silos and build end-to-end journeys for their stakeholders, as a recent example of an international chemicals player transforming its G&A functions shows. On the other hand, they may lack the outward-looking, commercial focus to help the business anticipate and respond to a rapidly evolving environment.

The adjustor and dynamic-entrepreneur archetypes, by contrast, do have the necessary commercial mindset. And they can ensure that different types of roles can be deployed into agile flow-to-work pools to focus on new initiatives, while shifting repeatable tasks to a backbone of increasingly automated digital services.

For companies using the strategic-driver and financial-holding archetypes, most G&A activities are designed and executed outside the corporate center. These tasks are undertaken either by individual business units or by a separate shared services center. As a result, such corporate centers will play a much smaller role in the G&A transition.

Time for a new model?

In the coming years, these differences, combined with other commercial and operational factors, appear set to lead some companies to reevaluate their choice of corporate-center archetype (exhibit). Specifically, a significant shift is building toward the relatively new adjustor archetype, especially by strategic drivers and operators. This shift would allow corporate centers to offer support that is tailored to the different needs of various business units.

A shift in the distribution of corporate-center archetypes would likely lead to more adjustors.

A second likely, and significant, change will be a shift from the operator, strategic-driver, and financial-holding archetypes to dynamic entrepreneur. In a volatile and uncertain world, the dynamic-entrepreneur archetype increases the organization’s ability to make quick, data-driven business decisions and to allocate investment in a hands-on, agile way. The strategic driver will probably remain the most common archetype, given the sheer volume of its presence today. Operators, with their strong (but slightly bureaucratic) governance over the business might be the most likely to change.

The changes are already starting to happen. For example, hiring talent for new advanced-analytics roles is one area where many organizations are considering the benefits of being a dynamic entrepreneur. This topic was cited as a top priority for 65 percent of the executives in our survey. And indeed, one midsize oil and gas company recently made the shift to the dynamic-entrepreneur archetype so that it could run its talent acquisition and IT platform from the corporate center.

Newer organizations, focusing on dynamic-growth industries and digital technologies, are increasingly choosing one of the innovative archetypes as their corporate-center model of choice. This is visible among venture capital/start-up incubators across Europe, many of which aim to support their portfolio companies where they believe they can make the most difference: in building up talent capabilities, scaling up sales, or designing effective strategies. They therefore choose to run their businesses as dynamic entrepreneurs.

What does this mean for your corporate center?

Corporate centers will need to decide now how to support their organizations in preparation for the future G&A trends—rethinking their purpose, considering how to set the organization up for success, and deciding what actions to take.

The part played by the corporate center in shaping the future G&A organization depends upon its archetype. If your organization is an operator, adjustor, or dynamic-entrepreneur type, the corporate center can play a significant role in adapting the organization. If your corporate center is a strategic-driver or financial-holding type, however, those adaptations must be driven elsewhere.

The biggest challenge lies ahead of organizations that chose to switch their corporate-center archetype from strategic driver or financial holding to adjustor or dynamic entrepreneur. These organizations need new capabilities to play a more hands-on role in the business. This is the only way to ensure that the corporate center can successfully support the wider organization in the adaptation and reinvention of G&A activities.

Companies making decisions on these shifts will need to have a structured reflection on how best to manage their portfolios, control risks, access talent, and drive performance and efficiency in their organizations. The answers to those questions will shape the future landscape of corporate centers.

Explore a career with us