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Thursday, January 7, 2016

Fighting the “Headquarters Knows Best” Syndrome 01-07

Fighting the “Headquarters Knows Best” Syndrome

Shyam's take on this symdrome.

In my long innings as a management professional, I suffered because of this syndrome at the headquarters.

Even a clerk cum typist or a management assistant would carry airs of being knowledgeable.
I found this attitude more with the newly recruited management trainees.

However when I moved into the C-suite, I tried my best to counsel the staff at the headquarters to respect the skills and Knowledge of the people at the regional and other offices and allow the decisions to be taken at the Regional level.


I also agree to the view that when the Headquarters does too much, the people at regional offices begin to shun responsibilities and pass on the buck to the headquarters for all decision making and problem solving. then the Headquarters have to delegate back to the Regional office involving a huge waste of time and loss of revenue.

Regional problems are best solved at Regional levels. Similarly Regional strategies are best planned and executed and monitored at Regional level.

The organizations should recruit managers at Regional level, people who in their view have the ability to make decision and solve problems. People having experience of working in cross culture environment can be trusted for these positions. It is not always possible to get local talent steeped in the organization culture.

When subsidiary managers at global organizations are ignored or constrained by a parochial mindset at headquarters, the whole company can suffer. Here’s how one company set out to change that dynamic.

In 2007, Irdeto B.V., a Netherlands-based developer of security software for digital media providers, was eager to increase its market share in the Asian market. The company had been in China for nearly a decade and boasted a substantial regional office in Beijing. But its market share in China was under attack from Chinese competitors, including China Digital TV, which held a 40% market share compared to Irdeto’s 22%. Despite frequent visits by then-CEO Graham Kill and the sales director, the company worried that it would miss out on the anticipated market growth in China and other parts of Asia.

In Kill’s view, one of Irdeto’s problems was that too much power was concentrated in the head office in the Netherlands. Managers there conducted themselves as if they knew best, and branch offices and subsidiaries tended to defer to Amsterdam. Such dynamics undermined the company’s ability to understand remote markets, learn from them, and adapt to them. We call this malady the “headquarters knows best” syndrome.

In our experience, similar narrow-mindedness holds back many organizations in their efforts to turn global presence into a real source of competitive advantage. In this article, we explore the manifestations and costs associated with this way of thinking — and ways companies have addressed the problem. Many of the things companies have done are fairly predictable, such as decentralizing global responsibilities, changing the reporting relationships, internationalizing senior management, and creating cross-national teams.

In Irdeto’s case, the company tried a more extreme remedy: It created two headquarters, one in the Netherlands and the other in China. While this was expensive — and something Kill’s successor ultimately did away with in 2015 — our study of the company indicated that the decision to operate out of dual headquarters provided an effective way to realign the focus of the company, and it had significant positive effects on Irdeto’s performance. (See “About the Research.”) We offer a broad set of recommendations to help executives overcome the “headquarters knows best” syndrome and position themselves more effectively for global growth.

  • Limited Upward Influence for Distant Subsidiaries Even when decisions concern them, executives in less-established markets complain that they “feel at the end of a long rope.” Their requests and ideas are unheeded and their ways of operating aren’t considered. Feeling neither involved nor trusted, many subsidiary executives lack the motivation and self-confidence needed to pursue independent initiatives.

  • Horizontal dynamics also can be problematic:

  • Insufficient Exchange Among Subsidiaries Headquarters and subsidiaries often maintain a hub-and-spoke pattern of interaction. While the satellites compete for attention fromheadquarters, they maintain little contact with each other unless it’s orchestrated by the center. There isn’t much discussion of, or support for, efforts in other parts of the world, particularly between core subsidiaries and those on the periphery.

  • Weak Links With Key Stakeholders Outside its home region, the company is perceived as “alien” by the local business partners and stakeholders.3 Its seat of power is remote. Also, executives at local operations lack the autonomy or status to engage meaningfully with senior local decision makers.

The net result is that the belief that headquarters knows best can be damaging to the long-term success of a company operating in global markets. Among other things, it results in missed sales leads, the loss of talented employees working in subsidiaries due to a lack of career advancement opportunities, an overinvestment in initiatives that are close to the headquarters, and an underinvestment in innovation and entrepreneurship in far-off markets.

Although headquarters executives may have the best of intentions, their actions produce stunted offspring in the form of subsidiary executives who lack confidence, motivation, and autonomy. This places companies at a serious disadvantage, especially when they are competing against rivals with truly global mindsets.

A Common Condition

Our surveys of more than 500 executives working in the subsidiaries of multinational corporations reveal that most endure a domineering headquarters. When we asked executives to take a diagnostic quiz assessing the degree to which their companies experience “headquarters know best” syndrome, barely 10% of executives gave their companies a score that indicates the company isn’t at risk of “headquarters knows best” syndrome. The vast majority of executives gave their organizations scores suggesting that their companies are either prone to the syndrome or have an acute case of it. (See “Diagnosing the ‘Headquarters Knows Best’ Syndrome.”)

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