Many corporations these days have group companies both in Japan and abroad, pursuing a diverse range of business activities. Accurately defining and then implementing a growth strategy requires you to grasp information from a group-wide perspective that goes beyond the framework of any individual business, and to apply that information in making management decisions. Still, more than a few companies have said that they aren’t very good at coordinating information between business units or group companies and their headquarters, or that they’re so busy with handling inefficient tasks that they can’t mobilize the resources to conduct the operations they should be doing. In these circumstances, what sort of reforms are needed in corporate business management? We asked this question to NRI’s Masanori Kunii, who has experience with supporting group reorganizations and business reforms.
Headquarter Control Functions Are Becoming Increasingly Important
――Why do companies need to reassess their headquarter functions and business management style?
Since the 2000s, many Japanese corporations have gone about promoting group management by conducting M&A and creating holding companies, based on their growth strategies. More and more companies are also expanding overseas with group companies located outside Japan. In such an environment, business management from a group-wide perspective has become essential for the growth of the group as a whole. However, it’s difficult to say that appropriate business management has been achieved at many Japanese corporations so far. Taking global expansion as an example, companies will often proceed by first establishing a sales base overseas, then creating a local manufacturing unit, and finally setting up an R&D unit to respond appropriately to regional needs. While these steps in themselves are not wrong, doing it this way makes it difficult for all scattered units to coordinate as each business unit has expanded with its own unique strategy.
It should be the headquarters’ responsibility to decide which business to grow in which region, and what sort of R&D, manufacturing, distribution, sales service, and other functions are to be arranged.
Next, speaking from a digitalization perspective, creating something new to meet the needs of the market requires you to leverage data including the one from SNS and other information sources. However, individual business units are too busy dealing with their immediate operations to be able to handle this demand. It’s arguably becoming more necessary for the head organization to act as the coordinator among business units, and to take the initiative in gathering information and creating businesses.
Thus, it’s becoming more and more vital for head organizations to grasp the circumstances of the overall group or of every business unit, and to provide support.
The Reality- Cannot get the Information Timely
――What are the challenges involved in obtaining and managing information for business management purposes?
Nowadays, every corporation has systematized its business management to some degree, but I often hear concerns. These concerns include that the top executives can’t get the information they want when they want it, that the system at their main organization and their work site systems aren’t linked, that there’s an imbalance in the power relationship between the individual business units and the headquarter so the headquarter can’t obtain the information it needs from the business units, or even that the persons in charge in the corporate planning department are too busy preparing documents or coordinating with the various units to utilize their resources for actually making business plans. Having heard these feedback, I believe it’s more important to first discern the information they need to know and reevaluate the headquarters’s actual operations before reassessing the existing system itself.
――But since headquarter functions play a pivotal role in management, reforming their operations sounds challenging.
Revising your company’s core functions like business management isn’t something you do all that frequently. It tends to happen when there’s some major event, like a change of CEO, a shift in the company’s direction, a business integration or group reorganization, the formulation of new medium- and long-term plans, or the reformation of a core system. It sometimes takes five or ten years for such reforms to be fully grasped at the individual employee level and to permeate the entire company, so they need to be carried out resolutely.
A solid procedure for pursuing reforms would be to first create a vision of the future, picturing what your company will look like in five or ten years’ time, and to clarify the significance behind making the reforms. It would be desirable to link the reforms to your medium-term plan or business strategy, and get a handle on who will be making judgments and decisions and taking action, at what time, and based on what information.
Applying Your Strategy in a Way That Leads to Desired Behavior on the Ground Level
――What do companies need to focus on in particular when pursuing reforms?
It’s important for top executives to convey the strategy for achieving the company’s management vision in their own words, in such a way that employees will understand specifically what they’re supposed to do. To support these efforts, we often use a balanced scorecard (BSC). BSC provides a framework for establishing what sort of value you’ll be providing to your stakeholders, what kind of internal reforms you have to make to do so, what information you should refer to and how you should determine and act.
This involves establishing KPIs (Key Performance Indicators), not only for your financial affairs but also for sales, personnel strategy, and other non-financial matters. Then you’ll have a structure in place where reinforcing your PDCA cycle enables your individual employees to accomplish their KPI-related missions, and consequently achieve your medium-term management plan or desired performance results. At such time, it’s important to review your methods for evaluating business performance employees, or corporate governance.
Business management is becoming increasingly important for corporations to keep growing and generate new value. I’m sure there are companies with business management structures, systems or rules that don’t function very well. We’re also seeing more companies starting to make structural reforms in anticipation of government-led work style reforms, and to review their medium- and long-term business plans based on a sustainability management approach. What’s more, the business environment is making it easier from a technology and a cost perspective to adopt cloud-based BI or planning applications more cheaply and in a shorter timeframe than ever before. Companies need to leverage outside support or frameworks in identifying their group-wide tasks and thinking about how to achieve a business management system that anyone would find intuitive. If they can do that, they’ll be able to improve not only their headquarter functions but also their overall group-wide productivity, as well as maximize their corporate performance. And we’re prepared to continue supporting our customers in their business management activities.
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Nomura Research Institute, Ltd.
Corporate Communications Department
Oct. 02, 2017