Support functions are businesses (‘market tested’)

Support functions such as HR, Finance or IT should survive the market test. Could they become self-contained businesses with their own portfolio of clients? If the answer is no, chances are you could outsource all of them. If the answer is yes, don’t let them go.

A while ago, a friend of mine – running an R&D Strategy Department and sitting on the Board of one of the largest companies in the world – confessed to me that there were two kinds of people at that Board: the ones with profit and loss (P&L) responsibilities and the ones without. In other words, the ones who brought in money and the ones who spent it…like himself. It was clear to him that despite his glorious title and the undoubted importance of his role he was just a second-class citizen. You can find this pattern in many organisations. Everybody in a management committee or leadership team is equal, but some are more equal than others.

A division with Marketing and Sales that has dedicated support from Finance, HR, Product Development, perhaps Legal, etc., is bound to have all those functions represented at its leadership team. However, meetings may be spent solely discussing sales forecasts and brand plans with everybody else switching off. Sometimes, some of the so-called ‘support functions’ only seem to be at meetings to create an audience. Even when there are items allocated to talent retention, an HR topic, everybody knows that what really matters are those sales figures!

Am I drawing a caricature? You may be lucky and have a different experience; one where your HR, Finance, IT, etc. are real and equal partners to Marketing and Sales. Congratulations. But if this is not the case, you have two options:

1. Leave it as it is and acknowledge that you have first and second-class citizens.
2. Create support functions that feel, smell, behave, plan and act as businesses, not as servants taking orders.

So-called support functions, usually those mentioned above, are often in need of a big overhaul. A management team that has managed to have truly equal members, whether they represent income generating functions or not, is a mature management team. There are a few problems on this journey, however. Your support functions – or their leaders – may not be ready or up to the challenge. They may be in theory, but not in reality. Examples are:

• HR functions that are biased towards the hiring/firing of people, but with poor insight into organisational development.
• Finance functions that are good at crunching numbers, controlling costs and managing spreadsheets, but that have no real strategic insight.
• Legal functions that tell you what you cannot do, but that can’t create alternative scenarios.

It is your choice to create one, two or three classes of citizens, but any dichotomy of the ‘core – non-core’ type is risky business.

The aim of any ‘support function’ should be to become so good, that they are able to become a quasi independent business unit within the firm (with P&L, if argument stretched). One of the tests to determine this is the market test. Could that function be totally outsourced and provide better ‘support’ to you? If the answer is yes, you – head of the function – have a problem: you are disposable. If the answer is no, then you are heading a first-class citizen function: you are better than what the market can provide. I am not suggesting you take the outsourcing route for the sake of following a trend, but as a test. And I am not talking about cost either. You could outsource everything (including your thinking, if somebody else did it for you. And believe me, I know many people who seem to have done just that) and perhaps cut costs, but that doesn’t make it a good strategy. However, the discipline of the test is very healthy.

In my experience, there are four stages in the progression from second-class citizen support function (disposable) to first-class business unit (of any description):

• Silent witness. They are ‘there’ and ‘do things’, but they seem to be on another planet unless they occasionally show up with specific, standard and predictable deliveries appropriate to their roles.
• Servility. They are more than silent witnesses, but they just seem to take orders and comply with requests if they can. In my opinion, the customer-centrism mantra has gone awfully wrong when it’s translated like this into internal relationships. Incredibly foolish ideas such as ‘the customer is always right’ have created an internal illusion of service, where first-class citizens (P&L people) are being served by second-class citizens (support functions). We have de facto created a generation of second-class reactive people.
• Partnership. There is true equality between functions and both strategy creation and execution are joint efforts. This model requires a level of maturity (experience, confidence, credibility) in those support functions that is not always obvious to me when working with my client organisations.
• Partnership, market tested. As mentioned above, the function could theoretically walk out and be a business on its own merit. This may be counterintuitive or simply contrarian. There may be many people reluctant to go that route. Sure, but you could start small and have one of those functions ‘tested by the market’. You could even start it as a feasibility project/game, with lots of reassurance to people that there are no plans to get rid of the function! The better they are and the greater the possibilities of the function walking out ‘as a business’, the more you should want to keep them!

Define ‘customer’ as someone external to the company. For each minute spent playing the game ‘you are my customer, I am your customer’ internally, a real customer walks out.

If a customer initiative is not a joint marketing-sales-IT-HR-finance-legal effort, chances are supporting functions are taking a back seat and don’t consider themselves as ‘the business’ (and if they’re not, why should they be on the payroll?).

After field/customer visits are completed by support functions, they should do something different in reporting back to HQ.

Market-test support functions annually.

Copyright © – Leandro Herrero – 2008