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The day of the single monolithic headquarters located where the company was founded appears to be over, according to Arthur D Little’s Global Headquarters Benchmarking Study.
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The quest for reducing costs and improving margins has created a trend towards regional and functional HQs based on issues such as staff availability and cost, tax and geography. As a result, between 2002 and 2003, more than 800 global headquarters were relocated.
In an article published in Prism, the bi-annual journal of latest management thinking from international consultants Arthur D. Little, recent research carried out amongst senior executives in 50 benchmarked companies revealed three central findings:
Compared to other European countries, Switzerland is the most attractive place for global headquarters of European companies. For US and Asian companies, Switzerland is also a very attractive location for regional headquarters
Headquarters are getting smaller and are increasingly focusing on creating value for business units
Shared services emerge as the winning concept in headquarters design
The study also revealed that corporations find it difficult to optimise headquarters as a whole and much easier to optimise singular functions. Consequently matching the function to the geographical location can create dramatic improvement.
Switzerland proved the most popular of locations that exemplify the trend to transfer central management functions geographically during restructuring projects. ADL observed that almost 200 large foreign companies have moved either their complete or partial HQ function to Switzerland. US companies from the Fortune 500 led the way but there was also significant movement from European organisations.
In most of the cases Marketing, Finance and Human Resources had been relocated to Switzerland either singularly or altogether. Caterpillar (USA), Argonaut (USA) and Eastman Chemical (USA), have moved their marketing to Switzerland, whereas eBay (USA), Alcoa (USA). Elopak (Norway), Omnexus (USA) and Baxter (USA) have moved their financial function there. Gucci (Italy) has transferred its global logistics to Switzerland.
Taking a global view, there are three regions favoured for relocation: Europe, North America and East Asia. Asia was limited in its appeal, followed by North America and Canada, whilst Europe has the biggest number of locations in terms of sought after objectives.
The study identified the decisive criteria for choice of location. Top of the table, endorsed by 88% of the study group, was Corporate Tax Advantages followed by Availability of Qualified Managers, Quality of Life, Central Location, Support of Authorities and Personal Preference of the CEO.
Interestingly, the bottom grouping of criteria includes High Education, Personal Taxation, Labour Availability and Proximity to Existing Production Sites.
Following analysis of the study results, ADL suggest various insights for the CEO:
First, the trend to relocate will not stop. Relentless pressure to cut costs will force CEOs to play a more proactive role in the process.
Second, there are three levers keys for HQ redesign: HQ relocation for tax advantage; downsizing for reduced cost; and change of HQ role. These are closely linked, are inextricably linked and need to be and must be approached in a balanced way within the framework of revised corporate strategy.
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