16 Apr 2012  Research & Ideas

The Inner Workings of Corporate Headquarters

Analyzing the e-mails of some 30,000 workers, Professor Toby E. Stuart and colleague Adam M. Kleinbaum dissected the communication networks of HQ staffers at a large, multidivisional company to get a better understanding of what a corporate headquarters does, and why it does it. Key concepts include:

  • Theoretically, headquarters staffers coordinate the activities of the various arms of a company. The researchers used workers' e-mail networks to plot who communicates with whom.
  • Corporate staff had broader networks that reached farther and were more centralized than those in line positions.
  • In addition to more contacts, HQ staffers were more likely to be brokers between individuals in discrete operations within the company as a whole as well.

 

Physicists tell us entropy is the natural state of the world, and that law seems especially true in today's multidivisional company.

"When you create organizational subunits of any form, they'll have a tendency to focus internally on their own things," says Toby E. Stuart, the Charles Edward Wilson Professor of Business Administration at Harvard Business School. "Interdepartmental coordination doesn't tend to happen organically. It needs some intervention to create collaborative networks."

"What corporate-level strategy is about is creating a portfolio that is more valuable than the individual components of the portfolio."

In other words, it's a classic case of the left hand not knowing what the right hand is doing—each unit is trying to maximize its own performance, generally without much regard to what will increase value for the company as a whole. Enter corporate headquarters. Theoretically, it's the job of the executives upstairs to coordinate the activities of the various arms of a company to row in the same direction.

"What corporate-level strategy is about is creating a portfolio that is more valuable than the individual components of the portfolio," says Stuart. "All that is premised on the coordinating role of the corporate headquarters and corporate staff positions."

The key word is theoretically. As Stuart explains, there is actually very little empirical data about how a company's corporate staff members perform that coordinating function. "We have plenty of case studies, but given how important it is, there is remarkably little academic research that looks at the headquarters of a multiunit firm," he says. In fact, so mysterious is the inner functioning of corporate HQ that Stuart calls it a virtual "black box."

Peering into the black box

In a new working paper written with Adam M. Kleinbaum (HBS DBA'08) of Dartmouth's Tuck School of Business, titled Inside the Black Box of Corporate Staff: Social Networks and the Implementation of Corporate Strategy, the researchers set out to peel back the cover of that box a little bit to shed light on how corporate staff members perform that coordinating function.

To do that, the researchers decided to focus on the communication networks between corporate staff members who direct the various divisions of the company, looking to see how they compare to the networks of line workers within those divisions. If theory is correct, corporate staff networks should be larger and more centralized than those of line workers.

Stuart and Kleinbaum hit upon the idea of using workers' e-mail networks, creating a real-time, virtual spider web of contacts based on who communicates with whom. A large, multidivisional information technology company (referred to in the paper as "BigCo") agreed to let the researchers have access to internal e-mails among more than 30,000 employees over two quarterly periods in 2006 and 2008. E-mails were stripped of content before the researchers saw them, but retained the addresses and positions of the recipients in order to track how the network was organized. Compared with more traditional research methods such as surveys, the data was relatively easy to obtain. "There is a remarkable wealth of e-mail data that is sitting on almost every company's servers, and it is inexpensive to extract," says Stuart. "All it involves is someone to write a relatively simple set of scripts. It's a surprisingly small favor to supply data like this."

In the case of BigCo, the company had two corporate staff units: a corporate headquarters and a corporate sales force. When the researchers applied a complex statistical analysis to the e-mail data, they found exactly what theories suggest: corporate staff had broader networks that reached farther and were more centralized than those in line positions. Not only did staff have more contacts, but they also were more likely to be brokers between individuals in discrete operations within the company as a whole.

The bigger question was why that was the case. The researchers had three hypotheses. One, individuals who take corporate staff positions might develop more centralized networks just as a function of the jobs they have. Two, employees who already have larger networks might be tapped for corporate staff jobs because of their networks. Three, employees who don't develop larger networks might not last in those positions and be weeded out over time.

The network builders

When Stuart and Kleinbaum crunched the numbers, they found little evidence to support the last hypothesis, but the first two hypotheses were borne out, with the second slightly stronger than the first.

In other words, those taking corporate staff positions tend to already have larger, more centralized networks, which then went on to broaden in their new roles. "BigCo appears to be doing a good job both in who it puts in these jobs and how it designs them," says Stuart. "What the company doesn't seem to be doing is removing people who don't develop those networks very quickly."

The more surprising thing about the data, however, is just how quickly networks changed once someone moved from a corporate staff position to a line position or vice versa.

The researchers assumed that workers would retain most of their networks over time, only changing them gradually. Instead, they found rapid turnover in much of the employees' networks when there was a change in job functions. This was especially the case when individuals/workers moved from a line to a corporate staff position. If workers returned to the line, they tended to retain some of their centralized network, reflecting a bit of the "corporate imprimatur."

Stuart cautions that these findings only apply to BigCo and that the picture might be different in other companies. But at least in BigCo, the data bears out the theory that corporate staff members have larger, more centralized networks, even if those networks are more malleable than previously thought.

The insights provide valuable information on what is really happening inside that mysterious black box. "For many, many years there have been theories about what a corporate headquarters does and why it does it," says Stuart. "[But] when we have theories about how something works but we have no data, we don't really know."

About the author

Boston-based writer Michael Blanding is a fellow at the Edmond J. Safra Center for Ethics at Harvard University and author of The Coke Machine: The Dirty Truth Behind the World's Favorite Soft Drink.

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Comments

    • Anonymous

    It would be interesting and useful to understand the whole of the rleationships and not just those coming from the email network because this is highly job dependent. Corporate staff main job is lubricate and glue the company, so networking within (and outside) the company is mandatory. Line management must deliver, so less need for a large network (this is a hypothesis that may explain why the network changes so quickly when changing jobs). I also tend to believe that coporate travelling is also more diversified than BU management travelling which makes sense to me because the functions are different and less network making for the line management is required.

     
     
     
    • Anonymous

    I believe you have hit on a good question. Having been in both a line-level position as well as a HQ Corp position, I can tell you from experience that networks change very quickly once you leave the HQ and go to the "field" as a line manager. The general understanding is that HQ functions as the "policy" or "guidence" and therefore keep internal messages within the HQ until it is ready to be released in the field. Field positions have their own network from one field operation/region/area to another and communcation is kept within this level before it's released to the HQ, much like that of the HQ functions. Mgrs who have worked in the HQ, have a larger network to pull from and utilize this well, but line-level mgrs who have never worked in a HQ staff position, do not have the advantage of the HQ networks and keep to the local/area/regional communication.

     
     
     
    • Paul Nicholas
    • Director, Soul-Chaplain Consultancy

    This is really interesting and important - thank you. Things happen in the spaces between people - and that applies especially to the creative exchanges and synergies that act to counter entropy and build collaborative enterprises. Those spaces between people correspond to the links or edges of a network - so it is within the links that synergy occurs - but this is only up to a point of optimality. Networks have an optimum size, which of course depends on their function or the use to which they are put. Building networks is a long recognized way of "getting on" in one's career - careerists inevitably are good networkers, sometimes to the extent that this seems to be their only talent. The networks that generate productive ideas tend to be smaller. These days it is not unusual for individuals to claim networks of "friends" running into 4 figures. But most of these will not lead to creative and productive synergies and may possibly even increase the entropy of modern lifestyles. One can only have a limited number of productive conversations.

     
     
     
    • Nitin Pujar
    • Principal Consultant, Maven Advisors

    The basic premise that email alone reflects networking is perhaps erroneous. The lag in email usage reflected in societies such as those in certain parts of Asia and the deep 'face saving or otherwise' behaviour seen in China and Japan means it is not exactly applicable globally, even for 'BigCo'!! But the exciting thing is the use of web/digital forensics to establish behavioural patterns and contours... Great to see this effort and hope to see this more often!!!

     
     
     
    • Anonymous

    The headline of this article is misleading. Surely there's more to the inner workings of corporate headquarters than who's in whose network.

     
     
     
    • William Seidman
    • CEO, Cerebyte, Inc.

    Looking at corporate functions through the lens of social networks is a very interesting perspective. The conclusions, particularly the second finding, that people are selected for headquarters roles in part because of the networks they have developed, raises an interesting question about leadership development.

    Most traditional leadership development programs don't pay much attention to teaching high potential candidates how to develop their networks, so corporate leaders tend to develop these contacts in a somewhat ad hoc way.

    In contrast, we have worked with many companies to develop "organic" leadership development programs (i.e. programs that derive their content solely from an organization's "positive deviant" leaders) that always include a significant amount on the importance of leadership networks, instruction on how to build them and demanding exercises that require leadership candidates to actually build them. At the end of these programs, the leadership candidates have developed the networks that make them more eligible for a corporate role and more effective in that role.

    Building a network is critical to organizational leadership. Why leave this to chance?