Create a Culture of Disciplined Empowerment: New Thinking Is Needed on the Relationship between Corporate Centre and Business Units

Article excerpt

Large complex organisations are struggling to reconcile two imperatives. On the one hand, the compliance duties of the corporate centre have become more exacting as successive scandals have rocked the confidence of shareholders and the public in the integrity of the corporate world. On the other, the corporate centre must allow business units sufficient empowerment in order to meet the market demand for speed and flexibility and to unlock the benefits of employee motivation.

The key to ensuring compliance without violating the principle of empowerment lies in the nature of the relationship between corporate centre and business units. It needs to be an open relationship of mutual trust in which compliance is assured through self-discipline rather than bureaucratic checks and measures. Self-discipline, in turn, is inspired by a shared vision or set of values. This state cannot be achieved purely through strategy, process or metrics. Our research suggests five factors which can create a self-reinforcing culture of disciplined empowerment.

Empowerment and compliance

Empowerment is about decentralising decision-making power into the hands of the people most familiar with the details of the business. It implies a two-way relationship between corporate centre and business units whereby the corporate centre relinquishes some of its traditional decision-making power, and business units in their turn accept the challenge of greater responsibility. The growing need for speed and flexibility is a major factor forcing organisations to put decision-making power nearer the customer and market. Meanwhile, a greater awareness of the psychological benefits of empowerment is filtering into accepted business wisdom and adding momentum to the drive to decentralise.

At the same time, shareholders, governments, regulatory authorities and the community are putting growing pressure on organisations to ensure effective compliance and governance. Organisations are now inextricably bound by their commitments to external stakeholders. These commitments go beyond the legal and regulatory requirements traditionally associated with compliance, such as health and safety regulation and financial discipline. Also at issue are the increasingly important self-imposed commitments, such as promises to respect a 'free trade' or 'against animal testing' policy. These commitments need not be specifically ethical: Migros, the leading Swiss retailer, voluntarily commits around one per cent of annual turnover to cultural and social activities.

The horns of the dilemma

Empowerment and compliance are crucial: the former, to unlock value, and the latter to avoid scandals which can destroy the business. But these two imperatives yield an apparent paradox. On the one hand, organisations are trying to devolve responsibility away from the corporate centre, putting power into the hands of those best placed to use it. On the other, they need to become more accountable for the activities and behaviour of the entire organisation. The challenge is to increase the level of discipline amongst an increasingly autonomous set of business units.

Inspired by interviews with executives of large complex organisations about the changing role of their corporate centres in recent years, we have developed a framework to explore the tension between empowerment and compliance (see Figure 1). Each quadrant represents a different style that the corporate centre can adopt in performing its compliance and governance duties.

In the bottom right, business units are left to their own devices. Compliance is minimal either through governance failure, or because there are no synergies between business units that require central oversight. In the top left, compliance is ensured through bureaucracy, leaving the business units with little sense of power over their own destiny. In the bottom left, the corporate centre fails fully to define the compliance and governance rules but expects the business units to check with it before taking decisions, yielding a sort of paralysis in which neither side fully takes responsibility. …