Knowledge

To Be Strategic... or Not to Be: In-house Departments at the Crossroads

So-called “staff functions” (HR, IT, accounting, legal…) were until recently firmly anchored within the company’s headquarters. Today, they stand in line waiting to be commoditized, outsourced and offshored. To prevent that risk, professionals in these functions often prescribe the same medicine: “We need to become more strategic.” But what does it mean, for a law department, the HR division or the IT service center, to become “more strategic”? Here are five answers.

Defining the department’s strategy

Becoming more strategic means, first of all, to apply strategic thinking to oneself. Members of the staff functions should regularly take a day off to explore how their environment is changing, to define a “vision” and long-term objectives. Some departments do it already, but many don’t because they keep thinking the way they have been trained: as experts. Experts may be brilliant and super-intelligent in their field of expertise, but feel uncomfortable with issues beyond their area of specialization. You will see, for example, the general counsel of a global company immerse herself completely in complex legal questions of interest for top management, while completely ignoring the organization of the legal function in the group. However, the survival of the law department, as such, is not a legal issue demanding legal expertise, just as the survival of the IT division is not an IT question. It is a strategic and organizational question. Experts must push themselves out of their comfort zone (expertise) to spend some of their attention and energy to applying strategic thinking to their own future.

Focusing on decision-makers, not just users

Staff departments have now completely converted themselves to the religion of “client orientation”. Training programs engaging to see colleagues as “clients”, satisfaction surveys among users of internal services and mission statement centered on serving clients have set the tone. In-house professionals, these days, are definitely client-aware, client-focused and client-centered.

However, most of the time, the client they have in mind is the user, such as the employee calling the IT helpdesk or the sales manager calling on the lawyer to review a contract. Somehow, they forget that their fate will eventually be decided not by the users, but by the decision-makers. The sales manager has not the power to make any decision as to whether legal services should be outsourced or offshored. The CEO, the Board or the Executive Committee has that power. Becoming “more strategic” implies, therefore, to give at least as much attention to the decision-makers as to the users.

Investing in relationships

Giving attention to decision-makers means, in practice, in building up a strong relationship with top management. Without that relationship, how can you know what are their expectations, intentions, worries and projects? However, many in-house professionals are a bit afraid or feel not sufficiently empowered to approach top management and engage in relationships with them. They feel more at ease merging into the anonymous crowd of middle managers. This attitude is at the opposite of the strategic mindset that this article is all about: faceless departments are prime candidates for being move out.

What keeps staff departments at headquarters is the strength of their relationships with the top brass. The goal should be to become trusted advisors of top management. Top managers know the face, the name, the voice of their trusted advisors, and want them close to them. Trusted advisors are seasoned experts in their field, but they also have an understanding of what matters most to their clients, even if it is outside their scope of expertise. Leaders of strategic staff departments are members of the Executive Committee, or at least serious candidates to join it.

Self-cannibalizing

Restructuring of internal services is unavoidable. If you don’t do it yourself, someone else will do it for you (or against you, actually…). The best way to avoid the dismantling of a staff department by outsourcing and offshoring is to take the initiative yourself to improve efficiency and productivity. If you manage to run your department in a very efficient way, what is the point of outsourcing or offshoring it? On the contrary, staff departments that take their situation for granted and let costs surge are primary targets for outsourcing and offshoring. A law department that does not monitor and control fees paid to external counsel is an easy prey for a “hostile takeover” by the purchasing department.  On the contrary, the same law department, if it has set up an effective system to manage legal fees, will be much stronger to fight back against the hegemonic ambitions of the purchasing department.

Staff departments should become experts in the art of self-cannibalization: metabolizing existing ways of working to transform them into better and more effective processes. This should become a permanent habit and a constant focus: How can we do better and more effectively what we do? Here again, we see that the role of the in-house professional is not limited to providing a service to internal clients, but extends to improving on an on-going basis that service and the way it is rendered.

Thinking value, not costs

Last but not least, the fifth way to “become more strategic” is to think in terms of value. Top management often sees a staff department as a “cost”. What does anyone with “costs”? Reduce them. The spiral of outsourcing, downsizing, offshoring and commoditizing spiral of internal services is based on the idea that in the output/cost ratio, the only variable is the cost. Management thinks: “I reduce the cost, but I keep the same output: I win.”

If a staff department enters into that logic and sees itself as a cost to be reduced, it condemns itself ultimately to commoditization, outsourcing and offshoring. Staff departments must enter into the value mindset: How can we create value for the company and for our clients, and how can we ensure that decision-makers perceive that value? The purpose is to be perceived by top management not as a cost center (to be reduced, by definition) but as a value-creating partner. That does not happen by chance. It is the result of constantly looking for ways on how to improve value creation.

To sum it up, internal support departments are threatened by the wave of commoditization, outsourcing and offshoring that has affected goods in the past and that is now affecting services. Becoming “strategic” is the way out, as many professionals see it. To become more strategic, and therefore more immune to said wave, staff departments must think strategically about themselves, focus on decision-makers and not just users, engage in relationship building with the decision-makers, and stop seeing themselves as a cost but rather as a source of value, and do what it takes to make that value-based vision of themselves be real, perceived and shared.

View this article in French (as it was initially published in L'Echo of 12 September 2007) or in in Dutch. You can also see a pdf version in English.

Antoine Henry de Frahan | 11 September 2007 |