chapter  6
24 Pages

The scope configuration

As with the scale configuration that was considered in the previous chapter, the consultant style corporate centre of the scope configuration directly intervenes in the operations of the business units within the group. However, the objective of this intervention is not to reduce directly the total costs of the group. Rather the consultant style corporate centre seeks to leverage existing value-adding knowledge as widely as possible across the group. It is important to emphasise immediately that the corporate centre

does not necessarily have to develop this knowledge itself. The centre can add substantial value to knowledge that already exists in one part of the group by making it available to all those other parts of the group where it has relevance. By doing this, the corporate centre enables the group to generate economies of scope, as is shown in Figure 6.1. In order tomaximise the relevance of any particular knowledge-based competitive advantage, the corporate centre may need to codify, refine, or generalise the specific knowledge that is being applied by one business unit. It may well be that it is actually the business process or functional way of working that is transferable rather than the resulting local business unit competitive advantage. It is quite possible that these business unit managers may not know exactly why they are so successful. The critical value-adding role of the consultant style corporate centre is then to identify the key elements and codify them into a potential group-wide resource. In other words, the centre can turn tacit knowhow of the business unit into leveragable knowledge for the group. Of course this role has significant implications for both the costs

incurred and the variety of skills that are required by the corporate

centre. It needs functional skills to identify existing value-adding knowledge that may have more general relevance across the group. The centre also must have sufficient knowledge about its business units and their particular competitive situations to recognise exactly where andwhen this knowledge should be applied. However, themost important component is the process and systems expertise that ensures that the existing knowledge canbe successfully appliedby the other business units. It is in this area of process and systems expertise that the consultant style corporate centre should seek to establish its own preeminence so that it is recognised as a leader in this field. The existing knowledge that it seeks to leverage may be to do with

the core processes of the underlying business units or it could be associated with more generic support activities.Thus scope configurations can encompass avery wide-ranging spread of businesses, or can appear as quite integrated, high context groups (including single business groups). The glue that binds together any scope configuration group is the exploitation of similar sources of competitive advantage. This similarity makes the more general exploitation of existing knowledge across the group so relevant and value adding. However, it also indicates a very significant challenge to the sustain-

ability of the value-adding role of a consultant style corporate centre. Any specific knowledge-based competitive advantage has a tightly defined economic lifecycle for the corporate centre. Once it has been codified and leveraged across all the relevant business units, the consultant style corporate centre has added all of its potential value to this knowledge. The business units may continue to exploit this

knowledge-based competitive advantage for many years but they no longer need the corporate centre, with its attendant costs, to achieve this. An important characteristic of the scope configuration is that, although the corporate centre is directly intervening, the benefits are realised in the business units that receive the knowledge while the costs of acquiring or codifying this knowledge are incurred at the corporate centre or in the originating business unit. This has implications for the planning and control systems and these are discussed later in the chapter. This is why the systems and process expertise is so important in the

scope configuration. A sustainable consultant style corporate centre needs to be able to leverage a succession of different competitive advantages across a possibly changing portfolio of businesses. Thus the centre could try to find new businesses in which it can leverage its existing knowledge-based competitive advantages or which may provide new knowledge that it can leverage across the rest of the group. A steady flow of knowledge that can be leveraged by the consultant style corporate centre is more easily achieved if the business units are themselves innovative and face severe competitive pressures in their own competitive environments. It is also important to remember that the leveragable knowledge can relate to how to reduce cost levels. In this type of group, external competitive pressures can force all the business units to come up with their own innovative cost reducing solutions that may have relevance more widely across the group. The consultant style corporate centre may have quite high costs itself, but it can still help the business units to reduce their own costs by making specific cost reducing strategies more generally applicable within the group. The culture within a scope configuration group needs to be open

and trusting so that the business units are willing to share their advances in knowledge with the corporate centre. This means that the initial communication flow should be up the organisation from the business units to the centre, so that the centre is made aware of new value-adding opportunities. The centre should, once they have been appropriately packaged, spread this knowledge across the organisation but, ideally it should not need to force other business units to adopt the new best practice. Once the centre gains a reputation for only spreading useful and usable knowledge, the business units should not only readily adopt each new centre driven initiative but also should willingly share their breakthroughs with the centre. This can make the process self-sustaining if the business units keep getting more value back from the centre than they provide to it, so that they

have an incentive to keep the corporate centre in its value-adding role. It is quite possible for the consultant style centre to get into an unsus-

tainable position within the scope configuration as is shown in Figure 6.2. Position 1 shows the optimum position for the group where the corporate centre has identified a few critical, corebusiness processes to which it can continue to add a lot of value by leveraging existing knowledge across the group. Thus it focuses its attention on these limited processes, which may be new product development, brand management, customer service, etc. In Position 2, the corporate centre has become too interventionist in

the business units and this is constraining their ability to compete in their specific competitive environment. This type of corporate centre may actually have directly centralised several core processes rather than leaving the enhanced and standardised processes under the management of the business units. The consultant style corporate centre should have a transformational leadership role within the group in that it acts to change how the business units operate. However, in the top left-hand segment of the configuration, as discussed in Chapter 3, the centre’s role can become much too transactional as the centre gets too involved in the detailed daily operations of the business units. This can have a highly negative impact on the performance of the business units, as well as increasing the cost base of the corporate centre significantly. Position 3 shows a corporate centre that is focused only on support

activities so that its value adding potential is limited.This type of group may contain a wide range of business units as it is not constrained by any commonality of core processes. Not surprisingly our first case study example looks at a group that has maintained a highly value adding position for its corporate centre for over 50 years.