Monday, November 22, 2004

Power Plays in Business

I was reading a case on trans-national corporations such as ABB, Philips and Matsushita. I guess as a business increases in size, there's power play and politics that come in the way of better productivity. In that context, I even theorized the following:
1. Any diversifying, distributed business will very likely have a Corporate HQ that assumes lot of power in the overall decision-making.
2. How well the various units perform and enable high productivity depends on how important do the units consider it to create their own lobbies and lobbyists at the Corp. HQ.
3. How independent and empowered the units can become depends on how large the Corp. HQ is kept.

Here's a brief explanation of each:
1. As there are distributed businesses, the Corp HQ will very likely take charge of global strategy, directions and long-term planning. Each unit will be empowered to make its own shorter-term plans and execute them, in sync with the overall group's global strategy. Given that the Corp HQ will have a say in how much of resources can be shared with each of the units, the units will try to lobby with the Corp HQ to grant them more resources in terms of investment, manpower, network channels etc. If the resource-granting exercise is more political and less strategic (which is likely for a transnational since the granter may belong to a group/country that may be at loggerheads with that of the receiver!), then this will give rise to lobbies and lobbyists.

2. If the above resource-granting exercise is done on the merits of the unit's business plan, the group's strategy for the unit's (and it's location's) future, the merits and acumen of the leadership in that unit, then one can be reasonably sure that the units receive reasonably good resources vis-a-vis what they ask for. But, if it's not so, then vested interests are bound to prevail and you'll surely see lobbies.

3. This is the most important piece. Imagine a corporate and its units to be like a circle surrounded by many disjoint circles. Now, each unit, inwardly is battling for a share of the resource pie (again). So, the important thing here is that they have to battle among themselves (inward competition - good for the customer, good for goodwill, good for business). But, imagine the middle circle (the Corp HQ) to be pretty large. What happens is that the units do not recognize others across the circle. They are blinded by the size of the Corp HQ that that becomes their paramount in terms of getting favours. At such times, how do you expect the units to be increasingly productive.

What are the advantages of a small decision-making body?

1. Everyone will know everyone else. There is likely to be a good gel-well feeling.
2. Everyone will be empowered to make big decisions. This way, turnaround time for big decisions is much less.
3. There are too little people in the centre for other units to effectively lobby!! Efficiency of intra-corporate transactions is very high.

So, summarizing, when you have a large business to handle and you have taken a route to distribute it, keep the central decision-making body small enough so as to have a good perspective on what's happening, get the units to compete against each other and flourish even in troubled times!