The new boss of ‘Emporium’ surveyed her empire marked out by coloured pins on the large map hanging on her office wall.
The business had grown from a few shops to hundreds stretching right across the country, all selling different things. Black pins marked one type of shop, blue another and so on and so forth. As the business grew responsibility flowed from head office to the different business units and to the shops. ‘Keep the head office small’, had been the mantra for many decades.
There had been a growing tension on the main board as new members argued that there would be benefits in a large centralisation programme and that head office should have more power and control. Eventually those forces for change had brought in the new boss with a track record of working in highly centralised businesses. She wondered and thought and planned how she would centralise and bring the savings and profit improvements the board had asked for.
She decided to start by setting up a customer service call centre and built a huge state of the art site. In order to manage very high volumes at peak times she signed a contract with a third party to provide ‘overflow’ services. It wasn’t easy as the new call centre operators had not worked in the shops and needed to know what to do on nearly everything. Vast sums were spent on IT and training and of course the building. But when it came to finding savings generated from having a new call centre the managers in the shops explained that anyone and everyone dealt with customer concerns and so there was no specific reduction to be made. Worse still staff in the shops simply referred complaining customers to the call centre. Lessons to improve were lost at a local level and customers felt the service less personal and immediate.
Next to be centralised was IT. A new building, a new team and new technology. It was decided that people working on IT were still needed in each of the business units as they understood the detail of what was needed and were the ‘interface’ between head office IT and the trading businesses management teams. But there were heated arguments about how the IT budget was spent and an executive committee was formed to decide on priorities and check implementation. More project managers were required and costs went up again and speed and flexibility was lost.
The same was true in marketing and HR and distribution. New buildings and technology and ironically another tier of management to coordinate between the businesses and the new centralised head office added expense. Over a number of years head office costs increased tenfold. The restructuring resulted in many experienced staff taking redundancy, leading to huge one-off amounts being paid out and the business lost valuable experienced staff. Sales were impacted as good people left, and the unique culture built up in the various businesses was lost. Worse still the staff were less engaged and motivated as decisions were taken far away from them. When the Centralising Boss left she was credited with transforming the business but profits were a fraction of what they once were.
Centralisation is not necessarily more efficient or profitable.