Narrow-mindedness holds back many organizations in their efforts to turn global presence into a real source of competitive advantage. In this article, the authors explore the manifestations and costs associated with what they call the “headquarters knows best” syndrome, as well as ways companies can address the problem. Many of the things companies have done are fairly predictable, such as decentralizing global responsibilities, changing the reporting relationships, internationalizing senior management, and creating cross-national teams.
At Irdeto B.V., a Dutch developer of security software for digital media, the remedy was more extreme: It elected to create two headquarters, one in the Netherlands and the other in China. While this was expensive — and something the CEO’s successor ultimately did away with in 2015 — the decision to operate out of dual headquarters helped the company realign its focus, and it had significant positive effects on Irdeto’s performance.
The authors argue that many corporate executives aren’t aware that the “headquarters knows best” syndrome exists. Typically, top executives interact with executives from the subsidiaries that are closest to headquarters (in terms of geography, economic development, and culture); the executives’ frame of reference is based on subsidiary managers who benefit from ample attention, autonomy, or influence. Executives from peripheral subsidiaries are the ones who are most likely to be affected and least likely to be heard. In addition, the value of missed opportunities and lost talent is hard to assess, and headquarters executives can easily invoke contextual factors (such as competition for labor) to explain problems. They can also try to pin blame on the local entities.
After establishing its dual headquarters in 2007, the authors note, Irdeto saw measurable improvements on four fronts: increased top management attention, greater subsidiary contributions, richer lateral exchanges, and tighter local connections. Although what works for one company may not be right for another, the authors maintain that Irdeto’s experience nonetheless offers broad lessons for companies seeking to eliminate their local biases and become more global. These lessons involve openness to changing the existing structure, a commitment to promoting fairness, and the willingness to learn what it takes to operate virtually.