Introduction
The corporate headquarters (CHQ) is an important part of most multi-business organizations (Menz, Kunisch, and Collis,
2015). By “CHQ” is usually meant staff functions and executive management which is tasked with providing services to the company at large. As such, the CHQ is different from the top-management team (although the CHQ is sometimes seen as including the TMT), and this is the sense in which I use the term here. Headquarters differ dramatically in size. Thus, Collis, Young, and Goold (
2007) report sizes in the interval from approximately 10 to approximately 10,000, the median number being 4.3 for every 1000 employees (Collis et al.
2007: 385).
While business historians, following the lead of Chandler (
1962), have long emphasized the importance of the CHQ, it has not yet fully entered general management and organization theory as a distinct, important phenomenon worthy of focused, sustained analysis (Menz et al.
2015), with two exceptions. The first exception is international management research, specifically research on the multinational corporation. Research on the HQ in multinational corporations has been published in the major generalist journals (e.g., Bouquet and Birkinshaw,
2008), and a special issue on the subject has recently been published in a major journal (Nell, Kappen, and Laamanen,
2017). That international management scholars have taken a particular interest in the CHQ is perhaps not surprising, as MNCs have been particularly prone to experiment with HQ organization, for example, allocating HQ functions across different countries. The second exception is diversification research (e.g., Collis, Young, and Goold,
2007). Indeed, in their review of the HQ literature, Menz, Kunisch, and Collis (
2015) partition existing research into “multibusiness firm” and “multinational firm” research streams (and point to small literatures in economic geography and finance that consider the CHQ (see also Kunisch, Menz, and Ambos,
2015).
However, the CHQ is a phenomenon of general interest that goes beyond the research concerns of the international management field or diversification research (Ferlie and Pettigrew,
1996; Menz, Kunisch, and Collis,
2015), simply because it is an integral part of most large companies (Mintzberg,
1992). And yet, virtually all organization design theory pays little attention to the CHQ. While it may receive a mention, and sometimes more sustained discussion (e.g., Mintzberg,
1992), the CHQ is mainly seen as a provider of support services, operating under the instructions of the top-management team.
It is arguable that the relative neglect of the CHQ is quite a significant gap in organization design theory. This is so for a number of reasons. The CHQ maintains and adapts the organization’s design. It connects the TMT and the rest of the organization. Given this, a solid understanding of the CHQ may be necessary to fully grasp some of the ongoing trends in corporate organization, notably delayering, the expansion of top management teams, and the continuing shrinking of corporate boundaries. Finally, at the perhaps most fundamental level, we need to better understand the CHQ to fully grasp the causes of both hierarchical success and failure (Williamson,
1996; Nahapiet and Ghoshal,
1998), because both are to a large extent dependent on the CHQ.
In this brief essay, I suggest that organizational economics—that is, agency theory (Holmström,
1979, Holmstrom
1999; Tirole,
1986; Ross,
2014), transaction cost economics (TCE) (Coase,
1937; Williamson,
1985,
1996), information-processing team theory (Marschak and Radner,
1972), and property rights economics (Grossman and Hart,
1986)—offer very useful insights and tools for raising and answering key questions about the CHQ, including the very fundamental ones. These questions include the truly fundamental ones, such as why do CHQ exists? What are its functions and organization? What explains its size? These are, of course, variations over Coase’s (
1937) fundamental questions about firms. Answering them will allow us to better understand the role of the CHQ in the “organizational advantage” (Nahapiet and Ghoshal,
1998), that is, what are sources of the distinctive advantage organizations have (in certain respects) over other institutional arrangements.
Conclusions
The existence of important and meaningful CHQ tasks and their continued existence in major companies suggest that the CHQ add value and are important parts of modern firms. As such, the relative neglect of the CHQ in most organization design theory is a major gap. The CHQ has two overall tasks (Chandler,
1977; Foss,
1997). First, it is the unit that is primarily responsible for running the “sub-economy” that is the firm (Holmstrom,
1999) in terms of maintaining, repairing, introducing, etc., management information systems, reward systems, etc. Second, it also has a more entrepreneurial role to play, namely, as the corporate entity that in conjunction with top management orchestrates major change initiatives, whether these aim at responding to major external or internal misfits, or whether they are directed towards innovation. Both functions help explain corporate parenting advantages, that is, why a particular business may best be organized by firm A (with its CHQ) rather than firm B (with its CHQ).
The specific approach taken in this short essay is to call for more research on the CHQ from the perspective of economic organization design theory, that is, organizational economics. Such an approach can address the fundamental questions concerning the CHQ, such as why it exists. Basically, economies of scale and learning in the above two tasks suggest that they be centralized in one unit (Holmstrom,
1999). Because the activities and (human) assets of the CHQ become co-specialized with the rest of the firm as the CHQ carries out its activities, and therefore may be subject to potential hold-up, CHQ services are produced internally rather than being procured from the outside (Williamson,
1985). The extent to which CHQ activities are separable from/complementary to other firm activities helps determining the internal boundaries of the CHQ vis-à-vis other corporate units. An organizational economics inspired approach to the CHQ may also help illuminate its internal organization by focusing on task interdependencies and asymmetric information inside the unit itself (Ross,
2014).
In sum, the core message here is that the key ideas of the economics approach to organization design are clearly applicable to the rationale, size, boundaries, internal organization, etc., of the CHQ and its role as a unit in a larger organization. Understanding how the existence, internal boundaries, and organization of the CHQ depend on “fundamentals” such as the skills of members of the CHQ, scale economies in information processing tasks, asymmetric information, task and skill complementarities, etc., also help us better understand the contingencies that shape the CHQ. For example, digitization fundamentally impacts on a number of these fundamentals and thereby shape the CHQ.