What is the role of the financial structure in the management of the holding. What determines the choice of financial structure of the holding? How to build relationships between the management company and business units.
How to manage a holding based on financial structure
Ilya Diskin
The organizational and financial structure should follow from the holding's development strategy. A chaotic accumulation of companies of different specifics under one roof without vertical or horizontal integration looks more like “picking up stones” than like thoughtful actions to consolidate a business. At the same time, you must always remember that the financial structure will not be a guarantee of the absence of problems for you, but only a convenient tool for building a short-term budget cycle for the holding. The development of the financial structure of holdings should, of course, be carried out by the financial service or external consultants. Let's consider the most important aspects of this process, which are useful for the General Director to know in order to control the process and evaluate the result.
The role of the financial structure in holding company management
In Russia, in the vast majority of holdings, unfortunately, the main planning tool is still the financial structure, and not the strategy indicators - both financial and non-financial. However, the financial structure itself is just a convenient basis for building a budget process at an individual enterprise or holding company. And it does not reflect all components of the strategy, but only its financial component. And even then, for the most part, these are profitability indicators, while the owners are primarily interested in the growth of business value. In addition to the financial structure, strategic indicators for working with clients, indicators of internal business processes, innovation and growth should also be developed. Combined together, they will give a complete picture of the strategic goals of the holding.
Often the organizational structure of a company follows the financial structure. This leads to the fact that, for example, the marketing department in the financial structure is positioned as a simple cost center, although in this way its importance is clearly downplayed within the strategic guidelines of the holding. Strictly speaking, it is better for the organizational and financial structures within the holding to exist autonomously, since subordination relationships and financial responsibility are two different things.
A typical example is the success story of Russian Standard Bank. At a certain stage, marketing research showed that the market niche in the field of consumer lending was empty. Then the bank purchased expensive software and became a leader in this segment. And from a strategic point of view, the marketing department and the IT department were no less significant than any of the holding’s earning centers.
Holding company financial structure options
As experience shows, Russian holdings evolve as follows: first, individual enterprises become profit centers, then aggregated business units uniting enterprises according to a certain characteristic (most often by production process in a vertically integrated chain), and then there is a transition to strategic performance indicators – financial and non-financial – for all structural divisions of the holding.
Options for organizing the financial structure, as a rule, reflect the strategic guidelines of the business. For example, one of our clients, an agro-industrial holding company that owns dozens of processing plants in different regions of Russia, had a rather bizarre financial structure. The profit centers were production, trade and foreign economic management.
In turn, the production department included factories. What do you think were the performance benchmarks for these plants? Profit? No. Positive operating cash flow? No. Maybe fulfilling cost estimates? Also no. The main indicator of the plants' performance was the fulfillment of production standards for the processing of customer-supplied raw materials, which the plants received from the management company. At the same time, the management company purchased raw materials and components for the factories and bought back all products (at prices that ensured minimum tax deductions). That is practically economic activity factories was carried out exactly as in Soviet time in a planned economy. The holding's management explained their policy by saying that plant directors steal, and this management method allows them to solve this problem.
Financial structure gradually evolves from simple to complex, a natural process that becomes increasingly evident as competition intensifies in most markets. Let me give you an example of our client – a regional holding company financial type, where there is a management company, while the businesses are not integrated, and the composition of shareholders in each of the areas of activity is different. At first, management set the business units the task of ensuring the standard of dividends transferred to the management company. Rather, these were not even dividends, but mandatory payments or a kind of corporate tax. What is the type of financial structure of this business? Business units in in this case- These are something similar to profit centers. However, due to the opacity of management reporting, the amount of corporate tax does not depend on the profit of the business unit, but is subjectively determined by the main shareholder of the holding. These payments, it turns out, are more reminiscent of an old quitrent. This is the word that is often used to describe such payments in some Russian holdings.
A year ago, the mentioned holding modified its financial structure. It identified nine profit centers and three “candidates” for this role. The term “candidate for the role of a profit center” meant that a business unit has all the prerequisites to become a full-fledged profit center, but so far its income is small. In addition, the main revenue of these three business units came from the holding’s enterprises, that is, from internal turnover. Meanwhile, it is more profitable to be a profit center - its management receives a percentage of management profits. When a “candidate” reaches a certain revenue threshold and when the share of revenue from external contractors increases to 51%, it becomes the holding’s profit center. The more profit centers a holding has, the better for its shareholders: the number of managers with an entrepreneurial mentality increases.
The figure shows a diagram of our recommended solutions for the financial structure of the holding. It can be seen that the type of financial structure depends not only on the result desired by shareholders, but also on the mentality of department heads. The transition from more authoritarian to less authoritarian governance resembles the process of democratization of society in miniature. Democratization is doomed to failure if departments are accustomed to following orders, and the strategy includes ambitious plans for business expansion. You need to either change personnel (fortunately, this is possible in business, unlike society), or adjust the strategy.
Classification of centers
The financial structure of an enterprise is a set of financial responsibility centers (FRC). Their managers are responsible for specific areas of work.
Depending on the powers and responsibilities of managers, a structural unit can be an investment center, a profit center, or a cost center.
An investment center is a division whose head is financially responsible for the implementation of the business plan approved for his division, that is, he is responsible for the implementation of the discounted cash flow plan.
A profit center is a division whose head is responsible for the profit of his business unit.
A cost center is a department whose head is responsible for completing assigned tasks within the allocated cost budget.
Sometimes other centers are also identified - for example, a revenue center, an accounting center. Each enterprise can choose a classification that suits it or develop its own. The main thing is that everyone at the enterprise understands how some centers differ from others, who is responsible for what, and how the work of each structural unit is assessed.
Decision-making scheme for financial structure
A practitioner tells
Roman Limanov, financial director of Soligran holding, Moscow
We have three business units: a management company in Moscow and two production sites in the regions. From the point of view of distribution among financial responsibility centers, the profit center is the management company. On the one hand, she is engaged in sales. On the other hand, it purchases basic raw materials for production, which amounts to 70 to 85% of direct production costs. However, to say that 100% of the responsibility for making a profit lies with the management company would be wrong, because production is carried out in the regions and the center does not regulate all production costs.
Two production divisions of our holding are cost centers. They are engaged in the production of PVC compositions, which are used in construction, for the production of panels, windows, etc. Recently, the holding team changed its management team and a restructuring was planned. We do not seek to give enterprises full financial responsibility for the results of their activities.
At the current stage, it is more expedient to concentrate financial management, budget process, control of budget execution in the management company. We would like to emphasize the responsibility of our enterprises for the full production cost. Now this is not happening, since the management company is engaged in purchasing a significant part of the raw materials, but in the future a situation should arise when production sites will form the full production cost. To achieve this, the holding is introducing a unified system of budget planning and management reporting. When compiling the latter, adjustments will be used to adequately consolidate the management reporting of the entire group and eliminate mutual settlements.
Features of financial management in holdings of various types
1. Centralized holding
If management is highly centralized, as in the agro-industrial holding described above, all financial management comes down to checking the implementation of planned production standards at regional factories. In this case, all facets of financial management shift towards the management company. It is there that key decisions are made, and, therefore, the quality of management reporting and budgets of the management company directly affects the efficiency of the business.
Types of holdings
Depending on the organizational structure, the following types of holdings are distinguished:
Horizontal holdings are a combination of homogeneous businesses (examples: all-Russian telecommunications companies, retail chains). They are essentially branch structures managed by the parent company. Vertical holdings are the association of enterprises in one production chain (extraction of raw materials, processing, production of consumer products, sales). This is how most oil holdings are structured. Diversified holdings are an association of enterprises that are not directly connected by either trade or production relations (for example, AFK Sistema, Basic Element, Alfa Group).
Based on the degree of centralization, holdings can be placed between two poles. At one extreme are financial holdings. They consist of independent business units with weak ties to the management company. The functions of the management organization consist primarily of financial control, carried out by budgeting profits and cash flow.
At the other extreme are industry holdings. They usually develop only one line of business, but have several earning divisions that either operate in different regions or produce different products. An example would be agro-industrial or metallurgical corporations. In such companies, management is usually centralized. Between these two poles there are holdings in which the features of financial and industrial holdings are mixed in different proportions.
General Director speaks
Evgeniy Dobrovolsky, General Director of OJSC Holding Company Vladimir Textiles
In the financial structure of our holding, the cost centers are production, the profit centers are the trading house and the purchasing (tolling) company. In accordance with this scheme, the indicators of industrial sites are related exclusively to their production activities - the volume of output and its cost in terms of processing costs. Directors of enterprises are concerned only with such issues as modernization of production, repairs, spare parts, and wages. All profit-related indicators are the responsibility of profit centers.
This structure makes it possible to optimally use the opportunities that exist in Russia today. Objectively speaking, at this stage, production workers are not ready to think “commercially.” Marketing, and especially cost thinking, have not yet reached such a level that the director of an enterprise, taking management decisions, reasoned from the position of the market. Therefore, today such a financial scheme is the most effective and transparent - both for the top management of the management company and for the owners.
We have centralized management decisions within the holding as much as possible. Business units are independent only when solving specific problems within the approved budget limits.
Unfortunately, the qualifications of regional managers do not yet allow us to delegate financial responsibility more widely. Tight control from the center turns out to be more effective.
Last spring, accounting, management accounting and budgeting in the holding were combined and fully automated. To make management decisions, we have developed a unified reporting system and data consolidation rules. The Unified Register of Management Accounting provides us with the unification of all data collected at different enterprises.
2. Decentralized holding
In the case of decentralized management, the emphasis is on unifying the management reporting of each business unit in terms of methodology and reporting forms. Before building the financial structure of such a holding, it is necessary to develop a unified management reporting and budgeting system for all business units. If this is not done, management profit in profit centers will be calculated using different methods and the results of the divisions will not be comparable (see Errors when developing financial statements in a holding company).
Such holdings face tasks that are irrelevant for centralized holdings. For example, distribution of costs of a management company across business units. This is necessary to calculate the profitability of each profit center, as if they were independent companies and would have to employ marketing specialists, human resources, lawyers, etc. on their staff.
In holdings with decentralized management, organizing the internal corporate reporting process is more difficult. After all, it is necessary to develop a unified methodology for collecting financial information, train people locally and fine-tune the preparation of reporting. Practice shows that it takes about one to two months to develop a methodological basis for management reporting. It takes from two months (for medium-sized holdings) to six months (for large ones) to train profit center specialists and fine-tune the process. During this period, here and there errors, inconsistencies, and delays in reporting to the management company arise. The time schedule for the development and implementation of the budget process at the level of the holding as a whole is approximately the same.
A practitioner tells
Lyudmila Kutueva, financial director of the Bekar group of companies, St. Petersburg
Our business units are profit centers. These are independent units that must earn money. Remuneration for managers depends on the financial performance of the division.
All of our business structures operate in the same area – real estate. But their profiles are different: advertising services, building management, services for the purchase, valuation, leasing of commercial premises, etc. For each business unit, we maintain management accounting separately, but there are also centralized accounting and financing. Our information system allows us to consolidate all data at the level of the holding as a whole, and to maintain separate detailed records of any, even the smallest division. There is a service department, which includes lawyers, financiers, and accountants. Internal prices have been introduced for the services of department specialists; costs are distributed between companies depending on turnover and volume of services. We approach each enterprise individually and review prices once a year.
If a new earning division is formed within the company, we separate it into an independent profit center. It continues to be administratively subordinate to its director, but a different degree of responsibility appears. Managers of business units are very interested in their division becoming a profit center - managers begin to receive a percentage of the net profit, and a person is interested in making money, he sees an incentive, his work is appreciated.
Relationships between the center and business units
An important tool for the internal work of a holding is the regulation of relationships between the management company and business units. Moreover, ideally, separate regulations should be developed that define the procedure for interaction in each area of activity of the management company - in the field of finance, marketing, sales, personnel, advertising, PR, etc.
It is logical to entrust the process of developing regulations to specialized specialists of the management company. But, of course, if management in the holding is decentralized, profit centers must also be involved in the process. The most important thing is to agree on the division of powers and responsibilities between the management company and departments. Most problems in Russian holdings arise precisely because of blurred lines of responsibility. The General Director of the holding should act as a moderator of the process of developing regulations.
Perhaps the most pressing question in organizing interaction within any holding is: is it worth relying on the service divisions of the management company or is it more profitable for each business unit to maintain its own marketing departments, personnel, PR service, etc.? There is not and cannot be a single recipe.
In one holding, the management of business units is ready to form their own service divisions, and in another, they are ready to trust the choice of the management company. This is a question of the power and authority of the center. In the quitrent holding described above, there was formally a management company. But it was weak, the qualifications of the financiers were low, so over time the profit centers became isolated and submitted pro forma reports to the management company, allowing themselves to ignore the requests of its economists and marketers.
However, it is possible to make an economic justification for deciding what is better – paying for the services of a management company or maintaining your own cost center staff. To do this, you need to compare the amounts that profit centers would pay for their own cost centers, if they were independent players in the market, with the amounts of general holding expenses of the management company distributed to profit centers according to the selected distribution base.
General Director speaks
Kirill Podolsky, General Director of OJSC Yugtransitservice, Taganrog
Our company is a vertically integrated holding. It includes enterprises located in the Rostov region: four elevators (with a total capacity of 486 thousand tons), two of which are sea transshipment complexes, as well as an agro-industrial complex (18 agricultural divisions).
The holding has two profit centers – trade and agricultural production. General management is carried out by the management company - OJSC Yugtransitservice. It employs 64 people. The JSC owns controlling stakes in all subsidiaries and is the issuer of the bond issue. All functions of the executive bodies of subsidiaries were transferred to the joint stock company "Yugtransitservice": unified financial service, accounting, treasury, legal department, property management department. Preparation of management reporting is also the task of the parent company.
There are two more management companies - LLC "UTS-Agroproduct" and LLC "UTS-Agroproduct 2". They are assigned executive functions and manage agricultural producers. The legal department, treasury and other services are still located in the higher management company (JSC Yugtransitservice).
The assets we acquire must support our core business of producing and trading grains and oilseeds. The only non-core asset in the holding structure is Travel City CJSC (trademark Avantix.ru). The company was acquired in 2002 as a promising business project with a large trade turnover and high profitability. Avantix.ru is an online resource that provides services for booking international and domestic directions, hotels and train tickets. The company is one of the top ten leading agents for most airlines operating in Russia.
Now we are trying to change the management scheme to make it more suitable for a holding company. A collective governing body will be created that will unite the main managers of the areas and will allow ordinary employees to better understand the structure of the holding.
Errors in developing financial statements in a holding company
When a financial director and his team start working in a holding company, the implementation of management reporting usually proceeds in two directions at once. First, “top-level” reports are prepared: balance sheet, profit and loss statement, cash flow statement and capital flow statement. Secondly, “lower level” documents: detailed reports on sales, production costs, taking into account direct and indirect, as well as variable and fixed costs etc. Sometimes you have to observe how financiers first of all develop reports of the “lower level”, without thinking that the final figures in them should correspond to the indicators of the “upper level” (for example, the amounts of production costs in the reports of both levels should coincide).
I have seen many cases where a CFO has been trapped by shareholders' misconceptions about management reporting, budgets and other financial matters, and ultimately the lack of performance results in his dismissal.
For example, the financial director of one industrial enterprise, following the lead of management, prepared a single report - the monthly movement of the enterprise's working capital (that is, deployed short-term assets minus deployed short-term liabilities). There was no talk of any balance sheet or profit and loss account. Timid attempts by the CFO to implement them were rejected because “these reports don’t show anything interesting.” However, the business began to expand rapidly, and two more similar enterprises appeared. The only report on the movement of working capital could no longer objectively reflect the financial condition of the holding.
As a result, we still had to develop generally accepted management reports, a methodology for reflecting business transactions in them, and a mechanism for consolidating reporting. But this was already done by another financial director.
Bibliography
To prepare this work, materials from the website http://www.gaap.ru were used
A holding company (holding) is a system commercial organizations, which includes a “management company” that owns controlling stakes and/or shares subsidiaries, and subsidiaries. A management company can perform not only management, but also production functions. A subsidiary is a business company whose actions are determined by another (main) business company or partnership or by virtue of a predominant participation in authorized capital, either in accordance with the agreement concluded between them, or otherwise (clause 1 of Article 105 of the Civil Code; clause 2 of Article 6 of the Law on Joint Stock Companies; clause 2 of Article 6 of the Law on Limited Liability Companies).
Holding companies are emerging all over the world under the influence of integration processes common to all countries. Why do companies unite into a holding company, and not create a concern, conglomerate, or trust?
Holdings are formed for a specific purpose. This is, as a rule, conquering new market sectors and/or reducing costs. Both of these factors increase the value of the company, its capitalization, and to achieve this goal, the effective operation of the entire system, and not just the management company, is necessary.
It should be noted that the value of the holding’s shares also increases only when efficient work the entire system (all its parts - the management company and subsidiaries).
IN Lately The corporate world has been swept by a wave of mergers and acquisitions. Everyone is uniting: car manufacturers, communications specialists, power engineers, computer scientists, financiers.
Let's consider the ways in which commercial organizations can unite into holding companies.
(a) Holding companies can be created, for example, through successive acquisition or acquisition of control over companies that are united by one type of business (mechanical engineering, food industry, agriculture, etc.). This is the so-called "horizontal integration".
The main goal of such holdings is to conquer new market sectors. An example here is the fact that at the beginning of the year, the heads of the leading British tobacco companies British-American Тbacco (BAT) and Rrothmans International, which rank second and fourth in the world in terms of sales, announced plans to create a single concern that would become the largest global manufacturer of tobacco products. The transaction amount is estimated at £13 billion. New company with total sales of 21.32 billion dollars and a capacity of 1 trillion cigarettes per year will control about 17% of the world market.
(b) The second way to form holding companies is to combine enterprises with a single technological cycle (from raw materials to finished products). This is the so-called "vertical integration".
The main goal of such a merger is to reduce overall costs, achieve price stability, and increase the value of the company. An example is the merger of a power plant and a coal mine in the Primorsky Territory at the end of last year. From the Primorskaya State District Power Plant and the Luchegorsky open-pit mine, the LuTEK company was formed, the controlling stake of which went to RAO UES of Russia. The goals of this bold experiment were quite clear - to reduce the cost of electricity (and this is a serious problem in the Primorsky Territory) and to fairly distribute money between power engineers and coal miners. Thanks to this merger, production volume increased by 6%, the cost of coal decreased by 3%, electricity by 17%, and profits increased by 59%.
(c) Holding companies can also be created through the sequential creation of enterprises and their subsequent accession to the group. This is exactly how the “steel king” Andrew Carnegie acted almost 130 years ago. In his autobiography, he writes that only after the enterprise he created had proven its effectiveness did he include it (in one way or another) in his group.
This policy allowed him to avoid large losses due to ineffective operation or bankruptcy of the new enterprise. McDonald's also adheres to the tactics of sequential accession. As a contribution, it transfers a trademark, management technology, etc.
(d) In practice, there are examples of mergers not only of individual commercial organizations, but also of holding companies. For example, the merger of a well-known steel concern in Germany and a similar one in the Netherlands was implemented as follows. Their owners: the companies KN Hoogovens NV and Hoesch AG created on a parity basis (50% x 50%) the management company Estel NV to which they transferred 100% of the concerns' shares as their contributions.
(e) Transnational and national companies are united according to similar schemes. When the largest Belgian and Indian beer concerns merged, the following scheme was implemented. Having established the management company SUN-Interbrew (based on Sun-Brewing) on a parity basis, each received 34% of the shares. As a contribution to authorized capital The Belgians transferred shares of the Rossar and Desna factories, the Stella Artois beer trademark, plus $40 million. Indians - shares of factories and distribution network. In addition, 32% of the shares of the new company will be sold by public subscription.
(e) A significant number of holding companies were also formed through “division” big companies during their restructuring. This method was typical for many Russian enterprises in the early 90s during the transition to self-sufficiency. The transformation led to the creation large number subsidiaries (former production facilities) with 100% participation of the parent company.
All of the above procedures for the formation of holding companies can be carried out as follows:
By purchasing shares on the secondary market, which is carried out by a broker;
By exchanging shares specially issued for this purpose by each enterprise. This is exactly what the general director of Uralmash Plants, Kakha Bendukidze, did to gain control over Izhora Plants (each group was a holding company). To do this, he carried out an additional issue and exchanged the entire package of the additional issue for the already existing package of Izhora Plants. Due to the difference in the value of the shares, he received control of the plant for a small percentage of his shares.
By creating a special management company, where the founders transfer stakes in enterprises that they want to include in the holding. At the same time, the transferred shares of the enterprises were exchanged for issued shares of this company.
By transferring keys, for of this business, patents, copyrights, know-how ( example - company"McDonald's").
Recently, in our country, an aggressive method, popular in the West, of gaining control over companies through bankruptcy procedures has begun to be used. “A rigid and closed system of property redistribution has formed in the bankruptcy market,” writes Expert. Moreover, you can gain control over a competitor or even buy it by acquiring the debts of this enterprise and carrying out the necessary actions determined by bankruptcy law. By the way, the bankruptcy procedure is widely used for transformations and division of parts of holding structures, alienation of part of a group with subsequent inclusion in its own holding. Let's quote Expert magazine again - "Ninety-five percent of today's bankruptcies in Russia are carried out for the purpose of redistributing property... and occur as part of the process when any commercial structure builds its vertical...". One can recall, for example, Mr. Bykov’s attempt to gain control over the entire energy sector of the Krasnoyarsk Territory and his conflict with Governor A.I. Swan.
Judging by the publications of Expert and Kommersant, this is an almost universal way of acquiring enterprises in Russia.
This can be indirectly judged by the activity of our legislators, looking at the monitoring of legislation. For example, the latest instruction of the Central Bank of the Russian Federation regulating the procedure for replacing bank liabilities with their convertible liabilities - the owners of these liabilities can exchange them for shares of the debtor bank and then sell its property. It should be noted that another way of forming holdings (both “from above” and “from below”) is the association of manufacturers and financial structures. For example, the purchase by a bank of blocks of shares in enterprises led to the fact that banks began to own blocks of enterprises from different industries of different sizes.
After some time, banks were forced to create management companies, to which they transferred blocks of shares of enterprises from one type of business, and the “extra” enterprises were forced to “dump”. This is what Menatep Bank, Onexim Bank and others did.
Formation “from below” occurred when industrial enterprises, in order to attract investments and increase attractiveness, together with an investor (often with a group of investors who form a syndicate) created a management company. Shares of shares were determined based on an assessment of the value of enterprises and the shares of investors.
To implement this procedure, an emission prospectus is prepared and placed: private (as in this case) or public. Unlike the case of a separate enterprise, a private placement is almost always used to create a holding structure. Often, mergers, divisions and acquisitions are carried out in already created and successfully operating holdings.
Holding management
In accordance with the law, the management of the holding, like any joint-stock company, is carried out through meetings of shareholders, boards of directors, and the executive directorate. However, for holding structures, the main shareholders are clearly defined and it is they who exercise (through the management apparatus) management of the entire group. There are features of the implementation and division into parts of a group of control procedures. At the highest level of the holding (as at all levels of complex holdings), the scope of management functions can vary significantly depending on the legal capabilities and preferences of the owners of each level.
IN different types associations may use different management components. The minimum amount of management (management components) is carried out in the cartel: marketing and business planning, common to all enterprises included in the association; a higher level of management in financial and industrial groups, where in addition to marketing and business planning, financial management is also carried out; in the syndicate, in comparison with the previous structure, instead of financial management, there are such components as logistics and a management system common to all enterprises included in the association; in industrial and commercial groups, financial management is combined with logistics and a unified management structure. The highest level of organization is carried out in the concern, where all management components are present: economics, business plan, marketing, accounting, finance, logistics and structures. Moreover, it must be said that during the course of its existence, a holding company can change the scope of management elements - from a cartel to a concern or vice versa.
Most often, in a complex holding company, the number of management functions increases as you move to the lower level of the group.
Formally, the management procedure is determined by law. For many holdings, the main shareholders of the holding's management company have a majority, both at the meeting of shareholders and in the boards of directors, and can carry out all the management decisions they need.
Recently, in Russia, a method popular in the West of increasing manageability by placing top managers in key positions of the holding has begun to be used. To provide effective management Various methods of motivating (stimulating) top managers are widely used. Most companies transfer to them a share of shares, the value of which increases with the efficient operation of the enterprise, and the managers themselves are partners. Another method is proposed by Richard Braley (author of the monograph "Corporate Finance") in his article "Options vs. Limousines." This is an agreement on the right of a manager to buy a certain number of company shares at a fixed price within a certain period of time and sell them at the price of current market quotes (option). In addition to incentives, it is also practiced to conclude “rigid” contracts between the board of directors (i.e., key shareholders) and top managers, which makes it possible to control their activities.
Thus, the organizational and legal procedures listed above are actively used in Russia as management techniques at all stages and levels of the functioning of holdings.
As the sole executive body (SEB), ensuring the implementation of management decisions, the legislation provides, firstly, for the election (appointment) of a general director (director), and secondly , transfer of these functions to a management organization or manager. We will not compare options such as electing (appointing) a general director and transferring the corresponding functions to a manager: in both cases we are talking about individuals, only the general director works on the basis employment contract, and the manager - within the framework of a civil transaction. However, from the point of view of management organization, this is not of fundamental importance. The key difference is that in the first case, management is entrusted to a person, and in the second, to a company.
The business community has not yet developed a clear understanding of what a management company (MC) is. In general, the activities of the management company are regulated by Art. 69 Federal Law of December 26, 1995 No. 208-FZ “On Joint Stock Companies”, Art. 33 and 42 Federal Law of February 8, 1998 No. 14-FZ “On Limited Liability Companies”, Art. 3 Federal Law of November 29, 2001 No. 156-FZ “On Investment Funds”.
The management company is entity in the form of a JSC or LLC, which specializes in performing management functions and has the necessary resources for this. The main product of the management company – a solution aimed at achieving the goals set by the customer in the current conditions and taking into account the existing resource base. This is where the main advantage of a management company over a person manifests itself: it specializes in decision making and has appropriate support.
The management company, as a rule, has the necessary staff, infrastructure (including that used occasionally, but in different projects, due to which they decrease total costs). Infrastructure elements may include consultants and advisers on certain issues, bodies and persons who help make decisions in complex or ambiguous situations, etc. Moreover, such elements are “customized” to perform specific tasks and interact with certain people, which increases and efficiency and work efficiency. The specialization of a management company in management functions allows it to attract qualified specialists who are not only trained, but also “tuned” to business management. The opportunity to exchange experience and professional growth, participation in various projects, well-established information support contribute to maintaining high level training of specialists involved in facility management.
In addition to human resources, the management company also has other resources aimed at the optimal implementation of management functions, including various “know-how”, technologies for making and implementing decisions, and established relationships with scientific and expert organizations. All this significantly reduces the risks of owners who entrust their business to a management company.
Management companies may specialize in specific business, but can manage enterprises operating in various sectors of the economy (although the attraction to one particular industry can still be traced).
Specialization allows you to minimize costs through the use of uniform management technologies, performance indicators, techniques and control methods. The downside of this advantage is, as a rule, dependence on the chosen model, therefore, if the new client’s business does not fit within the framework of the proven system, then “everything unnecessary” will be cut off from it.
A management company with a broader specialization in most cases takes into account individual characteristics facility, but this requires different qualifications of employees, slightly different resource availability, and the availability of certain technologies. In holdings with diversified subsidiary businesses, employees of departments managing subsidiaries and affiliates are forced to work in similar conditions. Such functions can be implemented in a specialized company and are available not only to large holdings, but even to individual entrepreneurs.
As a rule, the activities of a management company are organized on a project basis. Moreover, many specialists are involved in the management of each project, whose teamwork ensures not only quality, but also the necessary speed of decision-making in various situations, including crisis ones.
Today, management companies often resolve issues related to the problem of preserving property, so the main focus of their work is legal support of activities and corporate procedures. It is noteworthy that even simple organization of documents improves the performance of the client organization, which indicates the presence of significant hidden (including from the owners) reserves for increasing efficiency.
In case of business management management companies re set a set of tasks aimed at achieving the set goals : from implementing corporate procedures to ensuring the functioning of plumbing .
Of course, comprehensive service is not the most typical option for interaction between the management company and the client. As a rule, we are talking about performing special functions: implementing corporate procedures in the reform process, preserving and protecting property during corporate wars, etc. However, the potential of a management company is much higher. Their tasks include, but are not limited to:
Setting up management systems when the owner delegates powers. In this case, the management company essentially acts as a playing coach and, ultimately, transfers well-established management to the top manager;
Temporary replacement of the head if any obstacles arise to his performance of the functions of the sole executive body;
Business management in the event of the owner’s retirement;
Management of subsidiaries and/or dependent companies of the holding. This is especially appropriate if there are a small number of them, when there is no point in creating a special system for managing “subsidiaries”; or if there are non-core businesses, for the management of which you do not want to divert the holding’s resources;
Turnkey business organization;
Repurposing an existing enterprise.
The list, of course, is far from exhaustive. A management company is an organization specializing in management and capable of solving a significant number of core problems.
In addition to the above, we can highlight the following tasks, the solution of which is advisable to involve a management company:
Implementation of corporate procedures during the reorganization of a company in the process of its privatization;
Management during a crisis and during corporate conflicts, which is advisable from the point of view of ensuring business security;
Management of property complex of real estate objects.
To minimize the risks of the management company itself, various organizational mechanisms are provided. For example, the formation of insurance funds and other liability insurance instruments. Risks associated with decision-making are virtually negated by the organizational characteristics of the management company (qualification and experience of personnel, availability of developed infrastructure, use of specialized decision-making methods, etc.). Some risks can be significantly reduced at the stage of concluding a contract, others - through the organization of competent document flow and interaction between the contractor and the customer.
The management company, as well as the general director, is chosen by the owner, and the main selection criterion is trust. However, it can be caused both by the personal affection of the owner and by the professionalism of the candidate (It would be appropriate to remember here that “ good man– this is not a profession”).
We often hear that the business reputation of the applicant significantly reduces the owner’s risks. But for this tool to work well, a number of conditions must be met. First of all, we are talking about the transparency of activities, the presence of a “managerial history” of a potential leader, effective ethical regulators, the existence of certain social mechanisms, that is, about those conditions that are not yet fully developed in Russia. That is why reputation mechanisms are not yet working effectively. Having experience in successfully completed projects does not mean that a potential manager will be able to handle the next one.
So, comparing a management company with an individual performing the functions of a sole executive body, we can identify the following features:
Status (legal entity with authorized capital, legal address, etc.);
Availability of specialists in various fields, own infrastructure, information support, an established system of advanced training and exchange of experience, etc.;
The management company is not a person, which allows minimizing the risks associated with the human factor: the presence of procedures that ensure the formation of an optimal style and strategy for each management object management activities, as well as timely change them if necessary;
The ability to ensure the concentration of resources to quickly and efficiently complete assigned tasks.
Let us note that one of the main advantages of a management company is its non-human nature, which allows, thanks to the presence of certain bodies, procedures and technologies, to compensate for the influence of the human factor. Therefore, when choosing a management company, it is advisable to make sure that the company’s properties really allow it to realize this advantage.
A specialized organization in almost any type of activity has potential advantages over a specific professional, even a top-class one. Since a functional manager can afford to defend the interests of his direction, in each specific case there are quite clear parameters of optimality, but in the absence of clear, unambiguous criteria, a person will not be able to completely abstract from his personal preferences and inclinations.
In fact, making an integrated management decision is not exactly a “human” job. The leader must rise above his “I”, ceasing to be himself for a while and turning into a “decision maker”. Such a need can lead to internal conflict, psychological discomfort, and stress. In this situation, a top manager will be required to have either “superhuman” qualities or special qualifications and psychological training. There are very few people who are actually capable of transforming into a “decision-making machine”. This is why today there are quite a lot of effective functional managers and so few top managers ready to perform the functions of a general director.
Another way out of this situation is to create a system that allows a certain number of people to perform the task of managing a business. For this purpose, special collective bodies are formed, special procedures, methods, and tools are developed. However, this process can take considerable time, and again, people will be required who can fill these mechanisms with life. Therefore, as a solution to the problem, management companies are involved, where these technologies have already been formed. The management company, moreover, changes its management style depending on emerging tasks and developing operating conditions. Moreover, the use of certain tools allows you to quickly identify the need to change the style and composition of specialists. For example, when crisis situations arise, managers who are able to “resolve” them are involved in management. For this purpose, the management company has developed procedures for identifying crisis situations and attracting the necessary specialists.
The first Russian management companies (MCs) “grew out of project teams for anti-crisis management of a holding-type organization.” At first, such companies were used to consolidate the ownership of the holding and manage the property complex. As practice has shown, with the help of a management company it is easier (compared to the management mechanisms existing in the holding) to create tools for control and ensure their functioning. These include:
Unified planning system;
Centralized financial management;
Unified performance standards.
In addition, by attracting a management company, it is possible to reduce the total costs of subsidiaries to perform management functions in several areas:
1. Minimizing duplication of management functions most relevant for single-profile subsidiaries, the management of which requires the same work (marketing research, R&D, procurement management, training of specialists, quality assurance, etc.).
2. Economies of scale when organizing centralized procurement associated with deepening production specialization and ensuring financial synergy through intragroup lending. Additional economic effect can be achieved by increasing purchase volumes, which, in turn, is due to:
Reduced prices for centralized purchases of materials and components, including materials for advertising and marketing purposes;
Better lending conditions with centralized organization of credit lines.
3. Setting up internal control and audit systems implies the use of unified, proven methods of management accounting and internal audit in each of the holding companies, allowing for improved economic results by reducing excess costs.
As a result, the creation of a management company allows you to separate production, trading business and holding management, as well as create a separate legal entity based on the management cost center. At the same time, the contractual nature of the relationship between the management company and the managed subsidiaries creates the prerequisites for the effective distribution of management costs. The costs of managing the development of the holding should include, among other things, the costs of managing each of the subsidiaries.
An example of the use of a management company in the process of reforming a holding company is the creation of UES engineering centers on the basis of energy design institutes. In this case, the powers of the sole executive bodies were transferred to several key institutions - future corporate centers of unified engineering centers (Ural, Northwestern, Southern, Siberian, Volga and Far Eastern). As a unified management system was formed, the companies were annexed to the management company and transformed into branches of engineering centers. The goals of attracting a management company were not only to reduce economic, technological and social risks associated with the reorganization project activities, but also the timely implementation of all measures to reform institutions.
In addition to achieving the specified goals, the transfer of powers of the sole executive bodies of the holding to the management company provides the holding’s shareholders with a number of additional advantages. Let's list some of them.
Centralizing the management of reorganization projects allows us to reduce the risks of the transition period, namely economic, social and technological risks associated with changing the existing structure of the holding. The management company is entrusted with planning and elaboration of organizational, personnel, legal and financial aspects of the transformation; project implementation management; accompaniment or holding of individual events.
The presence of the holding management's plans related to the further expansion of the holding increases the importance of the management company as a center for managing reform projects. The accumulated experience in business reorganization will help improve the efficiency of similar projects in the future.
Along with reducing the risks of reorganization of the holding, the involvement of a management company will help resolve a number of issues related to changing the management system within each subsidiary of the holding, such as:
Improving the organizational structures of managed companies;
Regulation of management processes;
Appointment of more competent (or more loyal) specialists and managers to key positions;
Improving the personnel motivation system (production, sales, management).
As an example of solving the above issues, we will cite the creation of the management company EvrazHolding LLC, created in November 1999 within the EvrazHolding group, the largest participant in the Russian ferrous metallurgy market. A significant part of EvrazHolding's assets was acquired by it in the process of managing crisis enterprises. Having managed the Kuznetsk Metallurgical Plant since December 1999 during the bankruptcy period, EvrazHolding acquired its property during bankruptcy proceedings, creating the Novokuznetsk Metallurgical Plant on this basis. He became the owner of 68% of the shares of the West Siberian Metallurgical Plant in the summer of 2001 after placing an additional issue by private subscription among bankruptcy creditors. Currently, EvrazHolding provides operational management of the Nizhny Tagil, West Siberian and Kuznetsk metallurgical plants, the Novosibirsk Metallurgical Plant named after. Kuzmin, the Kuznetskugol association, as well as a number of other mining and coal companies.
To strengthen the control of owners over the activities (MC), it is necessary, on the one hand, to “attach” the management team to the business and stimulate increased efficiency of production and sales; on the other hand, to ensure the responsibility of managers for the results of their activities. The use of a scheme for involving a management company as a sole executive body allows for the introduction of the best management experience in all subsidiaries of the holding, which makes it possible to increase the efficiency of management departments.
The practice of creating a management company controlled by key shareholders as the sole executive body of the holding’s management indicates the need to carry out work in the following areas before starting structural reforms:
Separation of powers of the executive body (management company) and corporate governance bodies (boards of directors, supervisory boards, general meetings of shareholders);
Distribution of functions and establishment of the order of interaction between management levels;
Design of the organizational structure and preparation of internal organizational and administrative documentation of the management company and managed companies;
Planning of financial flows and justification of the system of mutual settlements between the management company and managed companies; development of a personnel transfer scheme;
Providing information support on reform issues for personnel and counterparties of the holding;
Additional agreements with shareholders on business issues;
Preparation of agreements between the management company and managed subsidiaries (transfer of powers and service agreements).
In addition, it is very important at this stage to develop a comprehensive change management program, as well as be prepared to quickly make any management decisions.
It must be emphasized that if previously management companies were created to solve strategic problems extremely rarely, then recently management companies have been created for strategic management and coordination of the activities of all enterprises of the holding, providing them with their own management.
Management companies have been created according to this type in the investment and construction holdings LenSpetsSMU, Petrotrest, etc.
However, in the practice of holding management there are other examples when, after implementing anti-crisis measures, the management company as the sole management body was abolished, and the management functions of the management company were transferred to the parent company headed by general director. In this case, management decisions are developed by the board headed by the general director, who is the sole executive body (SEO), ensuring the implementation of management decisions.
| Previous |
The question of the role of the management company and the functions it performs in relation to business units is extremely relevant in the conditions of modern Russia. This is due to the fact that the process of creating holdings is now in full swing. This process began around 1989, and by the mid-90s it had become widespread.
At the beginning of this process, the main task of the management companies of the newly created holdings was to “seize” property. And for this, in addition to political influence, it was necessary to have sufficient financial resources.
Therefore, the first holdings began to form either around large banking or financial structures, or around large exporters of raw materials. You don't have to look far for examples. The famous “seven bankers”, in fact, was an association of seven large financial and industrial holdings. The role of the management company in such financial and industrial holdings was played by a large bank, which not only acquired industrial enterprises, but also managed them. Businesses were acquired in a largely haphazard manner, resulting in the formation of huge, poorly structured conglomerates consisting of enterprises in various industries.
The function of the management company in such a conglomerate was to capture and retain enterprises. At the same time, the main attention was paid not to the economic efficiency of activities, but to the possibility of control over the financial flows of dependent enterprises.
However, by the end of the 90s this path had exhausted itself. This was due to the fact that most of the state property was privatized, and no one wanted to start a big “war” for the redistribution of property. In addition, at the same time, prices for major export goods fell. And many enterprises began to reorient themselves towards domestic consumers. The 1998 crisis raised the issue of the need to increase the competitiveness of Russian holdings even more acutely.
Similar problems arose before American corporations in the early 20s of the last century. “We were saddled with expensive inventories and obligations at the old inflated prices. We were short of cash. Our assembly line was far from ideal. Control was imperfect, there was a clear lack of operational and financial controls, and there was also a lack of adequate information. In short, it was hardly possible to imagine the large scale of the crisis.”3 Alfred Sloan said this about General Motors in the early 20s, but everything said can be applied to domestic enterprises in the mid-90s.
Russian holdings in the mid-90s, like General Motors in the early 20s, faced the question of increasing economic efficiency and competitiveness, which required restructuring their management systems.
The reforms carried out by Alfred Sloan at General Motors from 1921 to 1925 led to the creation of the world's first holding company in the form in which we now understand the term. A. Sloan was found organizational decision for large complex productions of the mass production era.
Russian holdings followed the same path as General Motors. Increasing economic efficiency required, among other things, optimization of the overall corporate management system and a clear definition of the place and role of the management company.
In order to understand the place of the management company in the new management system, you first need to answer two questions: why is a management company needed and what functions should it perform?
Answering the first question is not as simple as it seems at first glance. The management company is not directly involved in creating value for the consumer, but at the same time requires expenses for its maintenance. From an owner's perspective, it is much easier to personally own shares in business units rather than create a separate company. The question inevitably arises: why are management companies created?
The answer is provided by world practice. The main task of the management company is to achieve a synergy effect from the activities of business units5. The term “synergy” is very popular in economic literature and among consultants, but it is not always clear to an entrepreneur how to achieve it. Let's try to figure this out.
There are two types of synergy: system synergy and synergy from the transfer of competence.
Systemic synergy can be achieved either through the centralization of individual business processes, or through the integration of enterprises along the value chain.
An example of the centralization of business processes is retail chains. Stores belonging to the same retail chain have a centralized system for purchasing goods and a unified logistics service. In this case, the management company either handles the procurement itself or coordinates this process. This achieves economies of scale that are not possible with decentralized procurement activities.
Integration of enterprises along the value chain leads to the creation of vertically integrated holdings. In this case, the synergy effect will be less significant than with the centralization of business processes, but it will still be there. Clearer communication between integrated businesses allows, for example, improved planning and reduced downtime, which leads to increased utilization production capacity. An example is oil companies that integrate oil production, refining and gas station networks.
The synergy from the transfer of competence is that the management company has some unique competence that can ensure competitiveness in the market. When an enterprise is included in a holding, this competence is transferred to the newly acquired business unit.
An example of such synergy is the experience of General Electric. General Electric's key competency is the ability to create effective management systems. Synergy is achieved due to the fact that a system for improving management efficiency is being implemented in each business unit, i.e. General Electric achieves the competitiveness of its business units through the transfer of management know-how. This allows General Electric companies to be leaders in their markets.
Having decided on the role of the management company in the holding structure, it is necessary to decide which functions need to be centralized in the management company and which should be transferred to business units.
Typically management companies perform the following functions:
- maintaining relationships with the external environment. The management company organizes a dialogue with shareholders and financial market participants and provides them with the necessary information about the activities of the holding. In addition, an important function is lobbying the interests of the holding in government bodies;
- redistribution of financial resources between enterprises in order to implement the investment strategy, thus, the management company becomes the credit center of the holding;
- ensuring general financial control over the activities of individual enterprises. At the same time, the management company develops and implements a unified system of accounting, control and analysis for all business units included in the holding;
- Definition of overall corporate strategy. A corporate strategy usually contains decisions about which businesses to buy and which to sell, decisions about the size and direction of investments, and often competitive strategy;
- creation of a general corporate culture. It is extremely important for holding companies to unite employees of individual enterprises into a single company. In addition, one of the tasks of the general corporate culture is to develop a unified system of values common to all companies of the holding;
- maintaining and developing key competencies critical for achieving the competitiveness of individual enterprises, as well as organizing a knowledge management system unified for all holding companies;
- coordinating the activities of individual companies to ensure effective cooperation;
- selection and development of top managers of individual companies, as well as the development of a system of their motivation and remuneration.
The exact set of functions for each specific management company is determined based on the management style6 that it applies to the business units of the holding.
The most common operating styles of a management company include: financial control, strategic control and strategic planning. Much less common are four other options: centralized management, holding company, strategic programming, and strategic risk initiative.
Let's take a closer look at the three main management styles.
Financial control is usually used in holding companies that own a large number strategic business units of different types of activities. At the same time, the connections between these business units are very weak, and the technologies they use are simple and stable.
The success of companies using financial control is largely determined by the ability of the management company’s management to force top managers of business units to “produce” the required financial result at any cost.
Therefore, the main functions of the management company are approving the budgets of strategic business units and determining the size and direction of capital investments both at the level of individual business units and the entire holding as a whole.
Business unit managers are required to stay within the budget allocated to them. Those who fail to stay within budget are replaced.
Disadvantages of financial control include insufficient attention of owners (managers of holdings) to the role of the management company in general corporate planning and implementation of business development strategies. In addition, in practice, holding management systems built on the principles of financial control do not always contribute to achieving synergy between different parts of the group.
The advantages of financial control are the simplicity of the corporate management system and decentralization. Holdings that use financial controls typically achieve good earnings per share growth, primarily through acquisitions and divestitures.
Companies using this management style typically own a relatively small number of core business units and strive to achieve strategic competitive advantages, producing general plans for their units and coordinating their execution. Corporate strategy is not simply the sum of the plans of strategic business units, it is designed to ensure their synergies. The financial activities of a corporation are usually subordinated to the implementation of long-term strategic objectives.
The benefits of corporations using strategic planning include bold strategic steps supported (and sometimes initiated) by the management company. Their main disadvantages include the high probability of loss of objectivity by the management company, which loses the ability to exercise truly strategic control. Hence, successful work holding depends primarily on the qualifications of the top managers of the management company and the reasonableness of their policies. Management mistakes lead to planning that takes too much time and a decrease in the motivation of employees of strategic business units.
The strategic control method is an intermediate management style between strategic planning and financial control. In companies that use it, the management company usually understands well the importance of coordinating the strategies of business units, but gives their top managers freedom to develop plans for activities. Subsequently, these plans are analyzed, adjusted, and on their basis a unified strategy for the corporation is developed.
The management company can “forgive” weak financial performance if the market situation forced top managers to sacrifice short-term profits in order to achieve long-term goals. Long-term strategic planning is combined with strict control of achieved results.
The advantage of strategic control is a balanced compromise between the high independence of business units (decentralization) and the coordination of their strategic plans (synergy).
Decentralization allows for the rationalization of the corporation's investment portfolio, stimulating strategic business units to achieve specific results and take initiative (as a result of increasing the degree of decentralization).
Coordination improves the interaction between the management company and business units, the role of long-term planning increases, and it becomes possible to reduce current profitability indicators in order to achieve strategic goals.
TO negative aspects strategic control can be attributed to the difficulty of choosing objective criteria for monitoring the work of business units, the reluctance of the management company to concentrate on solving strategic problems, its reluctance to large operations to capture competitors, lack of clarity in the choice between financial and strategic goals.
This management style is not suitable for highly diversified holdings; it turns out to be most effective in corporations whose divisions are engaged in similar types of activities. Only then does the management company have the opportunity to delve into all the details of their activities.
Considering various styles management, it is interesting to analyze the dependence of the size of the management company on the chosen management style. The smallest size will be for a management company that uses the principles of financial control. The number of personnel in this case reaches 40-60 people, depending on the size of the holding. With strategic control, the number of employees increases to 80-100 people. The largest management company happens when using strategic planning. The number of employees is 190-200 people.
World practice shows that there is a tendency for management companies to transition to softer management styles - strategic and financial control. The turn of the century brought several examples of the transformation of corporations into companies built on the principles of federalism.
Most Russian holdings are currently built on the principles of strategic planning, and often on more stringent forms of control, such as strategic programming and centralized management. This is largely due to the previous stage of their development, the main task of which was to ensure strict control of enterprises and protection of property.
The management system reforms being carried out in domestic holdings are forcing management companies to reconsider their management style.
However, the transformation of holdings is an inevitable process. There is no other alternative. The question is very simple: the company either increases its competitiveness by optimizing management, or leaves the market.
Our understanding of the situation
The trend over the past 10 years has been an increase in the powers, budgets and number of employees of management companies. According to RolandBerger, costs for management companies more than doubled from 2005 to 2012. Depending on the industry, holdings today spend from 2% to 10% of consolidated revenue on maintaining their main offices.
There are many reasons for the growth of the structure of management companies of holdings - centralization of functions, complication external environment, increased competition and the increasing role of politics in business. At the same time, the contribution of management companies is not always obvious. Negativity is caused by the speed of decision-making, lack of understanding of the specifics of work in the regions and the complexity of communications.
Shareholders and managers of holdings are asking questions:
- What should and what should not a holding management company do?
- What value does the holding management company add to the business?
- How to reduce costs for a holding management company?
- How to manage a holding management company?
In our consulting practice, we answer these questions with the help of an express audit of the functions and structure of the holding. An express audit allows you to distribute powers and responsibilities between the management company and subordinate divisions, and form the optimal organizational structure of the holding.
Express audit of the structure of the holding management company
What is the essence of the program?
An express audit of the structure of the holding management company is carried out according to the SIPOC model. This model is widely used in Six Sigma for analyzing top-level business processes, is easy to learn and allows you to formalize activities of any kind on the fly. The abbreviation SIPOC stands for:
- S Suppliers Suppliers (structural unit or position)
- I Inputs Delivery objects (objects or resources at the input to the process)
- P Process Process algorithm (only basic elements)
- O Outputs Process products (results obtained)
- C Customers Customers (both external and internal)
The SIPOC model looks like this:
Rice. 1. An example of a process description using the SIPOC model - a description of the product production planning process.
How it works?
Managers prepare descriptions of the functions of their structural units according to the SIPOC model. Next, consultants organize a discussion of the materials of each department in working groups, similar to defending a diploma at a university. The manager submits an analysis of his business processes for “defense,” and a commission of senior TOP managers and related employees evaluates their effectiveness from the point of view of internal consumers. The result of the commission’s work should be a decision on the target structure and size of the unit, its subordination and relationships with related companies.
What issues are usually brought up for discussion:
- Are there real consumers of the results of work for each function, and how much do the results satisfy their requirements?
- What value is added as a result of performing this or that work, does it justify the effort invested?
- What losses, ineffective or unnecessarily labor-intensive operations are performed when implementing these business processes?
- To what extent are key business processes provided with the necessary organizational resources?
- How to measure the efficiency of business processes, what key performance indicators can be proposed?
The structural divisions of the holding management company must also answer the following questions:
- How is the management of the function organized at the holding level?
- How are powers and responsibilities distributed within the function between the Management Company and its subsidiaries?
- Which functions should be centralized and which ones should be left in place? subsidiaries Oh?
Based on the results of the discussion in the working groups, a draft decision is being prepared to optimize business processes, the structure and number of the “protected” unit and an action plan is being formed to implement the decisions made.
Of particular value is the list of identified losses and solutions to eliminate them:
Rice. 2. An example of a description of losses identified during a discussion of business processes of the logistics service of a large holding company.
As a result of the express audit, the holding in a short time receives expert assessment efficiency of its divisions, sets goals for their development, and forms the target organizational and functional structure of the company.
Determining the role of the management company in the holding structure
After working out the functions of the divisions, we move on to forming the structure of the holding company, and here the main issue is related to the roles and powers of the main office. Based on modern models and typologies of organizational structures, we identify four role models of a corporate center for our projects.
Rice. 3. Typology of role models of management companies.
The typology shows that the roles and functions of the management company should be determined based on the degree of interconnectedness and interdependence of the business processes of branches or subsidiaries. The greater this connection, the more centralized the control should be. Having carried out an express analysis of the functions, we understand which model the holding's management company currently corresponds to - whether it is only a portfolio investor, or plays the role of a business partner. If the current role of the management company destroys synergy (insufficient centralization with identical businesses) or destroys value (overly centralized management), we recommend a new target model.
What is the result?
As a result of the project, the target structure of the holding is formed, the role of the management company is set, and measures are planned to optimize the business processes of the divisions. The holding management company receives detailed plan actions to solve a difficult problem - how to create greater added value for subsidiaries while reducing their own costs. Organizational structure holding becomes more transparent, understandable and manageable. The efficiency of cross-functional communications and the speed of decision-making increases. Favorable conditions are created for the implementation of the company's strategy.
Rice. 4. Potential for cost optimization of management companies.
As a result of the project, the costs of maintaining the management company can be reasonably reduced by more than half. The greatest potential for cost optimization is provided by measures to centralize functions with the relocation of performers to other regions (with cheaper labor), which can reduce administrative costs by up to 30%. Optimization of business processes also brings a tangible economic effect. Outsourcing functions usually does not lead to significant financial results.