Group controlling is one of the terms by which very different things are understood. It is therefore highly recommended that you create a common understanding before a discussion, so as not to talk at cross purposes. You don't believe that? For some, Group management is the administration of the legal structure, including consolidation under commercial law and the tax result. For the others it is only the management of the legal structures, the shareholder role, the profit transfers, etc.. And finally, there is the fraction for which group management is synonymous with business management. This is obvious for venture capital and private equity companies, but not any more for corporations. Is the legal structure with the implied incentive effect really congruent with the responsibility and the necessary incentives from the business model? At the latest with the appearance of the so-called zebra companies it becomes obvious that legal structures cannot easily be adapted to the areas of responsibility. If then tax and liability law optimisations are added, then it becomes completely absurd.
Experience shows that the requirement to keep both structural worlds congruent manoeuvres one into a complexity in which the dysfunctional effects and administrative costs can hardly be controlled.
Therefore, break down the requirements systematically top-down and then reach into the toolbox of the controller workshop in order to use the right instruments for the desired effect.
Which instruments from the controller workshop can you access?
So we'll start all over again. You have analyzed your business model and defined a strategy to be successful in the market. Part of these considerations is the management model, the design of the processes and the responsibility in the organization as well as the key performance indicators for controlling. You can find more information on this in Strategy Controlling and the Management Model.
There was a time when there was the paradigm that the management organization had to be synonymous with legal units, and a company was founded for each unit responsible for results. In the meantime, it has become clear to many that these structures require a great deal of administrative effort, increase complexity, limit flexibility in the event of changes to the business and usually create false incentives and expectations for the managing directors. Profit center structures are often a much more suitable structure - unless the sale of the unit as a whole is a goal or realistic possibility. So, from a pure business model perspective, less is more - legal entities only where they are required or required from a tax and liability perspective.
But what does Group management with and within this framework mean? It means four things:
- Right from the start, separate the legally formal roles from the actually intended responsibility structures in communication, expectations and incentives.
- Use a role that focuses on the legal requirements. Some call this shareholder controlling
- Enable the organization to consolidate with minimal effort and prepare the financial statements in a way that the business can see the results - so called pierced results.
- Organize tax transactions without creating confusion in the business. Transfer prices are agreed with the tax authorities and do not have to correspond to what is opportune from the point of view of the responsibility structure.
As you can see, a wide range of competencies must work together to achieve this. Become suspicious if someone - apart from a private equity investor - advises you that separate legal entities are required to manage the business. Either they have no idea or pursue their own interests!
Real group management
If the management of groups in the narrower sense actually fits your business model, then what always applies to the definition of a management organization applies: Become clear about the management philosophy! Do you manage decentrally and rather loosely or closely and in detail? This then determines the instruments - starting with a few committee meetings with a report from the management up to full transparency of key figures and systems.
If you want to manage a group with a holding structure, then Goold, Campbell and others clearly stated years ago in Corporate Level Strategy that there should be no illusion about the value of this structure and that value creation can only be achieved through an explicit strategy.
Every holding company destroys value per se if it has not formulated and managed an explicit value proposition, e.g. better access to capital or people, the connection of technology between the groups or efficient, joint administration, i.e. shared services. This value proposition then forms the basis for the management concept and the information that is systematically collected as part of group management in the closing process.
Summary
Make yourself clear what expectations you have of the group management and what the interaction with the management from the business model should look like! Organize the handling of legal requirements as efficiently as possible, from logged meetings to settlement agreements to consolidation under commercial law.
Never let yourself be driven or confused by the legal structures. The legal structure should support the successful implementation of your business model and is not an end in itself. And if you need a managing director in a sales company whose job is the sale of products with fixed transfer prices, then measure him on the sales success and achieved profit contributions and not on the company result!
Keep the structures as simple as possible - administration and incentive effects of complex company networks are rarely seen through by those responsible in the long run!
