Background – Transition from a strategy to a management holding
The automotive industry has been very competitive for quite some time. Especially tier one suppliers face considerable challenges. In addition to cost pressure as a result of open calculations, specific requirements made on development expertise and system / module capabilities lead to the constant need for optimizations. These are challenges that can only be overcome by aligning overarching competencies in the organization.
Our client had already reacted to these challenges by re-organizing itself from a strategic holding with clear divisional responsibilities to a more functional set-up. By aligning the executive responsibilities with the functional structure, the cross-divisional and synergy character of the new organization was emphasized. However, in order to fully capitalize on cross-divisional synergies and steer centralized overhead tasks there was a need for a coordinated steering concept for administration.
Project approach –Organizational renewal followed by a revolution in steering logic
The predominant goal was to develop a transparent and easily understandable steering logic for administrative and cross-divisional functions. In doing so, the starting point for a successful optimization was the stringent distinction of functional tasks by their nature, so according to governance, know-how support, transactional support and the clear organizational separation of these areas. However, the task differentiation was only the first step towards a lean administrative and support organization. In close collaboration with the client it became clear early on that the “lean approach” only develops its full potential in a lasting way if it is rigorously transferred to the steering logic. The steering revolution: one approach per task type – clear, lean and unambiguous.
Finding – Depending on the nature of the task and the selected organizational set-up, either market mechanisms or traditional budget steering are suitable
When designing the steering essentials, the two guiding principles of simplicity and incentive conformity were followed. The discussion on efficient steering often focused solely on offsetting the costs accrued. This is, however, far too shortsighted because the incentives are not sufficiently conveyed. This point becomes evident by way of the example of a transactional Service Center. Only if both partners, so the internal client and the performing Service Center, are geared to the performance management of the Center, is it possible for an allocation according to the principle “planned price times purchase quantity” to happen thereby avoiding a cap of support through fixed budgets. The consistent alignment with incentive conformity starts with the planning process. The internal client has to provide the Service Center with the best possible volume planning to avoid inefficiencies in the Service Center’s actual cost basis through idle capacities. In order to emphasize to the internal client that this requires conscientious work, there are penalties for significant volume deviations. In return, the Service Center assures competitive prices and foregoes subsequent payments due to deviations in efficiency. In the end, all parties act in unison and ensure lower costs despite having the flexibility to consider client demand.
A completely different steering logic is applied in cases where the output of the unit is hard to measure or in cases where a volume steering by the client is desired as in the case of governance tasks. Here traditional budget allocation is prioritized over the flexible, demand-driven approach in order to focus on adhering strictly to the budget. If this is ensured, no disincentives are given when allocating accrued costs.
- Reduction of steering approaches for administrative and cross-divisional functions to standardized approaches in keeping with the nature of tasks: transactional, know-how and governance
- Significant increase in efficiency as a result of aligned incentives in the steering system
- Considerable reduction in complexity in the controlling and reporting as a result of standardization in the steering approaches