Strategic Horizontal Unit "SHU"
or Cost Center
Planning Overview
A Structured Approach to
Horizontal Unit Planning
For a stand-alone business there are no centralized cost centers or
horizontal units. By definition, it takes two or more corporate businesses to
share a centralized department.
The strategic imperative of a horizontal unit is to understand the
strategies and objectives of the business units it serves, and to perform the
unit's specialized activities in the best manner possible within the framework
of those business strategies and objectives.
In some cases, businesses have different objectives relating to the
performance of an activity. For example, one business might want an activity
performed with the highest level of quality, and another business just wants
to be charged the lowest amount and doesn't care too much about the level of
quality. At this point, the issue should be resolved by bringing the parties
together in the same room and working out a common solution, or else the group
executive must make a decision for the good of the company. If the conflict in
objectives is not resolved, all parties will likely feel that they are working
in a hostile environment where they are not free to maximize their own
potential. Internal politics will consume scarce resources.
Horizontal Strategies (costs & benefits of sharing)
A lot of time can be wasted in corporations switching back and forth
from a centralized organization to a decentralized structure. Industry changes
or a shift in strategy could well justify some of these organizational
flip-flops. But unfortunately the changes are often made to give the
appearance that management is doing something to correct past mistakes, even
if the political reshuffling has nothing to do with the past failures of the
company or its future needs.
Organizational discussions need to evolve into a more objective and
structured approach that weighs the relative costs and benefits of
centralization versus decentralization for each strategically relevant
activity. For example, in many large companies one of the biggest issues is
whether or not to centralize the information systems department. The answer
may well be that mainframe support and telecommunications activities should be
totally centralized; that traditional applications development be totally
decentralized within each business unit; and that image processing, expert
systems development, and local area network support functions be partially
decentralized. Different companies with different strategies can have
different results. But the discussion needs to be more systematic and
structured than simply asking, "Do we anoint a chief information officer,
or shall we blow it up and outsource the whole thing?"
Horizontal Unit Planning
Functional managers for each strategic horizontal unit (SHU) need to
develop a Statement of Direction. I use the term "Statement of
Direction" to clearly signal that it is very different from an SBU
Competitive Strategy.
When developing a Statement of Direction, the horizontal unit should
identify the business units to be served and use their strategies to guide the
plans of the SHU.
This analysis should recognize that not all corporate businesses require
every activity performed by the horizontal unit.
In practice, there are two key points that should be kept in mind.
First, some managers believe (incorrectly) that it is less noble to run a
horizontal unit than to run a business unit, no matter what the compensation
or title.
Second, it is possible that a horizontal unit can become a business
unit. The decision should be based upon the company's vision, objectives, and
the realistic competitive position that the new business would have. The
decision rests with corporate management and is part of their primary role of
determining which industries to enter and which industries to exit. Many
horizontal units, in the course of serving the corporate businesses, develop a
product or service that can be successfully marketed. However, just because a
horizontal unit can market its services doesn't mean that it's in the best
interest of the corporation overall.
Information Technology Planning
The information systems (I/S) department is often, but certainly not
always, a cost center. The key to I/S planning is to first identify each of
the strategically relevant activities it performs. With the proliferation of
new types of information technologies, along with the maintenance of old
technologies, the number of activities that require a different type of
professional skill is growing significantly. COBOL programming on a mainframe
is very different than `C' programming on a PC, and both are different from
image processing, global telecommunications, client-server computing, and
multimedia development.
The slide at the top of this page is a simplified representation of
several I/S activities. Instead of just placing an `X' in the various cells,
it is often useful to identify the number of people or the amount of money
allocated for each corporate business.
The I/S department should also have a general understanding of the
business objectives of each SBU. In those cases where each business unit has
the same expectations and objectives for the way in which an SHU activity
should be performed, the horizontal unit manager has clear direction. The
challenge arises when the business managers have different goals, strategies
and expectations for the performance of a particular activity.
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