Luke Johnson: The head office disease

The chairman of Risk Capital Partners on why company HQs can be a drag on the business and why schools and universities have barely started to exploit digital's potential.

by Luke Johnson
Last Updated: 27 Jul 2012

Is a head office the heart and soul of a business - or the fatal enemy of progress? For a lot of firms I see, it can easily become the latter. This disease can infect any organisation with remote branches - retailers, restaurants, even distributors and manufacturers with multi-site facilities. Those at the HQ can lose touch with customers and forget what life is like at the coal face.

Gradually, the centre becomes an overhead, not a benefit. Activities there are an end in themselves, rather than a support to the places where sales and delivery are actually happening. The brain sucks the life out of the limbs, disaffection grows, and eventually the entire structure falls apart.

Part of the difficulty is that modern business requires so many administrative functions - IT, accounting, HR, training, legal, property, procurement, R&D, marketing, planning - the list is almost endless. There is always justification to take on extra executives to handle roles at the nerve centre. Somehow those hires get made, even when staff are short on the ground.

I look at some organograms and all I can see is empire building. All these expensive individuals have to be paid - as do their PAs, and the cars and add-on expenses. So the burden grows, while the troops in the front line find all their profits siphoned off to HQ.

Yet when I question all this expense I find every penny is sacrosanct, defended by all those at the main office. Everyone is always frantically busy and terribly good at explaining how vital they are to the whole undertaking. Because these employees are close to the boss, they are deemed essential - unlike grunt workers slaving away in some savage unvisited place where the cash is actually being earned.

The answer is to have a tiny HQ building and never expand beyond that single central structure. Delegate authority to the regions and empower local managers. Outsource where you can and avoid creating an organisation with personnel charts showing dozens of highly qualified bigwigs who don't work in the field. They are rarely essential, and the resentment and office politics they cause often outweigh any possible advantage they bring to the enterprise.

I recently became chairman of StartUp Britain. This is an independent movement that was launched last year with the aim of boosting entrepreneurship across the country. Although its young founders are well connected to senior politicians, the initiative is entirely independent of government. It is a private sector campaign funded by business sponsors, not the taxpayer.

StartUp Britain helps to host a raft of events, and connects growing companies to advice, mentors and suppliers. Its very existence and profile demonstrate that entrepreneurs are seen as ever more important by policy makers and the media. We all realise that Britain needs more new, innovative companies to create jobs and revive the economy. I take the simple view that anything and everything that helps this cause is worth doing.

There are grounds for optimism. Last year, more than 400,000 companies were formed - a record. No doubt quite a few founders had no choice but to become self-employed. But necessity is often the mother of invention, and many highly accomplished entrepreneurs were once in the same position. Meanwhile, the online explosion has made starting a business quicker and cheaper than ever before. This is the age of failing fast and then trying something else - and maybe succeeding.

Of course lower tax rates and less red tape would be a good idea. But in the meantime we simply have to make the most of it and plunge ahead - backing and starting new ventures as if our lives depended upon it.

Are private schools and elite universities a sensible investment of so much time and money for many families? Thousands of intelligent and highly successful parents devote huge resources to ensuring their children obtain the finest formal education that influence and money can buy.

But will their offspring be any happier for all that effort and will they be any better qualified for the workplace of the 21st century?

I do wonder why lots of key skills are not taught as standard: computer coding; driving; selling; typing; accounting - and so on. Overly academic courses tend to dominate, while practical techniques that equip students for a useful life are almost absent. But that is not my only issue with our current models for learning.

The favourite educational establishments instruct using very traditional methods - classrooms, lecture theatres, textbooks and blackboards. These pedagogical systems are almost unchanged from a century ago. They have not really embraced new technology to deliver lessons at all.

Meanwhile, the costs of a superior education have risen massively in the past 20 years and are substantially out of reach for the vast majority of households. And the better universities effectively provide subsidised tuition fees - so giving the middle classes (who supply most undergraduates) a substantial tax break.

One of the major commercial opportunities in the coming years is to exploit the possibilities of digital means to teach cheaply and effectively. The productivity gains from better use of online education are enormous. Not only could these endeavours save the taxpayer billions, they could improve the general standard of teaching in this country. There is also the chance to create a batch of global educational companies to exploit our strength in English and the fact that we have many of the world's best schools and universities.

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