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Here Today, Gone Tomorrow

In 1975, Albert A. Thornbrough, president of Massey-Ferguson Ltd., startled the business world when he announced that he might move …

In 1975, Albert A. Thornbrough, president of Massey-Ferguson Ltd., startled the business world when he announced that he might move the giant Canadian multinational from Toronto to Holland. Only 7 percent of the company’s total sales (then, approximately $2.7 billion) were generated in its home country. “The fact that we sit in Toronto doesn’t mean a thing,” Thornbrough explained. “We could function as well in London or Fort Lauderdale.”

While seriously considered, the proposition was shelved-only to reappear recently in somewhat different form. Last August the company, which changed its name five years ago to the Varity Corporation, won government and stockholder approval to move to the U.S. It will incorporate itself in Delaware and relocate its headquarters from Toronto to Buffalo. Publicly, the venerable producer of auto parts, diesel engines, and farm equipment boasts that “we shall always cherish our heritage as a pioneer of Canadian industry.” But privately, company officials confide that the Canadian operations account for only about 5 percent of Varity’s global business. More important yet, Buffalo represents a 20-30 percent cost savings over Toronto.

Varity’s decision to trade in its home base of 144 years coincided with Citicorp’s pronouncement that it too might abandon its roots. In an interview with the Wall Street Journal, chairman John S. Reed raised the possibility of moving the headquarters of America‘s biggest bank to another country, where the regulatory and capital-raising climate would be more favorable to its mix of businesses. “The United States is the wrong country for an international bank to be based,” he argued.

Saber rattling or serious business? Chances are Citicorp is not likely to pull up anchor anytime soon. Nonetheless, more and more CEOs are reassessing their historic homesites.

THE MINIMALIST REVOLUTION

For the better part of this century, corporate America worshipped at the altar of hierarchy. Verticality, scale, and power were all-important. After all, it was big business-Singer, Woolworth, Chrysler, and Sears, Roebuck-not a corps of idealistic architects that commissioned the towering skyscrapers in the center city that still hear their names. These emblems of corporate might publicized American industry’s lust for centralized power. Headquarters was Rome, the seat of ultimate wisdom and authority; the operating companies, Pompeii.

By the 1980s, several factors began to signal the demise of the monolithic, immobile head office. Foremost was the rise of global competition. With foreign products, well-made and well-priced, infiltrating U.S. markets, how many American companies could afford monumental bureaucracies? Very few.

Enter the minimalist corporation. Its basic principle was that big was bad, especially at the head office. For a decade, U.S. firms slashed away at their headquarters staffs and cut deeply into middle management, at times pruning entire levels. This bloodletting accelerated as companies discovered that they didn’t have to provide a full range of staff services-or even line activities. When self-sufficiency came at too high, a price, executives began to embrace the notion of “hollowing,” “unbundling,” or “disaggregating.” American business rushed off to purchase such vital functions as manufacturing and marketing-and even the mundane tasks of typing and report production.

Efficiencies were also sought by forging strategic partnerships with other firms to share the costs of research and development, new product introduction, and other expensive staff functions. Corporations were willing to yield a degree of independence to reap the benefits of burden sharing. In addition, alternative notions of employment-job sharing, leasing, temporary help, telecommuting, and off-premises work-allowed companies to trim or transfer the costly expenses of their headquarters.

Finally, incredible improvements in information technology made the omnipotent command post obsolete. Commercial fax machines, cellular phones, overnight mail, teleconferencing, and corporate jets made communications so efficient that the monolithic headquarters became an industrial dinosaur. The evolution of the U.S. to a knowledge-oriented society in which computer networks integrate teams of skilled workers not only pruned the Pentagon-like hierarchy, it flattened it. “The typical business 20 years hence will have fewer than half the levels of management as its counterpart today, and no more than a third of the managers,” contends Peter F. Drucker.

Taken together, these forces gave rise to corporate America‘s love affair with minimalism. Who can argue with the benefits: lower overhead expenses, less bureaucracy, quick decision making, faster communications, and greater entrepreneurship? With so much to gain, it is no wonder that hierarchy and size are the newest villains of U.S. industry. Small is beautiful, at least where headquarters is concerned.

From Avon to Exxon, more than 85 percent of the Fortune 500 have slashed their corporate staffs in the last 10 years. In my company, 19 people now do the work of 54 six years ago. Foreign companies, from Sweden‘s Electrolux to Japan‘s Toyota, are also scaling back their head offices. Even the massive Russian Army is trimming down. Despite some grumbling, Soviet military leaders have had to lay off 100,000 officers in an effort to become more efficient.

Minimalism, therefore, is universal. And it is here to stay-in good times and bad. Naturally, as firms streamline, their head offices become far more footloose. CEOs know that it is far easier to transfer 200 people than 2000. In a poll by Fortune 73 percent of chief executives of the “500” said that they had relocated some operations between 1985 and 1990, and 81 percent expected to relocate facilities in the future. One in seven said that they planned to move home base itself. “Here today, gone tomorrow,” is no longer a hollow cliche.

BRIGHT LIGHTS, BIG EXODUS

The choice for more and more U.S. firms has been to flee older, traditional cities for newer, more accommodating metropolitan areas. From 1960 to 1990, an astonishing two thirds of Fortune 500 industrial companies headquartered in New York City left town. Typically, their destination was the neighboring greenbelt of upstate New York, New Jersey, and Connecticut. Similar migrations took place in Chicago, Philadelphia, Detroit, and San Francisco.

The by-product: the bevy of corporate boomtowns that border America‘s principal cities. They include Fairfield, CT; Tysons Corner, VA; King of Prussia, PA; Plano, TX; and Oak Brook, IL. These and other suburbs have evolved into burgeoning communities, gleaming with contemporary architecture, that rival and often surpass traditional inner cities as centers of economic power and vitality.

They have not gained their new stature without cost, however. Companies and their employees are experiencing many of the frustrations they thought they left behind. “It’s not a big city, but it’s beginning to feel like one,” is a frequent lament of those who have moved to suburbia. As populations bulge, local roads become congested, landfills overflow, and once-superior schools lose their luster. The demands on public services give rise to an infuriating string of tax hikes. Affordable housing, too, quickly dries up.

For many companies, the location of corporate headquarters remains a serious stumbling block to multinationalism. It is hard to be multinational from a centralized command post in Yazoo MS, Uddevala, Sweden.

No one suggests fleeing the home country for a distant South Pacific island. Yet in today’s borderless economy, where a business is headquartered makes absolutely no difference. As Percy Barnevik, CEO of the $25 billion ABB Asea Brown Boveri, Ltd., puts it, “ABB is a company with no geographic center. We are a federation of national companies with a global coordination center [in Zurich].”

Other multinationals are pursuing dual headquarters. Unilever and the Royal Dutch/Shell Group both have joint command posts in London and Rotterdam. Another popular alternative is building global centers of competence, as IBM and several other companies have done.

“Fortress IBM is an outmoded notion,” says the company’s top scientist, Dr. John A. Armstrong. The computer maker’s first breakthrough in semiconductors, he says, was made not in the U.S., but in Switzerland in 1986. Last year, IBM reaffirmed its global view of science and engineering when it relocated its Communications Systems Group from Somers, NY, to the outskirts of London. “Europe and the United Kingdom are at the heart of telecommunications in the world today,” a company spokesperson said in explaining the move. “Major products are launched from Europe, and many of our industry standards are led by Europe.”

IBM’s relocation echoes similar moves by Hewlett-Packard Co. and Digital Equipment Corp. Last September, Hewlett-Packard, the granddaddy of Silicon Valley, shifted its personal computer headquarters from Sunnyvale, CA, to Grenoble, France. This fall, DEC transferred its telecommunications business from Maynard, MA, to Sophia-Antipolis, the self-proclaimed European Capital of Technology, located between Cannes and Nice on the French Riviera. These decisions represented the first time either HP or DEC had shifted the headquarters of a major business offshore.

Less radical options include establishing regional training modules with worldwide enrollments-an approach used by Citibank and Philips, or developing regional advisory hoards, as AT&T, Westinghouse, Exxon, and Chase Manhattan Bank have done. Taken together, these actions begin to reveal the shape of the multinational enterprise of the future.

GOING MOBILE

Today, powerful centrifugal forces are pulling corporate power from the traditional center to the periphery. In the process, they are triggering an odyssey of the global corporation. Typically, this odyssey begins with small branch offices, R&D labs, and management training centers. Next come area or regional offices. Finally, prestigious corporate headquarters join the move.

In an increasingly independent world, our greatest challenge, the late Buckminster Fuller once suggested, is not how well we get on independently but how we get on together. For future generations, peaceful coexistence may be greatly enhanced by a growing pool of mobile multinationals.


David A. Heenan is chairman and CEO of the Hawaii-based Theo. H. Davies & Co., the North American holding company for Hong Kong‘s Jardine Matheson, and author of The New Corporate Frontier: The Big Move to Small Town USA.

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