Agility Update July 2011

As companies strive to grow post-GFC, the drive for greater cost efficiency in management, shared services and processes often leads to the question of centralisation. To prevent messy corporate politics, Agility Update July draws your attention to 3 questions from McKinsey that encourage clear-headed debate. Research showing the link between a company’s financial success and what its CEO does is perhaps not that startling, but the article on “suits” or middle managers may surprise and/or delight some. To round up this issue, we offer a big picture article on the global Aerotropolis trend.

To Centralise Or Not To Centralise?
It’s a hard call, however CEOs can force a more thoughtful debate by asking three critical questions, says management consultants McKinsey. The 3 questions are:
1. Is centralisation mandated?
Do external shareholders or laws require it? If centralisation is not mandated, then must it be done at the group centre?
2. Does centralisation add significant value - 10%?
If not, is it a key part of a larger initiative that will add 10% to the market capitalisation or profits of the corporation? In practice, the answer to this question does not require fine-grained calculations. What are required are judgments about the significance of the activity, either on its own or as part of a larger initiative
3. Are the risks low?
Does it avoid risks of bureaucracy, business rigidity, reduced motivation or distraction?

Most centralisation proposals will not pass either of the first two hurdles: they will not be mandated and will not represent major sources of additional value, says McKinsey. More often, the prize will be smaller improvements in costs or quality. In these cases, the risks associated with centralisation – business rigidity, reduced motivation, bureaucracy, and distraction – are often greater than the value created. Hence, the proposals should go forward only if the risks of these negative side effects are low. Read more (free, registration required) at:
https://www.mckinseyquarterly.com/Organization/Strategic_ Organization/To_centralize_or_not_to_centralize_2815

Pay attention to Middle Managers
In a recent article, Wharton management professor Ethan Mollick has a message for knowledge-based companies: Pay closer attention to your middle managers. They may have a greater impact on company performance than almost any other part of the organization.
According to Professor Mollick’s study, the importance of individual skills and characteristics can be especially significant when measuring firm performance in industries and fields that value innovation, like computer games, software, consulting, biotech and marketing. In these industries, middle managers play a key role in fostering innovative and creative environments. He suggests that the influence these “suits” exert stems from their key role in project management, including such tasks as resource allocation and supervision of deadlines – responsibilities often perceived as the bureaucratic, more routine and less glamorous side of the business. Read more at: http://knowledge.wharton.upenn.edu/article.cfm?articleid=2783

The City of the Future: Built Around Air Travel
It might be difficult to believe after the recent shut-down of domestic air travel in Australia and Sydney’s dithering over a second airport, but authors Greg Lindsay and John Kasarda believe urban centres of tomorrow will cluster around airports. In their book Aerotropolis: The Way We'll Live Next, they argue that cities in the 21st century economy of ideas and information are realigning themselves to become locally dense around transit points to enable global connections to shift high value human capital, services and goods. And, despite the rise and exponential growth of digital communications, the authors forecast travel to rise. People may not fly just to attend a meeting, but every digital communication may trigger an urge to travel to visit in person. Examples of Aerotropolis centres include the 45 that China is building in the next 5 years, South Korea’s Songdo, India’s Bengal, and Singapore, Kuala Lumpur and Hong Kong in Asia; Dallas-Fort Worth, Miami and Memphis in the US; and Amsterdam, Frankfurt and Paris in Europe. Before you make up your mind, read Cities of the Sky at: http://online.wsj.com
  
An interview with Greg Lindsay at: http://www.smartplanet.com
And dissenting views by UK newspaper The Observer’s architecture critic Rowan Moore at: http://www.guardian.co.uk and by University of Maine Bird professor of history Howard P. Segal at: http://www.timeshighereducation.co.uk