LNVGY Lenovo Group Ltd (PK)

By John Simons 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (September 9, 2017).

Amazon.com Inc. founder Jeff Bezos has never been one to shy away from logistical challenges. But his company's decision to open a second headquarters somewhere in North America could create a host of new strategic and managerial issues for the company, experts say.

Amazon said its new headquarters would be equal in stature to the company's Seattle-area home base and would house 50,000 employees. No location has been chosen, but the company says it is seeking an urban locale close to good universities and a major airport. Executives will be allowed to decide where they want to locate their teams, the company said.

Multinational corporations like Lenovo Group Ltd. and advertising giant WPP maintain several large business centers, and manage not to develop the corporate equivalent of multiple personality disorder.

In fact, a dual-headquarters setup can benefit companies because the structure can foster a diversity of thought among top executives, said Deborah Ancona, director of the Leadership Center at MIT's Sloan School of Management.

"With one center, the headquarters can become a place where people just agree with the CEO and top team, and so it becomes an insular environment," Ms. Ancona said. "With one central place, those people in other parts of the world often feel out of the mainstream."

Two years after Lenovo Group Ltd. purchased IBM's PC business in 2005, the company's Beijing-based CEO, Yang Yuanqing moved his family to the combined PC maker's second headquarters near Raleigh, N.C., to "signal to both parts of the company that we have to operate as one business," said Lenovo spokesman, Ray Gorman.

Still, few companies choose to have dual headquarters unless they result from a merger, said Erik Gordon, an assistant professor at the University of Michigan's Ross School of Business. "It's a complicated thing to do which is why it's rare," he said.

Bosses must figuring out how to split up employees and departments so they can collaborate effectively from thousands of miles away. Decreasing face time can increase competition among colleagues, Mr. Gordon said, which could be dangerous for a company like Amazon already known for a sharp-elbowed culture.

He's also skeptical Amazon will really let senior employees choose where to put their teams. "I predict that if they start off that way, they'll end up pulling back from that," he said.

Mr. Gordon said it would be hard to organize projects if product teams and functional divisions such as marketing and finance are placed based on manager preferences rather than what makes most sense for the business, and it could significantly increase costs such as air travel.

Kay Sargent, a senior principal at architectural design and planning firm HOK, has helped companies such as Morgan Stanley, Cisco Systems Inc. and Equifax Inc. reconcile where and how to create new workspaces. She said the main reason companies maintain large satellite campuses with equal stature to their official headquarters is to attract a new, more diverse pool of talent.

"Many of our large corporate clients are trying to figure out, 'how do we manage the space and where is the talent?' In the war for talent, if you can't attract people where you are, that's a problem," Ms. Sargent said.

In 2015, General Motors Co.'s luxury brand Cadillac uprooted from its Detroit base and moved its headquarters to a new space in Manhattan's SoHo neighborhood to allow Cadillac to establish itself as a stand-alone business unit.

Melody Lee, Cadillac's brand marketing director, said the move coincided with Cadillac's bid to globalize the brand.

"The thinking was to ensure we're in a place that is cosmopolitan and where we know global trends are set in art, fashion and design," Ms. Lee said.

In New York, Cadillac has recruited executives who might not have made the move to Detroit. About 150 employees work at the headquarters on marketing, sales and product planning.

--Cara Lombardo and Mike Colias also contributed to this article.

Write to John Simons at John.Simons@wsj.com

(END) Dow Jones Newswires

September 09, 2017 02:48 ET (06:48 GMT)

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