Corporate Parenting PDF

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Corporate Parenting...

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Corporate Parenting Goold and Campbell (1991) identified three broad approaches or 'parenting' styles reflecting the degree to which staff at corporate headquarters become involved in the process of business strategy development.   

strategic planning financial control strategic control.

Strategic planning companies In strategic planning companies such as Cadbury Schweppes and BP.  

There is a focus on a limited number of businesses where significant synergies exist leading to a concentration on a few core areas where it is possible to have a degree of expertise. Corporate management play a major role in setting the strategies for each of the SBUs. o difficulties in communication and co-ordination may slow down development.

Strategic control companies In strategic control companies such as ICI.

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Corporate management take a middle course, accepting that subsidiaries must develop and be responsible for their own strategies, while being able to draw on headquarters' expertise. Evaluation of performance extends beyond short-term financial targets to embrace strategic objectives such as growth in market share and technology development, which are seen to support long-term financial and operational effectiveness.

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There is a danger of greater ambiguity.

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Ways of adding value There are a number of ways in which the corporate parent can add value.      

By providing unique resources By providing access to central services such as information technology and human resources that can be made available more cheaply (E.o.S) By providing access to markets, suppliers and sources of finance Sharing expertise, knowledge and training across business units. Facilitating co-operation and collaboration between business units. By helping business units to develop either through assisting with specific strategic developments or by enhancing the management expertise.

Destroying value 

The high administrative cost of the centre may exceed the benefits provided to business units.

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The added bureaucracy resulting from the organisational structure may slow decision making and limit the organisation's flexibility and speed of response to customers and environmental changes. If organisations become very complex, this can prevent clarity and make it difficult for managers within the organisation and external stakeholders to understand the strategic direction.

Rationales for adding value A well-managed corporate parent should be able to add value. In their book, Exploring Corporate Strategy, Johnson, Scholes and Whittington identify three corporate rationales or roles adopted by parents in order to do this:   

portfolio managers synergy managers parental developers.

The portfolio manager

Portfolio managers: Advantages   

parents effectively act as agents for financial markets and shareholders to enhance the value from individual identify and acquire under-valued businesses and improve them, perhaps by divesting lowperformance businesses or improving the performance of others keep the costs of the centre low by minimising the provision of central services and allowing business units autonomy whilst using targets and incentives to encourage high performance

Disadvantages 

Manage a large number of businesses, which may be unrelated.

The synergy manager

Synergy managers:    

enhance value by sharing resources and activity, such as distribution systems offices or brand names may however bring substantial costs as managing integration across businesses can be expensive may have difficulty in bringing synergy as cultures and systems in different business units may not be compatible may need to be very hands-on and intervene at the business unit level to ensure that synergy is actually achieved.

The parental developer

Parental developers:

Advantages 

use their own central competences to add value to the businesses by applying specific skills required by business units for a particular purpose, such as financial management or research and development

Disadvantages 

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need to have a clear understanding of the value-adding capabilities of the parent and the needs of the business units in order to identify how these can be used to add value to business units need to ensure that they are able to add value to all businesses or be prepared to divest those to which they can offer no advantages. Crown jewel problem – logic of parental developer is that if the centre cannot add value to the subordinate then it should be divested. However the corporate parent become excessively attached. Lack of focus

Advantages 

Allows for core competencies to be passed across the business...