1. Strategy: Analysis and Practice Slide 1 ©The McGraw-Hill Companies, 2005 9. Corporate strategy: adding value in multi-business firms

2. Strategy: Analysis and Practice Slide 2 ©The McGraw-Hill Companies, 2005 Outline ● Corporate Strategy ● Changes in Organisational Structure ● Strategy and Structure ● The Corporate-Business Interface ● The Role of the Corporate Headquarters ● Managing the Portfolio ● Evidence and Experience

3. Strategy: Analysis and Practice Slide 3 ©The McGraw-Hill Companies, 2005 Corporate Strategy ● The value gained from a mixture of businesses and the management of those businesses to optimize value. ● Essential components: – Portfolio management – Growth – Relatedness

4. Strategy: Analysis and Practice Slide 4 ©The McGraw-Hill Companies, 2005 The Unitary Form Advantages Division of labour allows specialisation and productivity Clear separation of responsibilities Disadvantages Complex coordination Administrative overload Limited entrepreneurial capacity

5. Strategy: Analysis and Practice Slide 5 ©The McGraw-Hill Companies, 2005 The Multidivisional Form

6. Strategy: Analysis and Practice Slide 6 ©The McGraw-Hill Companies, 2005 The Multidivisional Form Advantages Freed corporate management from operational decisions for strategy. Integrated operations around specific business goals. Focused on products and markets. Disadvantages Corporate mangers isolated from business issues. Business units tend to compete for corporate resources. Limits development of trans-firm competencies.

7. Strategy: Analysis and Practice Slide 7 ©The McGraw-Hill Companies, 2005 Strategy and Structure ● What is the additional value generated by a multi-business firm? – Relatedness – Synergy ● How are multi-business firms best managed? – Role of the corporate head office

8. Strategy: Analysis and Practice Slide 8 ©The McGraw-Hill Companies, 2005 Corporate Value Vc = As + Bs + Cs + Mc Vc = the value of the corporation As, Bs, Cs = the values of stand-alone businesses Mc = the benefits of corporate membership In many cases Mc is negative.

9. Strategy: Analysis and Practice Slide 9 ©The McGraw-Hill Companies, 2005 Styles of Corporate-Business Interface ● Strategic Planning – Corporate managers define and monitor corporate and business strategies. – Most suitable for capital-intensive or highly- interrelated businesses. ● Strategic Control – Corporate managers influence business strategies and monitor financial results. ● Financial Control – Corporate managers define specific financial goals for business units. – Most suitable for conglommerates.

10. Strategy: Analysis and Practice Slide 10 ©The McGraw-Hill Companies, 2005 The Role of the Corporate Headquarters Parenting Advantage: additional value that corporate ownership adds to a business unit (Goold et al. 1994) Corporate ownership should: – provide additional competitive advantage in at least one business unit in the portfolio. – create more value than the cost of corporate ownership. – add more value than any other possible parent; otherwise more value could be gained by selling to that other.

11. Strategy: Analysis and Practice Slide 11 ©The McGraw-Hill Companies, 2005 Corporate Strategies RestructuringStand-alone influence Sharing activitiesFunctional and services influence Transferring skillsLinkage influence Porter (1987) Goold et al. (1994)

12. Strategy: Analysis and Practice Slide 12 ©The McGraw-Hill Companies, 2005 Sources of Value Creation

13. Strategy: Analysis and Practice Slide 13 ©The McGraw-Hill Companies, 2005 Parenting Styles

14. Strategy: Analysis and Practice Slide 14 ©The McGraw-Hill Companies, 2005 The Growth-Share Matrix

15. Strategy: Analysis and Practice Slide 15 ©The McGraw-Hill Companies, 2005 Relatedness ● Related Businesses: where a ‘common skill, market or resource applies to each’, (Rumelt 1974, p. 29) ie. economies of scope. ● But: ● Differences in measuring business relatedness. ● Relatedness of strategic assets most important. ● Relatedness must be actively managed to add value. ● M-form impedes corporate-wide coordination.

16. Strategy: Analysis and Practice Slide 16 ©The McGraw-Hill Companies, 2005 Concluding Remarks ● The corporate centre needs to control individual SBUs and build synergy within the portfolio of SBUs. ● The patterns of specialization and the definition of managerial responsibilities are influenced by: – Corporate structure – Style of control – Corporate strategies