3H Strategy & International Business 2001/2002
Sessions 16 – Management Styles and Parenting
In their book, "Strategies and Styles", their article "Adding Value from Corporate Headquarters"
and their later articles, Goold and Campbell take a different route in addressing the question about
the role of the corporate centre in a diversified corporation. They argue that there are many
successful approaches to corporate strategy based upon management styles.
Main determinants are the approaches taken to planning influence of the centre and the type of
control influence exerted by the centre on the businesses within the group. From this they identify
3 generic stereotypes which companies tend to follow. There are other styles but most tend to
converge upon one of these three generic styles. Each style is different in its approach, can offer
different advantages to the corporation, but has different strengths and weaknesses.
Financial Control
Figure 9.11 Financial control
CENTRE
(Shareholder/banker)
Targets
‘single line’
Capital
bids
Performance
appraisal
DIVISION / DEPARTMENT
This style works when the businesses in the group are largely autonomous and the centre can act to
improve performance in each business, often by turnaround of under-performing businesses, and
ultimate disposal e.g. Hanson and Ever Ready; BTR; Tarmac.
Strategic Planning
Figure 9.10 Strategic planning
CENTRE
(Masterplanner)
Masterplanner)
Detailed
budget
Establishment
Capital
allocation
Imposed
services and
infrastructure
Procedures and
rule-books
DIVISION / DEPARTMENT
Bargaining
(item by item)
This style is best suited to businesses that have important potential synergies between businesses,
often requiring large, risky decisions and facing tough international competition. This means
concentrating on one or two core businesses and divesting peripheral businesses - the fit between
the businesses is critical e.g. Cadbury Schweppes; BOC; Lex; STC.
Strategic Control
Figure 9.12 Strategic control
CENTRE
(Strategic shaper)
Overall
strategy,
Balance
Optional
services and
infrastructure
Agreed
business
plan
Policies
Capital
allocations
Performance
assessment
Short-term
constraints(e.g.
establishment)
DIVISION/DEPARTMENT
This style seems to require some homogeneity between the businesses in terms of their strategic
characteristics so that the centre can have a good feel and understanding for each. However, there
does not seem to be a need to concentrate upon just one business or industry, or even a closely
related set of core businesses, provided that the diversity is not too great e.g. the demerger of ICI
into ICI and Zeneca; Courtaulds.
Which Style to Adopt?
The portfolio approach (they call it financial control) can be successful, but other situations call for
more interdependencies between business units, and hence a greater involvement for the corporate
centre in co-ordinating activities (the strategic planning and strategic control styles). The key ,
argue Goold and Campbell is that managers need to understand the benefits and drawbacks of each
style, its strengths and weaknesses, and being able to match the needs of the business to the right
management style.
Some of these key issues are summarised below in the next slide.
Figure 9.9 Centre-division relationships
Approach
Key features
Advantages
Strategic
planning
‘Masterplanner’ Co-ordination
Top-down
Highly
prescribed
Detailed controls
Financial
control
‘Shareholder/
Responsiveness Lose direction
banker’
Centre does not
Financial targets
add value
Control of
investment
Bottom-up
BTR
Hanson plc
Tarmac
Strategic
control
‘Strategic
shaper’
Strategic and
financial targets
Bottom-up
Less detailed
controls
ICI
Courtaulds
Public sector
post-1990
Centre/divisions
complementary
Ability to coordinate
Motivation
Dangers
Examples
Centre out of
BOC
touch
Cadbury
Divisions tactical Lex
STC
Public sector
pre-1990s
Too much
bargaining
Culture change
needed
New
bureaucracies
The Importance of Corporate Parenting
In their article, "From Corporate Strategy to Parenting Advantage", Michael Goold and Andrew
Campbell the parent company should not only add value to a new business unit, but add more value
than any other potential parent - they call this parenting advantage. Some of the key questions that
the parent needs to ask of its business units are summarised in the slide below:
The Role and Purpose of the Corporate Parent
Scope and Portfolio Issues
what is the logic of the portfolio?
what breadth and relatedness of products/SBUs
?
products/SBUs?
what geographical scope?
Structure, control and parenting issues
what is the most appropriate corporate structure
what is the role of the centre in relation to SBUs?
SBUs?
how should the centre control SBUs?
SBUs?
what value does the centre add to SBUs?
SBUs?
The authors go on to suggest that the different SBUs can be broken down into a number of
catagories, which reflect the relationship between the parent and the SBU, the benefits that the
parent can provide, and the fit of the SBUs within the larger group.
Corporate Parenting
Heartland
businesses: a fit between corporate
and SBU strategic aspirations which the parent can
help develop
Ballast businesses: good strategic fit but not
requiring help from the parent
Value trap businesses: requiring help from the
parent but with little fit between corporate and SBU
aspirations
Alien businesses: no strategic fit and no benefit
from the parent
The different business units can be plotted on a corporate parenting matrix as follows:
Figure 6.7 The parenting matrix
High
Ballast
SBUs
Heartland
SBUs
Alien
SBUs
Value trap
SBUs
FIT BETWEEN SBU STRATEGY
AND CORPORATE PURPOSE
AND ASPIRATIONS
Low
Low
High
FIT BETWEEN SBU PARENTING NEEDS
AND CORPORATE CAPABILITIES
Source: Adapted from the parenting matrix in M. Goold, A. Campbelland M. Alexander, Corporate Level Strategy, Wiley, 1994.
The implications of this parenting approach are that decisions on which SBUs to keep within the
group depend not only on what the SBU contributes to the group, but also on what the corporate
headquarters can contribute to the SBU. Even a “good” SBU may be divested if it is thought a
better parent can be found for it.
Approaches to Synergy and Management Styles Combined
It can be argued that the approaches to the creation of synergy, covered last week, and the
management styles outlined above are merely the flip sides of the same coin, one sets out the logic
of how the corporation attempts to create value, the other the style of management needed to
express such a logic.
Approach
Portfolio
Management Style
Financial Control
Linkages
Strategic Control
Core Competences
Strategic Planning
Comments
SBUs manage strategy
against tight financial
targets set by centre.
Centre aims to provide a
better investment
performance. Portfolios
can be very diverse.
SBUs largely develop
strategy but centre aims to
co-ordinate plans and set
fairly tight financial &
strategic targets. Attempt
to create links between
businesses to create
competitive advantage.
Often group consists of 3
or 4 core businesses.
Centre drives strategy
around a theme (core
competences). Businesses
concentrate on
implementation with
centre strongly coordinating actions and
creating linkages between
units.
The implications of this combination of approach to synergy and management styles, in what I term
corporate management logic, will be explored further next week.