Corporate Strategy and Parenting Theory (p324-334 reader)

Goold/Campbell/Alexander 1998

Summary

• Many of the business units in multibusiness companies could be viable as stand-alone entities: To justify its existence, the corporate parent must influence the businesses collectively to perform better than they would as stand-alone entities
• Parent companies compete with each other for the ownership of businesses: The objective of corporate strategy should be to add more value to the businesses in the portfolio than other rival parent organisations would
• All multibusiness organisations have inherent and pervasive tendencies to destroy value: Corporate strategies should recognise these tendencies and be designed to minimise value destruction as much as to maximise value creation
• The importance of lateral synergies in creating value in multibusiness companies has been systematically overrated: corporate parents should pay relatively more attention to other sources of value creation, in particular their ability to improve performance in each individual business as a stand-alone entitiy
• Value creation seldom occurs unless the corporate parent perceives a few large opportunitites for business performance enhancement, and develops distinctive skills, resources and influencing processes that address these opportunities: Corporate parents should focus their efforts on building special competences that fit the particular opportunities they are targeting
• Corporate centres, functions and processes designed to achieve general best practice lack sufficient focus to achieve outstanding results: They should be designed more idiosyncratically to fit with the specific opportunities targeted by the corporate level strategy
• Past measures of diversity based on conventional concepts of relatedness have proved unsatisfactory: To avoid excessive diversity, corporate parents should build their portfolios around businesses with similarities in terms of parenting needs and opportunities
• Many corporate parents are over-ambitious about the speed with which they can build new skills and understand new types of buisnesses: Good corportate strategies should maintain a balance between 'stretch' for new opportunities and 'fit' with the parent's existing skills
• Business unit boundaries and corporate reporting structures have a profound impact on both the balue creation opportunities and the value destruction risks for the corporate parent: Decisions on unit definitions and corporate structures should be determined by careful analysis of their likely impact on net value creations, not by history ambition and politics