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Corporate Parenting

Corporate Parenting

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Published by Gyan Singh

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Published by: Gyan Singh on Nov 28, 2010
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05/12/2013

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6.4.4The parental developer 
40
The
parental develope
seeks to employ its own competences as a parent to addvalue to its businesses. Here, then, the issue is not so much about how it can helpcreate or develop benefits across business units or transfer capabilities between business units, as in the case of managing synergy. Rather parental developershave to be clear about the relevant resources or capabilities they themselves haveas parents to enhance the potential of business units. Suppose, for example, the parent has a great deal of experience in globalising domestically based businesses;or a valuable brand that may enhance the performance or image of a business; or  perhaps specialist skills in financial management, brand marketing or researchand development. If such parenting competences exist, corporate managers thenneed to identify a µ
 parenting opportunity
¶:
a business or businesses which are notfulfilling their potential but where improvement could be made by the applicationof the competences of the parent ± for example, a business which could benefit by being more global, by brand development or by central R&D support.The competences that parents have will vary. Royal Dutch Shell would arguethat it is not just its huge financial muscle that matters but also that it is adeptat negotiating with governments, as well as developing high-calibre internationallymobile executives who can work almost anywhere in the world within aShell corporate framework. These competences are especially valuable in allowingit to develop businesses globally. 3M is single-mindedly concerned withinculcating a focus on innovation in its businesses. It tries to ensure a corporateculture based on this, set clear innovation targets for its businesses and elevatethe standing of technical personnel concerned with innovation. Unilever hasincreasingly sought to focus on developing its core expertise in global brandingand marketing in the fast-moving consumer goods company, with supportingstate-of-the-art research and development facilities to back it up. It would argue
Theparental developer : acorporate parent seekingto employ its owncompetences as a parentto add value to itsbusinesses and buildparenting skills that areappropriate for their portfolio of business units
312
Part III  Strategic Choices
 
that this is where it can add greatest value to its businesses, and that it hassignificantlyaffected the shape of the corporation over the years (see Illustration 6.7).Managing an organisation on this basis does, however, pose some challenges.For example
:
 
l
 Id 
entifying capabilities of the parent 
:
a big challenge for the corporate parent is being sure about just how it can add value to business units. If the valueaddingcapabilities of the parent are wrongly identified then, far from the businesses benefiting, they will be subject to interference from the centre in wayswhich are counter-productive. There needs to be some hard evidence of suchvalue-adding capabilities.
l
 F 
ocus
:
if the corporate parent identifies that it has value-adding capabilities in particular and limited ways, the implication is that it should not be providingservices in other ways, or if it does they should be at minimal cost. For example,some corporate parents have decided to outsource a great many servicesthat were once seen as a traditional role of the centre
:
legal services, payrollservices, training and development and so on. One firm, following such acourse of action, claimed that by reducing the head office workforce in suchways by over 50 per cent it would save over 60 per cent of the costs of the centre.Just as significantly it would focus the attention and management time of corporate executives on activities that really could add value as distinct frommerely administrative functions. Following the same logic in the public sector can create a dilemma. On the one hand, keeping such central services in the public sector ensures political control over social purposes ± for example, ensuringservice coverage to all sections of the community. On the other hand, a private sector company might be a better parent, in the sense that it might bemore skilled at providing the service or doing it more efficiently.
l
he µcrown jewel¶ problem
:
the corporate parent may realise that there are some business units within its portfolio where it can add little value. This may helpidentify businesses that should not be part of the corporate portfolio. Moreuncomfortably, however, such business units could be high-performing businesses,successful in their own right and not requiring the competences of the parent. The parent may argue that other businesses in the portfolio can learnfrom them; but this is the logic of synergy management rather than parentaldevelopment. The question the parental developer has to ask is how it isadding value to
that 
 business. The logic of the parental development approachis that since the centre cannot add value, it is a cost and is therefore destroyingvalue; that the parent should therefore consider divesting such a business,
 
realising a premium for it and reinvesting it in businesses where it can addvalue. Logical as this may seem, it is unlikely to find favour, not least becausethe executives at the centre might be indicted by their own shareholders for selling the µcrown jewels
.
l
 M 
ixe
parenting 
:
this, in turn, raises the question as to whether the parentcould adopt multiple rationales in its parenting. For example, could it simultaneouslyact as a parental developer for some of its businesses with a handsoff,almost portfolio approach, for those in which it cannot add further value?Or could it be both a synergy manager and a parental developer? The dangersare, of course, that the rationale becomes confused, the centre unclear as towhat it is trying to achieve, the business unit managers confused as to theirrole in thecorporation and the cost of the centre escalates. A multipleapproach also raises the issue of multiple control styles in corporate bodies(see section 6.6 below), and in particular whether this is feasible.
l
ufficient µfeel¶ 
:
if the logic of the parental developer is to be followed then theexecutives of the corporate parent must also have µsufficient feel
or understandingof the businesses within the portfolio to know where they can addvalue and where they cannot
:
this is an issue taken up in section 6.5.3 belowin relation to the logic of portfolios.The three roles of the parent can be considered in terms of the possible valueaddingroles of corporate parents suggested in section 6.4.1 above. Exhibit 6.7
Ex
hibit 6.7 
314
Part III  Strategic Choices
identifies how the main value-adding roles of corporate parents might differ inline with the discussion in sections 6.4.2±4 (though it should be noted that other value-adding roles may be performed as well).Clearly much of the above also has implications for how a multi-businesscorporationis organised and managed. In particular there are implications about theway in which the corporate parent interacts with and seeks to exercise more or less control over the businesses. Much of this has already been intimated above.A portfolio manager is likely to exert minimal strategic control, leaving businesslevelstrategy to chief executives of the businesses, and exercising control morethrough clear and challenging financial targets. On the other hand, the synergymanager and parental developer may be intervening a good deal in the businessesin order to achieve synergies across the business units or provide parental benefits. What would be very counterproductive is for the means of control to be

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