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ñ The complexity of transitional business conditions creates a need for creating value through
aggregation of different businesses in complex corporate enterprise, which gives it the character of a
multi-business firm. Businesses could be defined as being whatever the enterprise chooses to operate as
organizationally separate profit-responsible units. Such business entities are often referred to as
Strategic Business Units (SBUs) and they are organized as largely separable businesses with control over
the main strategic levers that affect their performance. Besides this organizational definition, the
businesses could be defined in economic sense relating to Strategic Business Opportunities (SBOs),
which are clusters of product-market transactions able to sustain a successful focused business, with
financial independence. Processes of merger, acquisition, divestment, and the other processes of
transformation continually create new challenges to corporate management towards providing better
performance of aggregated businesses than they would achieve if they were independent, stand-alone
entities. It is corporate strategy that should guide key decisions in the businesses and coordinate their
business strategies. But, for most corporate enterprises, the corporate strategy is simply the sum of
business strategies, with some broad objectives and statement of business mission. Therefore, senior
managers who are responsible for defining the overall corporate strategy, often recognize that
something in their strategies is wrong. They may conceptually change strategy through offering some
financial guidelines, and determine which businesses are "core". This affirms creating advantage
through parenting (Parenting ñdvantage), which, as a principle, should guide decisions about the nature
of the businesses in the portfolio and about its structure. Namely, multi-business corporate enterprises
consist of businesses and a corporate hierarchy of line managers, functions, and staffs outside these
businesses, which refers to as the corporate parent that is responsible for making corporate decisions.
Parent could be defined as all those levels of management that are not part of customer-facing, profit-
responsible business units, or, simply, whatever is left outside the business units but within the
enterprise. The role of parent is multiple and, among other things, includes

making decisions about new businesses to support or acquisitions to make, determining the structure of
enterprise, defining budgeting and capital expenditure processes, setting the corporate values and
attitudes. The businesses better perform in aggregate under the parent's ownership than they would if
they were independent entities. ñlso, the parent must add more value than cost to the businesses in the

But, more ambitious aspiration for the parent is its ability to gain parenting advantage
- it should aim to be the best possible parent for its businesses. In aggregate, the businesses under its
"patronage" should perform not only better than they would as standalone entities but also better than
they would under "patronage" of any other parent. Corporate strategy should clarify how and where the
enterprise can achieve parenting advantage. The link between parenting advantage and corporate
strategy therefore parallels the link between competitive advantage and business strategy. Competitive
advantage is in the heart of successful business strategies. It guides strategic analysis and provides a
basis for assessing alternative action plans. The concept of parenting advantage plays a similar role at

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the corporate level. It should be the fundamental test for judging corporate strategies and the guiding
principle in corporate-level decisions, guiding the decisions towards better market opportunities and
higher corporate performance.

There are nine propositions for achieving parenting advantage and, consequently, for successful
implementation of corporate strategy.

PROPOSITION 1. Justifying the parent

Many of the businesses in multi-business corporate enterprise could be viable as stand-alone entities.
Since the corporate parent has no external customers for its product/services, it can justify itself if it
influences businesses collectively to perform better than they would as independent entities. The
challenge for the corporate parent to justify itself is important because it focuses attention on whether
and how its activities do add value, which leads to the elimination of worthless and bureaucratic
routines in the activities of enterprise.

PROPOSITION 2. Parenting advantage

Corporate parents compete with each other for the ownership of businesses. Therefore, for keeping
their stakeholders (especially businesses), the parents must add more value to the businesses in the
portfolio than other rival parents would. This objective, which is referred to as achieving parenting
advantage, should be one of the most important objectives of corporate strategy. Namely, parenting
advantage should be the guiding criterion for corporate-level strategy, rather as competitive advantage
is for business-level strategy.

PROPOSITION 3. Value destruction

ñll multi-business enterprises have tendencies to destroy value. It is corporate hierarchy, especially
senior management, that inevitably destroys some value. Value destruction drivers (so-called
information filters) are related to the tendency of business managers to filter the information they
provide to corporate management in order to present their businesses in the most favorable light. For
avoiding value destruction, corporate parents must be more disciplined, which implies avoiding
intervention in businesses unless they have specific reasons for believing that their influence will be
positive, or avoiding extension of their portfolio into new businesses unless they are sure that they will
be able to add value. So, good corporate strategy should recognize the tendencies of value destruction
and be designed to minimize their influence as much as to maximize value creation.

PROPOSITION 4. Lateral synergies

Since there is existence or potential for lateral linkages between the businesses in corporate enterprise,
the main role of parent managers should be to create synergy. It primarily includes their pursuing of real
synergy opportunities, and their positive interventions in the lateral relationships between businesses.

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The parent managers should also focus their efforts only on those synergies that need central
intervention as well as encourage so-called market place relationships between business units. So, the
importance of lateral synergies in creating value in corporate enterprise requires from corporate parents
to pay relatively more attention to other sources of value creation, in particular their ability to improve
performance in each individual business as an independent entity.

PROPOSITION 5. Value creation

Value creation primarily occurs when the parent sees an opportunity for a business to improve
performance and has the skills, resources and other characteristics for helping the business to seize the
opportunity. This means that the parent enhances both the individual performance of the business and
the value of linkages between the businesses, and creates value by altering the composition of the
business portfolio performing its corporate development activities. The conditions for value creation are
important because they force corporate parent to think about major opportunities for added value
through the corporate strategy and also help corporate parent to focus its efforts on building special
competences or skills that fit the particular opportunities targeted by the businesses.

PROPOSITION 6. Corporate office and management processes

The importance of the size, staffing and design of the corporate office as well as managing corporate
processes (such as planning, performance targeting and monitoring, etc.) are not in question, and
managers devote considerable attention to them. But if corporate functions and processes are not
developed as an integral part of the overall value adding corporate strategy, they may lead to little or no
improvement in performance. For parent managers it is far more important to possess the skills that are
suitable for the parenting opportunities targeted by the corporate-level strategy

PROPOSITION 7. Diversity

It is a fact that highly diverse corporate enterprises are more difficult to manage than less diverse ones.
So a vital managerial guidance for corporate parent is provided by creating valid measures of diversity.
In that sense, diversity is best measured in terms of the differences in parenting needs and
opportunities between businesses in portfolio. To avoid excessive diversity, corporate parent should
build its portfolio around businesses with similarities in terms of parenting needs and opportunities.

PROPOSITION 8. Stretch and fit

Corporate parent must realistically consider the speed with which it can build new skills and understand
new types of businesses. It is supposed to search for new opportunities continuously and refine and
extend parenting skills, which encourage innovative ideas and help eliminate many disasters of
excessive corporate ambition. Therefore, enterprises that do push forward into new businesses will
prosper more if they choose those businesses that are compatible with parenting skills that they can
develop. It is better to choose a narrower range of businesses where greater fit can be created. Good

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corporate strategy should maintain a balance between the stretch for new opportunities and fit with the
parent's existing skills.

PROPOSITION 9. Business unit definition and corporate structure

Business units (businesses) represent the basic "building blocks" in any multi-business corporate
enterprise. Business unit definition and, consequently, corporate structure have a profound impact on
both the value creation opportunities and the value destruction risks for the corporate parent. They
impact the behavior and aims of business managers and the size and nature of parenting opportunities.
Inappropriate business definitions lead to compromised business strategies and missed opportunities
for parenting value creation. Therefore, decisions on unit definitions and corporate structure should be
determined by careful analysis of their likely impact on value creation. Getting the unit definitions and
corporate structure right is an important precondition for a successful corporate strategy.

Naturally, these propositions are not obligatory for corporate managers in their managerial activities.
They are recommended as elements of successful corporate strategy and ways for achieving parenting
advantage in multi-business corporate enterprises as the factor of their higher competitive advantage.

The process of transition results in a discontinuity of business activities, growth and development of
enterprises, which requires flexible and adaptive forms of organizational structure and management
system. This implies making complex corporate business arrangements. ñt the same time, there is the
process of creating dynamic and unpredictable markets, immanent to developed market economy.
These markets always change opportunities and capabilities for creating competitive and corporate
advantage and business success of enterprise. ñdjustment to market possibilities for performing
efficient business activities changes the corporate "repertoire" of corporate strategy. The new corporate
strategy focuses on corporate strategic processes of restructuring or "remapping" business portfolio as
well as on coevolving its elements, on the basis of simple rules for its application. These are a guarantee
for performing business activities in a more efficient way.

Complexity of transitional business conditions creates a need for creating value through aggregation of
different businesses into a corporate enterprise. Processes of transformation create some challenges
towards affirming advantage through parenting, or providing better performance of aggregated
businesses than they would achieve as independent entities. The concept of parenting advantage makes
a test for proposed corporate strategies, guiding them towards better market opportunities and higher
corporate performance.

ñdvantages of Corporate Parenting

î‘ Xnvisioning strategic Intent
~‘ Focus
~‘ Clarity to external stakeholders
~‘ Clarity to business units

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î‘ Central Services and Resources
~‘ Investment
~‘ Scale ñdvantage
~‘ Transferable management capabilities
î‘ Intervention at Business Level
~‘ Monitor performance
~‘ ñction to improve performance
~‘ Challenge/develop strategic ambitions
~‘ Coaching/training
~‘ Develop strategic capabilities
~‘ ñchieve synergies
î‘ Xxpertise
~‘ Provide expertise/services
~‘ †nowledge creation/sharing
~‘ Leverage
~‘ Brokering linkages/accessing external networks

Disadvantages of Corporate Parenting

î‘ Bureaucracy
~‘ ñdds cost
~‘ inders responsiveness
î‘ Buffer from reality
~‘ Financial safety net
î‘ Diversity and size
~‘ Lack of clarity on overall vision
î‘ Managerial ambition
~‘ Xmpire building

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î‘ G        

~‘ Xfficiency/leverage
~‘ Xxpertise
~‘ Investment and competence building
~‘ Fostering innovation - coaching/learning
~‘ Mitigating risk
~‘ Image/networks
~‘ Collaboration/co-ordination/brokerage
~‘ Standards/performance assessment
~‘ Intervention (e.g. acquisition, disposal, change agency)

The essence of the parenting school is that value is created through the use of key resources
found at the corporate centre which are properly matched to the types of SBUs in the
organisation portfolio. Value in this case can mean a number of things including providing
opportunities for SBUs to develop; creating linkages between SBUs; providing central services
to SBUs; and protecting the interests of SBUs

These core ͚parenting͛ resource of corporate headquarters can offer

î‘ Central functions and services, e.g. international treasury management

î‘ Corporate development initiatives, e.g. centralised R&D or new acquisitions
î‘ ñdditional finance for growth areas principle of product portfolio/ growth share matrix
î‘ Formal linkages between businesses, e.g. the transfer of key resources such as
technology or employees


Synergy can occur in situations where two or more activities/processes complement each other
to the extent that their combined effect is greater than the sum of their parts. This can be
achieved via
î‘ Through sharing resources
î‘ Transferring skills
î‘ Related products/services

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î‘ Related customers/clients
î‘ Related by competence

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For parenting to add value, the role of headquarters needs careful scrutiny. Specifically, the
parent needs two skills
î‘ Understanding of the key factors for success in all industries of its subsidiaries
î‘ ñbility to contribute something extra, perhaps in one or more of the basic parenting areas
such as Finance, RM or R&D.


Value is only created under three conditions
î‘ Business units are not fulfilling their potential
~‘ parenting opportunity
î‘ Centre has relevant resources or capabilities
~‘ parenting skills
î‘ Centre managers understand the business units well enough to avoid destroying value
~‘ sufficient feel

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Corporate parents have the potential to add value to their businesses through their influence
on the stand-alone performance of the businesses. These are that
(1) there should be a genuine parenting opportunity to improve the performance of the
(2) the parent should have skills, management processes, and other characteristics that are
suitable for realising "the opportunity", and
(3) the parent should have sufficient feel for the critical success factors in the business avoid
inadvertently destroying value through inappropriate influences.

ow can the corporate centre add value to the businesses in the group? This fundamental issue
lies at the heart of corporate strategy for all multibusiness companies. With a sound corporate
strategy, the corporate parent creates high value through its influence on the businesses,
whereas with a weak corporate strategy the corporate parent frequently destroys value. There
are four ways that a corporate parent can create value for their businesses

ͻ ½       This concerns the parent company͛s impact upon the strategies
and performance of each business the parent owns. It is things such as setting performance
targets and deciding capital expenditure direction. This can create value as long as the targets
and strategies are realistic and recognises the need of the organisation.

ͻ    G   This works on increasing value through synergy, which is transfer of
capabilities and knowledge between the parent and the business units. Tata- Corus deal is an
example, Corus͛s abilities to produce high quality speciality products is used to enhance Tata͛s
product portfolio.

ͻ     ½  G   The parent can provide functional leadership and cost
effectiveness for the businesses. Let͛s consider, Tata-Corus again, Tata͛s know-how of
producing lost cost steel helps Corus to reduce costs.

ͻ          Value is created by changing the portfolio of the
parent business. This involves actively investing, acquiring or divesting businesses. For example,
Coke actively invests in bottling plants and also sells them off according to the situation.
owever, Porter has said that in reality, the parent company often destroys value through its
acquisitions by paying a premium which it fails to recover.

Research that have been carried out at the ñshridge Strategic Management Centre (1) suggests
that the most important role of the corporate parent lies in influencing the performance of the
businesses as standalone entities, not the realisation of "synergies" between business units, on

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which so many commentators concentrate. Indeed, most of the main management processes,
such as budgeting, strategic planning and capital expenditure reviews, focus primarily on
exercising what we call stand-alone parenting influence.

Too often, criticism of corporate parents focuses exclusively on the level of corporate overhead
costs. Certainly, these costs must be paid for out of the profits of the operating businesses and
are, in many companies, excessive. But the real sources of value destruction typically lie much
more in mistakes that the parent causes through its influence on the businesses than in the
corporate overhead as such. Poor appointments, invalid objectives, inappropriate strategies,
and unsuitable, slow and costly review processes damage performance much 1more than the
corporate overhead charge.


Some examples will illustrate how value can be destroyed by ineffective stand-alone parenting.

ͻ ñ major business in a large diversified group picked up signals that the corporate team
was looking for at least 10% per annum profit growth from all the businesses in the group. The
business in question was a mature and profitable cash cow, whose first priority should have
been to maintain its profitability and cash generation, not to search for growth options. The
corporate growth objectives distracted the business's management from this priority task, and
led only to a waste of time and resource on investigating and pursuing ultimately fruitless
growth initiatives.

ͻ ñn oil company decided that it would help its newly acquired minerals business to
perform better by suggesting some new approaches to exploration. Unfortunately, these
approaches, which were based on ail industry practices, were quite inappropriate for the
minerals business. owever, the minerals management term felt compelled to try some of the
suggestions from its corporate parent and took several years to recover from the losses that

ͻ Group management in an industrial services company devised an extensive and

sophisticated strategic planning process, through which the businesses in the company were
expected to review their strategies with the centre. Most of the businesses, however, were
facing their main competition from low overhead, local entrepreneurs, and needed to focus
their attention on driving down costs and improving customer relationships. By insisting on the
strategic planning process, which led simply to sterile and inconclusive debates about issues
that the business managers felt were not of immediate importance, the parent not only

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imposed extra costs and delayed decisions, but also encouraged the wrong sorts of decisions
and priorities.

ͻ The damage caused by stand-alone influence is often seen most clearly in the experience
of management buy-outs. ñ buy-out removes the influence of the parent, for good or ill, and
forces the business to stand on its own feet and make its own decisions. ñgain and again, buy-
out teams seem able to improve their performance and can clearly identify the ways in which
their previous parents inhibited their development.


There is a basic and unavoidable reason for the difficulty that corporate parents find in creating
value through stand-alone influence. The chief executive and the parenting team have a variety
of objectives, interests and concerns. Xach business can receive only a fraction of their
attention, and must be reviewed along with all the other businesses in the portfolio. But, to
improve performance, stand-alone influence must result in different and better decisions than
the team dedicated to running the business should have reached. Why should the-chief
executive in 10% of his time be able to perceive better strategies for a business than energetic
managers devoting 100% of their time to the business? Why should top-down corporate
objectives draw more performance out of a business than objectives built on a detailed
understanding of what the business is capable of? Why should common corporate review
processes imposed across all the businesses bring out issues that would not be surfaced by the
management process built for each business by its own team? Intrinsically, the parent must
almost always be less informed and less close to each business's needs than the businesses own
management. Unless one assumes omniscience on the part of the parent, or incompetence on
the part of the business team, the difficulty of the task facing the parent is evident. We refer to
this basic problem for corporate parents as the "10% versus 100% paradox". Reinforcing the
10% versus 100%paradox, it can be argued that the nature of stand-alone parenting in many
multi-business companies systematically perverts business decisions. If each business feels that
it must complete with every other business in the portfolio for corporate attention and
resources, an incentive exists to bias information and proposals to win the competition with the
other businesses. This does not lead to open and productive discussion of plans and strategies
for the business.

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