6.4.

4 The parental developer40
The parental developer seeks to employ its own competences as a parent to add value to its businesses. Here, then, the issue is not so much about how it can help create or develop benefits across business units or transfer capabilities between business units, as in the case of managing synergy. Rather parental developers have to be clear about the relevant resources or capabilities they themselves have as 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 research and development. If such parenting competences exist, corporate managers then need to identify a µparenting opportunity¶: a business or businesses which are not fulfilling their potential but where improvement could be made by the application of 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 argue that it is not just its huge financial muscle that matters but also that it is adept at negotiating with governments, as well as developing high-calibre internationally mobile executives who can work almost anywhere in the world within a Shell corporate framework. These competences are especially valuable in allowing it to develop businesses globally. 3M is single-mindedly concerned with inculcating a focus on innovation in its businesses. It tries to ensure a corporate culture based on this, set clear innovation targets for its businesses and elevate the standing of technical personnel concerned with innovation. Unilever has increasingly sought to focus on developing its core expertise in global branding and marketing in the fast-moving consumer goods company, with supporting state-of-the-art research and development facilities to back it up. It would argue
The parental developer: a corporate parent seeking to employ its own competences as a parent to add value to its businesses and build parenting skills that are appropriate 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 has significantly affected 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 Identifying 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 valueadding capabilities of the parent are wrongly identified then, far from the businesses benefiting, they will be subject to interference from the centre in ways which are counter-productive. There needs to be some hard evidence of such value-adding capabilities. l Focus: if the corporate parent identifies that it has value-adding capabilities in particular and limited ways, the implication is that it should not be providing services 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 services that were once seen as a traditional role of the centre: legal services, payroll services, training and development and so on. One firm, following such a course of action, claimed that by reducing the head office workforce in such ways 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 from merely 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, ensuring service 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 be more skilled at providing the service or doing it more efficiently. l The 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 help identify businesses that should not be part of the corporate portfolio. More uncomfortably, 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 learn from them; but this is the logic of synergy management rather than parental development. The question the parental developer has to ask is how it is adding value to that business. The logic of the parental development approach is that since the centre cannot add value, it is a cost and is therefore destroying value; that the parent should therefore consider divesting such a business,

realising a premium for it and reinvesting it in businesses where it can add value. Logical as this may seem, it is unlikely to find favour, not least because the executives at the centre might be indicted by their own shareholders for selling the µcrown jewels¶. l Mixed parenting: this, in turn, raises the question as to whether the parent could adopt multiple rationales in its parenting. For example, could it simultaneously act 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 dangers are, of course, that the rationale becomes confused, the centre unclear as to what it is trying to achieve, the business unit managers confused as to theirrole in the corporation and the cost of the centre escalates. A multiple approach also raises the issue of multiple control styles in corporate bodies (see section 6.6 below), and in particular whether this is feasible. l Sufficient µfeel¶: if the logic of the parental developer is to be followed then the executives of the corporate parent must also have µsufficient feel¶ or understanding of the businesses within the portfolio to know where they can add value and where they cannot: this is an issue taken up in section 6.5.3 below in relation to the logic of portfolios. The three roles of the parent can be considered in terms of the possible valueadding roles of corporate parents suggested in section 6.4.1 above. Exhibit 6.7

Exhibit 6.7
314 Part III ‡ Strategic Choices
identifies how the main value-adding roles of corporate parents might differ in line 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-business corporation is organised and managed. In particular there are implications about the way 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 businesslevel strategy to chief executives of the businesses, and exercising control more through clear and challenging financial targets. On the other hand, the synergy manager and parental developer may be intervening a good deal in the businesses in 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

inconsistent with the logic of the corporate parent. For example, if a portfolio manager were to have a diverse portfolio but try to intervene in the strategies of the businesses, it would very likely lead to disaster. Conversely, if a synergy manager tried to make transferences between business units without having an understanding of those businesses and involving themselves in the strategy of those businesses, it could be chaos.

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