Chapter 8

Corporate Strategy
Prof. SARI WAHYUNI, Ph.D.
1–2
 ⼯作概述
Learning Objectives
• LO 8-1 Explain when and how business diversification can enhance shareholder value.

• LO 8-2 Describe how related diversification strategies can produce cross-business

strategic fit capable of delivering competitive advantage.

• LO 8-3 Identify the merits and risks of unrelated diversification strategies.

• LO 8-4 Use the analytic tools for evaluating a company’s diversification strategy.

• LO 8-5 Examine the four main corporate strategy options a diversified company can
employ to improve company performance.
 PART I - IV
I. What crafting a diversification strategy entails?
II. When and why diversification makes good strategic sense?
III. The various approaches to diversifying a company’s business lineup
IV. The pros and cons of related versus unrelated diversification strategies.
 ⼯作概述
What does crafting a diversification strategy entail?
The task of crafting a diversified company’s overall corporate strategy falls squarely in the lap of top-
level executives and involves three distinct facets:
● Management decides which new
Picking new industries to
industries to enter. The choice of
01 enter and deciding on the
industries depends upon on the strategic
means of entry.
rationale

Pursuing opportunities to ● Management determines whether there

02 leverage cross-business value are opportunities to strengthen a
chain relationships, diversified company’s businesses
● Strategic options for improving the
Initiating actions to boost the
corporation’s overall performance, for
combined performance of the
example: sticking closely with the existing
03 corporation’s collection of
business lineup and pursuing
businesses
opportunities presented by these
businesses,
⼯作概述
When to consider diversifying?

1. As long as a company has plentiful

opportunities for profitable growth in its
present industry, there is no urgency to
pursue diversification. But growth
opportunities are often limited in mature
industries and markets where buyer
demand is flat or declining.

2. In addition, changing industry

conditions—new technologies, inroads
being made by substitute products, fast-
shifting buyer preferences, or
intensifying competition— can
undermine a company’s ability to deliver
ongoing gains in revenues and profits.
⼯作概述
Building shareholder value: the ultimate justification for
diversifying
In principle, diversification cannot be considered wise or justifiable unless it results in added long-
term economic value for shareholders. To add shareholder value, a move to diversify into a new
business must pass the three Tests of Corporate Advantage:

01
The Industry
Attractiveness Test
The industry to be entered
through diversification must be
structurally attractive (in terms of
the five forces), have resource
requirements that match those of
the parent company, and offer
good prospect for growth,
profitability, and return on
investment.
02
The Cost of Entry Test
The cost of entering the target
industry must not be so high as
to exceed the potential for good
profitability
03
The Better-off Test
Diversifying into a new business
must offer potential for the
company’s existing businesses
and the new business to perform
better together under a single
corporate umbrella than they
would perform operating as
independent, stand-alone
businesses—an effect known as
synergy
 ⼯作概述
Approaches to diversifying the business lineup
• Buying an ongoing operation allows the acquirer to move directly to the task of
building a strong market position in the target industry, rather than getting
bogged down in trying to develop the knowledge, experience, scale of operation,
Diversifying by Acquisition and market reputation necessary for startup entrant to become an effective
of an Existing Business competitor.
• Acquisition is quite expensive
• High integration costs and excessive price premiums might fail

• Corporate venturing (or new venture development) is the process of developing

Entering a New Line of
Business through Internal
Development
new businesses as an outgrowth of a company’s corporate entrepreneurship or
intrapreneurship since it requires entrepreneurial-like qualities within a larger
enterprise.
• The risks associated with internal startups can be substantial, and the likelihood of
failure is often high

• For pursuing an opportunity that is too complex, uneconomical, or risky for one
company to pursue alone.
Using Joint Ventures to
• When the opportunities in a new industry require a broader range of
Achieve Diversification competencies and know-how

• To diversify into a new industry

 ⼯作概述
Approaches to diversifying the business lineup
Choosing a Mode of Entry

The choice of how best to enter a new business—whether through internal development, acquisition, or joint
venture—depends on the answers to four important questions:

The Question of Critical Resources and Capabilities

01 If a firm has all the resources it needs to start up a new business it may
choose internal development. However, if missing , a firm must obtain
these missing resources through either acquisition or joint venture

The Question of Entry Barriers

02 If EB is low and the industry is populated by small firms, internal

development may be the preferred mode. If EB is high, the company may
enter with ease if it has the requisite resources and capabilities for
overcoming high barriers.
The Question of Speed
03 Acquisition is a favored mode when speed is of the essence. Speed is
important where early movers gain experience-based advantages. But
when it is a second-mover, joint venture or internal development may be
preferred.
The Question of Comparative Cost
04 Acquisition can be a high-cost mode due to the need to pay a premium
over the share price of the target company. Joint ventures may provide a
way to conserve on such entry costs. But there are organizational
coordination costs and transaction costs that must be considered,
10

. Crisis : Dangerous vs Opportunities?

 Example: Dwi Soetjipto Journey in Crisis

Instansi /
Krisis/Momentum Tahun Posisi
Korporasi
Reformasi Kepemimpinan 1998 Semen Padang Direktur Litbang

….sd
Dampak Lanjutan : Tuntutan Spin Off Semen Padang Direktur Utama
2003
Krisis Ekonomi Dunia 2008 Semen Gresik Direktur Utama
Momentum lanjutan Go Global &
Transformasi Semen Indonesia
2012 Semen Indonesia Direktur Utama

Krisis Harga Minyak 2014 Pertamina Direktur Utama

Covid-19 2020 SKK Migas Kepala

11
Leading in Transformation : Semen Indonesia

Go International
Biggest Cement Industry in South East Asia

TENTANG 3 BUMN SEMEN

❑ Berdiri 1910, pabrik semen tertua di Indonesia
❑ Sampai tahun 1994, pabrik semen BUMN terbesar dengan
kapasitas 2,13 juta ton
❑ Sumber bahan baku melimpah
❑ Engineering yang kuat

❑ Berdiri 1957, pabrik semen pertama dibangun setelah

Indonesia merdeka atas inisiatif Presiden Soekarno
❑ BUMN pertama Go Public pada tahun 1991
❑ Digunakan pada Mega Proyek di Indonesia : Monas, Istiqlal,
DPR/MPR, Semanggi, Jatiluhur, Jembatan Suramadu dll

❑ Berdiri 1968, sebagai pabrik semen pertama di Indonesia

Timur
❑ Sumber bahan baku melimpah
❑
12
Pabrik semen terbesar di kawasan timur Indonesia
 LEADING IN THE TRANSFORMATION : BACKGROUND

2005
✔ Proses konsolidasi tidak berjalan mulus karena faktor berikut :
• Lack of trust (antara anak usaha dengan induk)
• Tidak ada sinergi
• Tidak ada transparansi dalam informasi.
• Fanatisme kelompok dan kedaerahan sangat tinggi

✔ SGG gagal menyampaikan laporan tahunan konsolidasian

• Opini Akuntan Publik: adverse, disclaimer, and qualified.
• Beberapa kali Saham Semen Gresik (SMGR) di suspend
oleh otoritas bursa

✔ Harga saham SMGR jatuh dan lebih rendah dari enterprise value.

13
 LEADERSHIP IN CORPORATE CRISIS : DIRUT SEMEN PADANG
2003-2005

Demo “menuntut Spin Off” dan Menolak Dirut Dwi

4 bulan berkantor di
Soetjipto “pengasingan,di salah satu
kamar Hotel
14
Pangeran - Padang
 SYNERGY AND INNOVATION (2005-2012)

Business Function Programs

1 Production and quality Implementing ISO, TPM, TQC, etc

2
Marketing and sales Synergy on market distribution and promotion

3 Procurement and warehouse Synergy on inventory (spare parts) and packing plant

4 Information and Technology Implementation of single ERP for 3 companies

5 Financial and accounting Funding and collateral synergy
6 Human capital Sharing best practices and expert staffs

S S
G I
STRATEGI
C S S S S S
P T P T G
HOLDING

15
 STRATEGIC HOLDING – GO INTERNATIONAL (2012)

Go Interna Leader in
Sinergy &
Holding sional Regional
Innovation

✔ Strategic Holding Establish : PT Semen Indonesia (Persero) Tbk

✔ Vision : To Be The Leading Cement Company in Indonesia and
SouthEast Asia Leader in South East Asia Marketing
❑ Leader in Indonesia
Production Focus Narrow Focus Vertically Integrated
Focus 8 – 10 Production Plants Integrated

❑ 3 Production Plants MIND SET Regional Player Environmental

CHANGES Leadership
❑ 3 Operating Company
❑ Small “Green” Project

S S
I I

S S S S S S TLC
P T G P T G C
16
What do you learn from
Semen Indonesia case?

1–17
 ⼯作概述
Choosing the diversification path: related vs unrelated businesses

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Businesses are said to be related when their value chains exhibit competitively important cross-
business commonalities. The big appeal of related diversification is the opportunity to build shareholder
value by leveraging these cross-business commonalities into competitive advantages

Businesses are said to be unrelated when the resource requirements and key value chain activities
are so dissimilar that no competitively important cross-business commonalities exist.
⼯作概述
Choosing the diversification path: related vs unrelated businesses

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⼯作概述
Diversification into related business
A related diversification involves sharing or
transferring specialized resources and
capabilities.

Related diversification is based on value

chain matchups with respect to key value
chain activities

For example:
L’Oréal has diversified into cosmetics, hair
care products, skin care products, and
fragrances (but not food, transportation,
industrial services, etc)
⼯作概述
Diversification into related business
⼯作概述
Diversification into related business
Identifying Cross-Business Strategic Fit along the Value Chain
Strategic Fit in Customer Service
06 Activities
→ consolidating after-sale service and repair
organizations for the products of closely
related businesses into a single operation.
Strategic Fit in Supply Chain Activities
01 → Dell’s strategy to partnership with
supplier of other PC component
Strategic Fit in R&D and Technology
Activities
02 → Cable TV companies with high speed
internet company
Manufacturing-Related Strategic Fit
03 → Smucker’s acquired P&G Jif peanut butter
business, and combine the manufacture of
the two brands of peanut butter products
Strategic Fit in Sales and Marketing
04 Activities
→ The products of related businesses can be
promoted at the same media ads.
Distribution-Related Strategic Fit
05 → potential cost savings in sharing the same
distribution facilities/ using many of the same
wholesale distributors and retail dealers.
⼯作概述
Diversification into related business
Strategic Fit, Economies of Scope, and Competitive Advantage

Strategic fit in the value chain activities of a diversified

corporation’s different businesses opens up opportunities
for economies of scope—a concept distinct from
economies of scale.

Economies of scope are cost reductions that flow from

operating in multiple businesses (a larger scope of
operation). This is in contrast to economies of scale, which
accrue from a largersized operation.

Recall:
Economies of scale are cost savings that accrue directly
from a larger-sized operation—for example, unit costs may
be lower in a large plant than in a small plant. In contrast,
economies of scope are cost savings that flow from
operating in multiple businesses (a larger scope of
operation)
⼯作概述
Choosing the diversification path: related vs unrelated businesses

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 ⼯作概述
Diversification into unrelated business
A willingness to diversify into any business in
any industry is unlikely to result in successful
unrelated diversification. The key to success
even for unrelated diversification is to create
economic value for shareholders.

The common criteria before deciding to enter

unrelated business:

1. Whether the business can meet

corporate targets for profitability and
return on investment.
2. Whether the business is in an industry
with attractive growth potential.
3. Whether the business is big enough to
contribute significantly to the parent
firm’s bottom line.

Presenter: Akhsin Muamar

 ⼯作概述
Diversification into unrelated business
Building Shareholder Value via Unrelated Diversification

The Benefits of Astute Corporate Parenting

01 The top executives of a large diversified corporation

have among them many years of accumulated experience
in a variety of business settings

Judicious Cross-Business Allocation of

Shareholder Financial Resources
02
Value Corporate parent can add value by shifting funds from
business units generating excess cash to cash-short
businesses with appealing growth prospects.

Acquiring and Restructuring Undervalued

Companies
03 Parent Co can acquires weakly-performing companies at
a bargain price and then restructuring their operations in
ways that produce sometimes dramatic increases in
Presenter: Akhsin Muamar profitability.
 ⼯作概述
Diversification into unrelated business
The Path to Greater Shareholder Value through
Unrelated Diversification

To produce company-wide financial results above and

beyond what the businesses could generate operating as
standalone entities, corporate executives must do three
things to pass the three Tests of Corporate Advantage:

1. Diversify into industries where the businesses can

produce consistently good earnings and returns on
investment (to satisfy the industry-attractiveness
test).
2. Negotiate favorable acquisition prices (to satisfy the
cost of entry test).
3. Do a superior job of corporate parenting via high-
level managerial oversight and resource sharing,
financial resource allocation and portfolio
management, and/or the restructuring of
underperforming businesses (to satisfy the better-off
test).
⼯作概述
Diversification into unrelated business
The Drawbacks of Unrelated Diversification

The problems arise if things

start to go awry in a business
Demanding Managerial and corporate management
Requirements has to get deeply involved in
the problems of a business it
does not know much about
Unrelated diversification
strategies have two
important negatives that
undercut the pluses:
Unrelated diversification offers
Limited Competitive only a limited potential for
competitive advantage beyond
Advantage Potential what each individual business
can generate on its own.
⼯作概述
Diversification into unrelated business
Misguided Reasons for Pursuing Unrelated Diversification
Companies sometimes pursue unrelated diversification for reasons that are entirely misguided.
These include the following:
Growth
Risk reduction While unrelated diversification may
enable a company to achieve rapid or
Spreading the company’s investments
continuous growth, firms that pursue
over a set of diverse industries to spread
growth for growth’s sake are unlikely to
risk cannot create long-term
maximize shareholder value. Only
shareholder value, since the its
profitable growth—the kind that comes
shareholders can flexibly reduce their
from creating added value for
exposure to risk by investing in a
shareholders—can justify a strategy of
diversified portfolio of stocks and bonds.
unrelated diversification.
Stabilization
Managers sometimes pursue broad
diversification and hopes that market
downtrends in some of the company’s
businesses will be partially offset by
cyclical upswings in its other businesses.
In actual practice there’s no convincing
evidence that the consolidated profits of
firms with unrelated diversification
strategies are more stable
 ⼯作概述
Combination related - unrelated diversification strategies

• There’s nothing to preclude a company

from diversifying into both related and
unrelated businesses.
• Some diversified companies are really
dominant-business enterprises—one major
“core” business accounts for 50 to 80
percent of total revenues and a collection of
small related or unrelated businesses
accounts for the remainder
• There’s ample room for companies to
customize their diversification strategies to
incorporate elements of both related and
unrelated diversification, as may suit their
own competitive asset profile and strategic
vision
 PART V - VII
V. How to evaluate the attractiveness of a diversified company’s business lineup?
VI. How to decide whether it has a good diversification strategy”
VII. The strategic options for improving a diversified company’s future
performance.
⼯作概述
EVALUATING THE STRATEGY OF A DIVERSIFIED COMPANY

Evaluating Industry Attractiveness

Strategic analysis of diversified companies not only 1
builds on the concepts and methods used for
Evaluating Business Unit Competitive Strength
single-business companies. But also used 2
additional aspects to consider and a couple of new
Determining the Competitive Value of Strategic Fit in
analytic tools to master.
3 Diversified Companies

The following are six steps to evaluate the pros Checking for Good Resource Fit
4
and cons of diversified companies' strategies and
measures to improve company performance: Ranking Business Units and Assigning a Priority for
5 Resource Allocation

Crafting New Strategic Moves to Improve Overall

Corporate Performance
6
 ⼯作概述
Step 1: Evaluating Industry Attractiveness

A principal consideration in evaluating the caliber of a diversified company’s strategy is the attractiveness of the industries in
which it has business operations. The more attractive the industries (both individually and as a group) that a diversified
company is in, the better its prospects for good long-term performance.

01
Does each industry the company
has diversified into represent a
good market for the company to
be in—does it pass the industry-
attractiveness test?
02 03
Which of the company’s How appealing is the whole
industries are most attractive, group of industries in which the
and which are least attractive? company has invested?
 ⼯作概述
Step 1: Evaluating Industry Attractiveness

Calculating Industry-Attractiveness Scores

A simple and reliable analytic tool for gauging industry attractiveness involves calculating quantitative industry-attractiveness
scores based on the following measures:

Market size and projected growth rate. Big industries are more attractive than small industries, and fast-growing
industries tend to be more attractive than slow-growing industries, other things being equal.
The intensity of competition. Industries where competitive pressures are relatively weak are more attractive than
industries where competitive pressures are strong.
Emerging opportunities and threats. Industries with promising opportunities and minimal threats on the near horizon
are more attractive than industries with mod- est opportunities and imposing threats.
The presence of cross-industry strategic fit. The more one industry’s value chain and resource requirements match up
well with the value chain activities of other industries in which the company has operations, the more attractive the
industry is to a firm pursuing related diversification.
Resource requirements. Industries in which resource requirements are within the com- pany’s reach are more attractive
than industries in which capital and other resource requirements could strain corporate financial resources and
organizational capabilities.
Social, political, regulatory, and environmental factors. Industries that have significant problems in such areas as
consumer health, safety, or environmental pollution or those subject to intense regulation are less attractive than
industries that do not have such problems.
Industry profitability. Industries with healthy profit margins and high rates of return on investment are generally more
attractive than industries with historically low or unstable profits.
 ⼯作概述
Step 1: Evaluating Industry Attractiveness

Each attractiveness measure is then assigned a

weight reflecting its relative importance in
determining an industry’s attractiveness.

Finally, each industry is rated on each of the

chosen industry-attractiveness mea- sures, using
a rating scale of 1 to 10.

Weighted attractiveness scores are then

calculated by multiplying the industry’s rating on
each measure by the corresponding weight.

Interpreting the Industry-Attractiveness

Scores

Blow 5 : probably do not pass the attractiveness

test.
Above 5 : probably fair to conclude that the
group of industries the company operates in is
attractive as a whole.
 ⼯作概述
Step 2: Evaluating Business Unit Competitive Strength

Doing an appraisal of each business unit’s strength

and competitive position can reveal opportunities
for success in the industry and review the
competitive strength of the business unit

Calculating Competitive-Strength Scores

for Each Business Unit :

Relative market share.

Costs relative to competitors’ costs.
Ability to match or beat rivals on key product
attributes.
Brand image and reputation.
Other competitively valuable resources and
capabilities (collaborative partnerships)
Ability to benefit from strategic fit with other
business units.
Ability to exercise bargaining leverage with key
suppliers or customers.
Profitability relative to competitors.
⼯作概述
Step 2: Evaluating Business Unit Competitive Strength
⼯作概述
Step 3: Determining the Competitive Value of Strategic Fit in Diversified Companies
Identifying the Competitive Advantage Potential
of Cross-Business Strategic Fit

Assessing the degree of strategic fit across a

company’s businesses is central to evaluating its
related diversification strategy. But more than just
checking for the presence of strategic fit is
required here. The real question is how much
competitive value can be generated from whatever
strategic fit exists.

The greater the value of cross-business strategic

fit in enhancing the performance of a diversified
company’s businesses, the more competitively
powerful is the company’s related diversification
strategy.
 ⼯作概述
Step 4: Checking for Good Resource Fit

Financial Resource Fit

A strong internal capital market allows a diversified company to add value by shifting capital from busi- ness units generating
free cash flow to those needing additional capital to expand and realize their growth potential.

The greater the extent to which a diversified company is able to fund investment in its businesses through internally
generated cash flows rather than from equity issues or borrowing, the more powerful its financial resource fit and the less
dependent the firm is on external financial resources.

A portfolio approach to ensuring financial fit among a firm’s businesses is based on the fact that different businesses have
different cash flow and investment characteristics.

Financial fit Business generates Cash flow for Additional Industry Concern
cash flows growth Capital
Cash hog too small Fully not enough Yes Immature Whether to
industries continue
Cash cow Over and above its Fully enough No mature industries How to keep the
internal healthy
 ⼯作概述
Step 5: Ranking Business Units and Assigning a Priority for Resource Allocation

Such ranking helps top-level executives assign each business a priority for resource support and capital investment.

Factors that should be considered ：

• sales growth, profit growth
• contribution to company earnings
• return on capital invested in the business
• cash flow from operations
 ⼯作概述
Step 6: Crafting New Strategic Moves to Improve Overall Corporate Performance

The strategic options boil down to four broad categories of actions

 ⼯作概述
Step 6: Crafting New Strategic Moves to Improve Overall Corporate Performance

Broadening a Diversified Company’s Business Base Diversified

Companies sometimes find it desirable to build positions in new industries, whether related or unrelated.

Several motivating factors are in play.

One is sluggish growth that makes the potential reve- nue and profit boost of a newly acquired business look attractive.
Second is the potential for transferring resources and capabilities to other related or complementary businesses.
Third is rapidly changing conditions in one or more of a company’s core businesses, brought on by technological, legislative, or
demographic changes.
Fourth, and very important, motivating factor for adding new businesses is to complement and strengthen the market position and
competitive capabilities of one or more of the company’s present businesses.
Another important avenue for expanding the scope of a diversified company is to grow by extending the operations of existing
businesses into additional country markets,

Retrenching to a Narrower Diversification Base

A number of diversified firms have had difficulty managing a diverse group of businesses and have elected to exit some of them. Selling a
business outright to another company is far and away

，
If a business selected for divestiture has ample resources and capabilities to compete successfully on its own either by selling shares to
the public via an initial public offering or by distributing shares in the new company to shareholders of the corporate parent. .
⼯作概述
Step 6: Crafting New Strategic Moves to Improve Overall Corporate Performance

Restructuring a Diversified Company’s Business Lineup Restructuring

a diversified company on a companywide basis (corporate restructuring) involves divesting some businesses and/or acquiring
others, so as to put a whole new face on the company's business lineup.

Perfomance radical surgery on a company business lineup is appealing when its financial performance is being squeezed or
eroded by:
A serious mismatch between the company’s resources and capabilities and the type of diversification that it has pursued.
Too many businesses in slow-growth, declining, low-margin, or otherwise unat- tractive industries.
Too many competitively weak businesses.
The emergence of new technologies that threaten the survival of one or more important businesses.
Ongoing declines in the market shares of one or more major business units that are falling prey to more market-savvy
competitors.
An excessive debt burden with interest costs that eat deeply into profitability.
Ill-chosen acquisitions that haven’t lived up to expectations.
⼯作概述
Step 6: Crafting New Strategic Moves to Improve Overall Corporate Performance

Restructuring a Diversified Company’s Business Lineup Restructuring

a diversified company on a companywide basis (corporate restructuring) involves divesting some businesses and/or acquiring
others, so as to put a whole new face on the company's business lineup.

Perfomance radical surgery on a company business lineup is appealing when its financial performance is being squeezed or
eroded by:

A serious mismatch between the company’s resources and capabilities and the type of diversification that it has pursued.
Too many businesses in slow-growth, declining, low-margin, or otherwise unat- tractive industries.
Too many competitively weak businesses.
The emergence of new technologies that threaten the survival of one or more important businesses.
Ongoing declines in the market shares of one or more major business units that are falling prey to more market-savvy
competitors.
An excessive debt burden with interest costs that eat deeply into profitability.
Ill-chosen acquisitions that haven’t lived up to expectations.
 Article
How to assess the corporate parenting
strategy? A conceptual answer
Matthias Kruehler, Ulrich Pidun and Harald Rubner (2012)
 ⼯作概述
Background Research
Findings - Previous research claimed that multi-business companies have tendency to have value disadvantage
over businesses that is more focused. Studies found that valuation discounts of multi-business companies
varied by region, over time, and company sample. From the observation done by the author, it can be
concluded that the valuation is not driven by the degree of diversification of business, rather because of the
corporation parenting strategy that is applied.

Question – How to analyze and describe parenting strategy of a corporate parent?

Purpose –
• Identify activities and strategies of company parent that led to value add or value destruction for its business
units.
• Systemize all activities in framework to assess the parenting strategy adopted by a corporate parent.
 ⼯作概述
Parenting Advantage Concept
Goold, Campbell, and Alexander (1994) introduced the concept of parenting advantage concept which acts as a
guidelines for strategic decision at corporate level. Criteria for this guideline include:
• Capabilities offered by the corporate parent
• Requirements from the business units
• Value created by the corporate parent from its activities.
Four direct ways of creating value for business units:
1. Stand-alone influence
2. Linkage influence
3. Central functions and services
4. Corporate development activities

Key prerequisite for corporate parent to be able to create value for its business units are the fit of
characteristics and the needs of the business units.
 ⼯作概述
Framework for Assessing Corporate Parenting Strategies

Prerequisite framework for assessing corporate

parenting strategies include:
1. The framework should incorporate the
direct/vertical and compositional/horizontal
perspective on value creation.
2. The framework should incorporate both
value adding and destroying value effects
of activities.
3. The framework should incorporate strategic
and operational types of value adding and
destroying activities.
 ⼯作概述
Operationalization of framework: Strategic Guidance and Support

Bowman and Helfat (2001) stated that corporate parents can create value adding activities to business units
by fostering better strategic decision than the business unit as a standalone exposed to capital markets.
• Create business vision
• Formulate top-down objectives
• Formulate superior development roadmap to gain competitive advantage and improve market position
Strategic direction
• Income and value creation potential

• Transfer of methodological competencies

• Sharing of industry-specific expertise
Strategic • Support with experience in specific strategic situations
expertise

• Leverage corporate parent capabilities to promote merger and acquisition project

• Develop new organic growth options
Business
Development •and Help business units to divest in non-core or low performance asset
Growth

• Distribute their capital effectively among their business units rather than external capital market
• Corporate can look into the activities of the business units to predict better future returns than external investors
Resource• Usage of knowledge of anticipated future return to devote capital to better performing business units
allocation
 ⼯作概述
Operationalization of framework: Strategic Guidance and Support

• Business units have large exposure to pressure from capital market than its peers
Protection • Protection from market allows businesses to take longer perspective on investment strategy or
from capital business operation
market

• Monitoring of business units performance can be done that is not available to external investors
• This monitoring can include: regular and detailed performance meeting or report, update of
Performance
monitoring planning forecast, and risk driver analysis

• Interfere on the operational of the business units

• Usage of formal authority to: replace weak performing unit managers, guide business unit
Operational
Improvement through turn-around processes, improve internal processes to optimize supply chain

• Foster cooperation business units through joint operations, marketing and sales, or R&D effort
• Encourage informal sharing of internal knowledge, business experience, and personnel talent
Synergy
fostering
⼯作概述
Operationalization of framework: Negative Influence

• Overconfident of corporate skills and knowledge led to • Favoring corporate risk diversification
Insufficient underestimate of industry knowledge and talent than value creation
management
expertise and• Insufficient understanding of strategic success factor at Risk aversion• Reduce employment risk by
skills corporate level and market rhythms at the business unit diversifying portfolio to make cash flow
level less volatile

• Usage of company’s internal cash flow to keep

Managerial •
unfavorable project alive Lack of • Downside of protection from capital
Spend financial resource in industry that are familiar
Entrenchment• than value creation focus performance market by removing healthy pressure
Decision making is driven by political than economic from capital market
considerations pressure

• Over focus on building corporate empire than future

• Constant interference from corporate
may demotivate business units
Empire- competitive positioning and value creation (Jensen,
1986)
Lack of managers
building • Pursue personal growth and influence than future motivation • High tendency to appear in business
success of the company
units with weak profit forecast
 ⼯作概述
Operationalization of framework: Central Resources and Services

The focus of this effort is not to improve better strategic decision making, but realization of cost advantage.

Management
Corporate Assets Central functions External funding
capabilities
• Corporate parent • Provide superior • Utilization of • Multi-businesses
may provide management centrally bundled have tendency to
central asset for capabilities from functions and be easier in
the activities of parent corporate services such as IT receiving external
the business units to business units and accounting funding than
• Joint marketing • Transfer of the services standalone
can be done to management • Central staff can competitors
take advantage of capabilities is key provide better • Low correlations
corporate parent success factor in services than are among business
well known brand determining available to the units resulted in
• Specific patent or competitive business units low variance of
technology can be advantage, income and lower
rented to sustainable bankruptcy risk
business units profits, and value
creation potential.
 ⼯作概述
Operationalization of framework: Central Resources and Services

External reporting Labor market

Internal funding Tax Optimization
requirements advantage
• Internal funding • Optimization of • Consolidated • Business units can
can be used by tax burden can be disclosures can be use already
business units as done by covering an advantage for established
a short-term the loss from one the business units recruiting
bridge financing business unit by • Standalone channels and
than taking another business companies take procedures and
external funding units reducing the burden cost get leverage from
total tax cost of company the corporate
disclosure by reputation
themselves • Broader pool of
• Business units can talent can save
pass these cost from
burdens to the searching and
corporate parent screening
candidates
⼯作概述
Operationalization of framework: Overhead Costs
Corporate parent offers services that are not required by the business units
Oversized
scope Misallocated management competencies can resulted in additional cost for the business unit

High cost charges by the services that are provided by the corporate parent may create value destruction
Costly
charges Lower cost can be attained by involving external contractors or the activities is done at business level

Additional personnel expenses may incurred by the business units when the personnel involved in meetings
Additional or requirements from corporate parent (ex: extensive planning procedures)

resources
Corporate parent requirements may prevent heads of business units from running their own business
Inward
focus Management time and effort is more focused on central administration rather than focusing on the market,
competitive environment, and profit maximization
Complex budgeting, planning, and control structures may inhibit business units’ efficiency and flexibility
Complex
processes Operational efficiency may be constrained and value potential may be lost
 ⼯作概述
Operationalization of framework: Sales and Managerial Synergies

Ansoff (1965) defined sales synergies as increased sales from use of common channels, sales administration, and warehousing.
Meanwhile managerial synergies as using existing capabilities and experiences to solve challenges that has occurred in the
past.
Practice of selling two or more goods from different business units as a package at lower price compared to peers (Porter, 1985)
Bundling and
cross selling Focus on long-term benefits of slowly rising prices and expanding market share

Revenue synergies from selling to same customer base or from acquisition of customer and loyalty

Sharing capabilities and knowledge can benefit business units

Capabilities and
experiences Some example of the implementation may include: leveraging market experiences internal benchmarking, best practices knowledge sharing

Joint business units are able to create short-term competitive advantage from developing new assets faster and cheaper than the competition
Joint
development of Long run focus sustainable profit stems from focus on accumulation of bundled business to business competencies which enable business units to
strategic assets develop strategic assets faster and cheaper

Simultaneous competition from same set of competitors in multiple markets may benefit business units
Mutual
forbearance Value adding strategies that can be employed is to release specific product, service or market segment without struggle from competitors and receive
economical equivalent
May occur when two multi business competitors have deep pocket and pose threat to each other
⼯作概述
Operationalization of framework: Resource Shortage
Corporate parent may not provide sufficient time and concern to its business units
Insufficient
corporate
attention Result in low priority for corporate board meeting and delay of strategic decision for the business unit

Investment alternatives may be optimal for the corporate parent but not optimal for the business units
Cross-
subsidization Financial incentive may provide better support for the business unit to generate optimal allocation resource

Financial incentive can be given from operational cash flow of other businesses which resulted in cross-
subsidization but leads to value destruction for the high performing unit

Assignment of specific role for the business units may result in business unit pursuing activities with low
Portfolio role risk profile to balance corporate risk

Prevent the business unit from fulfilling their value potential

⼯作概述
Operationalization of framework: Operating and Investment Synergies

Stems from cooperative operations within integrated value chain

Economies
of scope Exploitation of existing strategic assets is more cost efficient than two standalone applications

Sharing burden of fixed costs such as overhead, production, and R&D from large volume of production
Economies
of scale Better functional specialization compare to competitors

Efficient facility utilization when they are part of corporate portfolio

Facility
utilization Plan and management of facility utilization such as production capacity across business units may prevent
high cost of underutilization of facilities

Cost advantage from combined purchasing activities resulted in bigger purchasing power over suppliers
Purchasing
power Some activities involved are: setting up purchasing coordination committee, establish corporate advisory
center, central database on procurement activities, setting group wide standards and terms of condition
 ⼯作概述
Operationalization of framework: Cost of Complexity
Rising of complexity in terms of variety of products, services, internal coordination, and administrative costs can result in value
destruction for the business units

Additional Additional efforts from coordinating internal, horizontal processes

internal Wasted time and effort in dealing with business to business administrative works
coordination Lead to slower decision making for the business units

Tactical Wasted time, effort and resources to influence central decision making

maneuvers
Done by business unit to attract attention from corporate parent to gain personal
advantage without any added value to the overall corporate (influence costs)

Internal Wasted time, efforts, and resources to compete within the units in the corporate
portfolio which can lead to wrong decision making by the corporate parent
power
Similar effect to the inward focus which avert focus on the market, competition, and
struggles value creation (Gupta and Seshadri, 1994)
Discussion