Campbell, Goold and Alexander, authors of Corporate-level Strategy: creating Value in the multi business Company, contend that corporate strategists must address two crucial questions:
- - What businesses should this company own and why?
- - What organizational structure, management process, and philosophy will foster superior performace from the company’s business unit?
Portofolio analysis typically attempts to answer these questions by examining the attractiveness of various industries and by managing business units for cash flow, that is, by lio analysis fails to deal with the question of what industries a corporation should enter or with how a corporation can attain synergy among its product lines and business units. As suggested by its name, portofolio analysis tends to primarly view matters financially, regarding business units. According to Campbell, Goold and Alexander.
Corporate Parenting, in contrass, views a corporation in term of resources and capabilities that can be used to build business unit values as well as generate synergies across business units. According to Campbell, Gold and Alexander
Multibusiness companies create value by influencing-or parenting-the businesses they own. The best parent companies create more value than any of their rivals would if they owned the same businesses. Those companies have what we call parenting adventage.
Corporation parenting generates corporate strategy by focusing on the core competencies of the parent corporation and on the value created from the relationship between the parent and its businesses. In the form of corporate headquarters, the parent has a great deal of power in relationship. According to Campbell, Goold and Alexander, if there is a good fit between the parent’s skills and resources and the needs and opportunities of the business units, the corporation is likely to created value. If, however, there is not a good fit, the corporation is likely to destroy value. Research indicates that companies that have a good fit between their strategy and their parenting roles are better performers than those companies that do not have a good fit. This approach to corporate strategy is useful not only in deciding what new businessto acquire but also in choosing how each existing business unit should be best managed. This appearsto have been the secret to the successof general electric under CEO Javck Welch. According to one analyst in 2000, “He and his managers really add value by imposing tough standarts of profitability and manufacturing trick cuts cost in GE’s aero engine repair shops in Wales, he insists it be applied across the group.
The primary job of corporate headquarters is, therefore, to obtain synergy among the business unit by providing needed resources to units, transferring skills and capabilities among the units, and coordinating the activities of shared unit functions to attain economies of scope (as in centralized purchasing). This is an agreement with the concept of the learning organization which the role of a large firm is to facilitate and transfer the knowledge assests and services thourghout the corporation. This is especially important given that 75% or more of a modern company’s market value steam from its intangible assets.
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