Professional Documents
Culture Documents
Managing the
the Multibusiness
Multibusiness
Corporation
Corporation
OUTLINE
The
TheMultidivisional
MultidivisionalStructure:
Structure: Theory
Theoryof
of the
theM-Form
M-Form
The
The Divisionalized
Divisionalized Firm
Firm in
in Practice
Practice
The
The Functions
Functions of
of Corporate
Corporate Management
Management
Managing the
Corporate
Portfolio
Managing the
individual
businesses
Managing
linkages
between
businesses
divestment
performance
The
TheDevelopment
Development of
of Strategic
StrategicPlanning
PlanningTechniques:
Techniques:
General
General Electric
Electricin
inthe
the1970s
1970s
Late 1960s: GE encounters problems of direction,
coordination, control, and profitability
Corporate planning responses:
Portfolio Planning Models matrix-based frameworks
for evaluating business unit performance, formulating
business strategies, and allocating resources
Strategic Business Units GE reorganized around
SBUs (business comprising a strategically-distinct
group of closely-related products
PIMS a database which quantifies the impact of
strategy on performance. Used to appraise SBU
performance and guide business strategy formulation
Portfolio
Portfolio Planning
Planning Models:
Models: Their
Their
Uses
Uses in
in Strategy
Strategy Formulation
Formulation
Industry Attractiveness
Portfolio
Portfolio Planning
Planning Models:
Models:
The
The GE/
GE/ McKinsey
McKinsey Matrix
Matrix
High
H
Medium
Low
Low
I L
D
T
Medium
High
- Market size
- Market growth
- Industry profitability
- Inflation recovery
- Overseas sales ratio
Portfolio
Portfolio Planning
Planning Models:
Models: The
The BCG
BCG
Growth-Share
Growth-Share Matrix
Matrix
HIGH
Earnings:
Strategy:
Cash flow:
neutral
Strategy:
analyze to determine
whether business can
be grown into a
star, or
will degenerate
into a dog
Earnings:
LOW
Earnings:
low, unstable
Earnings:
high stable
Cash flow:
neutral or negative
Cash flow:
high stable
Strategy:
divest
Strategy:
milk
LOW
HIGH
Portfolio
Portfolio Planning
Planning Models:
Models: Applying
Applying the
the
BCG
BCG Matrix
Matrix to
to BM
BM Foods
Foods Inc.
Inc.
Frozen food
division
Health foods
division
Fruit juices
division
0.1
0.5
1
1.5
Relative market
shareposition.
Previous
Current position
Area of circle proportional to $ sales.
Bakery division
2.0
Do
Do Portfolio
Portfolio Planning
Planning Models
Models Help
Help or
or Hinder
Hinder
Corporate
Corporate Strategy
Strategy Formulation?
Formulation?
ADVANTAGES
Simplicity: Can be quickly
prepaired
Big picture: Permits one page
representation of the corporate
portfolio & the strategic
positioning of each business
Analytically versatile:
Applicable to businesses,
products, countries,
distribution channels.
Can be augmented: A useful
point of departure for more
sophisticated analysis
DISADVANTAGES
Simplicity: Oversimplifies the
factors determining industry
attractiveness and competitive
advantage
Ambiguous:The positioning
of a business depends
critically upon how a market is
defined
Ignores synergy: the analysis
takes no account of any
interdependencies between
businesses
Corporate
Corporate Restructuring
Restructuring to
to Create
Create
Value:
Value: The
The McKinsey
McKinsey Pentagon
Pentagon
Current
market
value
1
Current perceptions
gap
Company
2
value as is
Strategic and
operating
opportunities
Maximum raider
opportunity
RESTRUCTURING
FRAMEWORK
Potential value 3
with internal
improvements
Disposal/acquisition
opportunities
Optimal
5 restructured
value
Total company
opportunities
Potential value
with external
improvements
Exxons
Exxons Strategic
Strategic Planning
Planning Process
Process
Economic
Review
Energy Review
Stewardship
Review
Business
Plans
Stewardship
Basis
Investment
Reappraisals
Discuss-ion with
contact
director
Financial
Forecast
Annual
Budget
Approval
by
Mgmt.
Committee
Corporate
Plan
Corporate
Corporate Control
Control over
over the
the Businesses
Businesses
2 basic approaches
Input
control
Goold
Goold &
& Campbells
Campbells Corporate
Corporate Management
Management
Styles:
Styles: Financial
Financial and
and Strategic
Strategic Control
Control
High
CORPORATE INFLUENCE
Centralized
Strategic
planning
Strategic
control
Low
Financial
control
Holding
company
Flexible strategic
Tight strategic
CONTROL INFLUENCE
Tight financial
Corporate
Corporate Management
Management
Applications
Applications of
of PIMS
PIMS Analysis
Analysis
Setting performance targets
feeding business unit strategic and industry data into the PIMS
regression model gives performance norms for the business
(PAR ROI).
Formulating business unit strategy
PIMS model can simulate the impact of changing strategic
variables.
Allocating investment funds between businesses
PIMS Strategic Attractiveness Scan comparison different
business units strategic attractiveness and their cash flow
characteristics
Managing
Managing Linkages
Linkages between
between Businesses
Businesses
KEY ISSUEHow does the corporate center add value to the business?
BASIS OF BUSINESS LINKAGESSharing of resources and capabilities.
SHARING OCCURS AT TWO LEVELS:
Corporate levelcommon corporate services
Business levelsharing resources, transferring capabilities
PORTERS ANALYSIS OF BUSINESS LINKAGES AND CORPORATE
STRATEGY TYPES
Portfolio management Parent creates value by operating an internal
capital market
RestructuringParent create value by acquiring and restructuring
Inefficiently-managed businesses
Transferring skillsParent creates value by transferring capabilities
between businesses
Sharing activitiesParent creates value by sharing resources between
businesses
ROLE OF DOMINANT LOGICimportance of corporate managers
perception of linkages
What
What Corporate
CorporateManagement
Management Activities
Activitiesare
areImplied
Implied by
by
Porters
PortersConcepts
Concepts of
ofCorporate
Corporate Strategy
Strategy
(1) Portfolio Management
Using superior information and analysis to acquire attractive companies at
favorable prices (e.g. Berkshire Hathaway).
Minimizing cost of capital (e.g. GE)
Create efficientt internal system for capital allocation (e.g. Exxon-Mobil)
Efficient monitoring of business unit performance (e.g BP-Amoco).
(2) Restructuring: Intervening to cut costs and divest under performing assets (e.g.
Hanson during 1980s & early 1990s)
(3) Transferring skills:
Transferring best practices (e.g. Hewlett-Packard)
Transferring innovations (e.g. Sharp)
Transferring key personnel between businesses (e.g. Sony)
(4) Sharing activities:
Common corporate services (e.g. 3M)
Sharing operational resources and functions (e.g. sales and distribution,
manufacturing facilities).
Rethinking
Rethinkingthe
the Management
Managementof
ofMultibusiness
Multibusiness
Corporations:
Corporations: Lessons
Lessonsfrom
from General
General Electric
Electric
Jack Welchs transformation of GEs structure and management systems:
Delayering --- from 9 or 10 layers of hierarchy to 4 or 5
Decentralizing decisions.
Reformulating strategic planningfrom formal, document-intensive
analysis to direct face-to-face discussion of key issues.
Redefining the role of HQfrom checker, inquisitor, and authority to
facilitator, helper, and supporter.
Coordinating role of HQ corporate HQ to lead in creating the
boundaryless corporation where innovations and ideas flow and where
horizontal coordination occurs to respond to new opportunities.
HQ as change agent corporate HQ driving force for continual
organizational change (e.g. workout, six-sigma).
Rethinking
Rethinkingthe
theManagement
Managementof
of Multibusiness
Multibusiness
Corporations:
Corporations: Lessons
Lessonsfrom
fromABB
ABB
Key features of ABBs corporate management system:
Matrix organizationboth product and country / regional
coordination, but reporting requirements flexible.
Radical decentralizationABBs corporate HQ is tiny (<100 staff).
Decision making authority lies with individual national subsidiaries
(mostly small or medium-sized businesses).
Bottom-up management. Each business has its own balance
sheet and can retain 1/3 of net income.
Informal collaboration and integration.
Yet, for all of ABBs apparent success at reconciling coordination with
Decentralization, by 2002-03, deteriorating profitability and complexity of
matrix structure causes ABB to adopt simpler line of business structure
Rethinking
Rethinkingthe
the Management
Managementof
ofMultibusiness
Multibusiness
Corporations:
Corporations: Bartlett
Bartlett&&Ghoshals
GhoshalsAnalysis
Analysis
of
of Key
KeyManagement
ManagementProcesses
Processes
Managing the tension
between short-term
ambition
Managing operational
interdependencies and
personal networks
RENEWAL PROCESS
Creating and maintaining
organizational trust
INTEGRATIO
N PROCESS
Developing and
Linking skills, knowledge,
nurturing organizational
and resources
ENTREPRE
values
NEURIAL P
Creating and pursuing
ROCESS
opportunities
Establishing
Reviewing, developing, and
strategic mission &
supporting initiatives
performance standards
Front-line Management
Middle Management
Top Management