Transcript Issues of Management Style

Diversified Corporations
and the search for synergy
Synergy = 2 + 2 = 5
How can we achieve this ?
Several approaches.
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CORPORATE LEVEL STRATEGY
Corporate Coordination Mechanisms
Centre
Control
BU1
Coordination
Business 1
Control
BU2
Coordination
Business 2
BU3
Business 3
De Wit & Meyer, Strategy - Process, Content, Context: An International Perspective, Chapter 6
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Approaches to Synergy
 Portfolio Approaches – financial synergies and cash flow
optimisation
Growth Share and other Matrices
Life Cycle Approaches
 The Linkage Approach
Value Chains and the creation of ‘Strategic Cement that can be
leveraged
 Core Competence Approach
Collective learning
The idea that direction and method may be extensive but the
notion of the core product is key
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Portfolio Approach
 Growth Share Matrix
 Cash Flow Optimisation
 Classic Strategies
Build
Hold
Harvest
Quit
 Portfolio Balance – although we can have ‘unbalanced
portfolios’.
 Little in the way of strategic cement between SBUs.
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The Linkage Approach
Support Activities
Firm Infrastructure
Human Resource Management
Technology Development
Procurement
Inbound
Logistics
Operations
Outbound
Logistics
Marketing
& Sales
Service
(Porter 5
1985)
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Primary Activities
The Value System
Supplier
Value
Chain
Organisation’s
Value Chain
Distributor
Value
Chain
Customer
Value
Chain
(Porter 1985
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Synergy through Linkages
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Resource Utilisation and
Competitive Advantage
 Identify value activities
- assign costs and added value
- identify critical activities
 Identify cost or value drivers
- factors which determine cost or value of each activity
 Identify linkages
- which reduce cost or added value
- which discourage imitation
 Identify linkages between SBUs to create linked advantages and
‘strategic cement’
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Core Competence Through
Managing Linkages
Type of Linkage
Type of Activity
Example
Internal Linkage
Primary – Primary
Interdepartmental co-ordination
Primary – Support
Computer-based systems
Support – Support
HRD for new technologies
Vertical Integration
Extend ownership into supply
chain
of supplier/distributor
performance
co-operation with
supplier/distributor to enhance
performance
…by adding/deleting activities
External Linkage
Specification & Checking
TQM
Merchandising Activities
Reconfigure Value Chain
Strategic Alliances
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co-marketing; licencing
technology
(Johnson & Scholes 1997)
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Core Competence Approach
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CORPORATE LEVEL STRATEGY
The Paradox of Responsiveness and Synergy
PORTFOLIO PERSPECTIVE
CORE COMPETENCE
Emphasis on
Responsiveness over synergy
Synergy over responsiveness
Firm composition
Potentially unrelated
Shared competence-base
Synergy through
Cash flow optimization
Joint competence building
Task of head office
Allocate capital to SBUs
Competence management
Central control style
Setting financial objectives
Joint strategy development
Position of SBUs
Highly autonomous
Highly integrated
Coordination
Low, incidental
High, structural
Acquisitions
Simple to accommodate
Difficult to integrate
De Wit & Meyer, Strategy - Process, Content, Context: An International Perspective, Chapter 6
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The Work of Goold and
Campbell
Goold and Campbell’s
Management Styles and
Parenting Theory Approach to
Creating Value
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Synergy and the link to
Management Style
Goold and Campbell’s work on style types
in the mid 1980s.
3- Style types and
Two key variables
The Planning Influence
The Control Influence
 Link with the search for synergy.
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Goold & Campbell Style Types
Goold & Campbell managerial style types
emerged from their research into
management in British companies.
Financial Control Style
Strategic Control Style
Strategic Planning Style
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Financial Control Style
Low level of influence of planning but
very tight financial controls from the
centre
Short-term demanding profit targets
Control by budgets
High degree of central control over
SBUs
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Strategic Control Style
Active involvement in SBU level planning
Flexibility in allowing SBUs to devise their
own strategy
The role of the centre is to appraise SBU
plans concerning internal logic etc
Tight control of results
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Strategic Planning Style
Characterized by strong central
management involvement in business
level strategy
Extensive planning review processes
High co-ordination across SBUs
A co-operative process
Flexibility in planning
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Influences on strategic management Style
Nature of the Business
Resources in the Organization
- Shape of the portfolio
- Senior management skills
- Size and payback of investments
- CEO personality
- Stability of the competitive
environment
- Financial condition
Strategic Management Style
- Strategic planning
- Strategic Control
- Financial Control
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Influences on Strategic Style
External Influences:
Degree of linkage between the business unit
and other SBUs in the portfolio
The size and nature of the payback of major
investments
The nature of the competitive environment
facing the SBU or the firm.
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Influences on Strategic Style
Internal Factors
The personality of the chief executive
Senior management skill
The financial condition of the organization as
a whole.
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Management Styles
Goold & Campbell’s style types are seen
as different ways in which to divide
responsibility between corporate HQ and
the individual business units or SBUs in
a diversified company. It is a balance
between:
Planning Influence
Control Influence
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Influences on Style Types
Planning Influence: The extent to which
the centre influences individual SBU
strategy
Control Influence: The way in which the
firm expresses the type of budgetary
control imposed by central managers to
the SBUs against results achieved.
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Strategic Management Styles
(Goold & Campbell (1987)
Strategic
Planning
Planning Influence
High
Strategic
Control
Financial
Control
Holding
Company
Low
Flexible
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Tight Strategic
Control
Influence
Tight Financial
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The selection of a particular style involves important choices
Strategic
Planning
(SP)
Strategic
Control
(SC)
Financial
Control
(FC)
Short-term financial
Long-term Strategic
SP
SC
FC
Locally created strategy
Centrally led strategy
SP
Co-ordination &
Co-operation
Full analysis and
discussion
SP
SP
SC
SC
SC
FC
FC
FC
Entrepreneurial
quick decisions
Tight controls
Flexible strategies
SP
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Autonomy &
accountability
SC
FC
Goold & Campbell (1987)
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Combining Approaches and Styles
 Portfolio Approach
Financial synergies by
portfolio balancing
 Linkages Approach
Financial Control Style
Strategic Control Style
Linkages synergies through
transferring skills and
sharing activities
 Core Competence
Approach
Core competence synergies
across SBUs
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Strategic Planning
Style
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THE CORPORATE PARENT
The Parent
Organisation
Centre
Divisions
Businesses
Value from parent to business
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The Parenting Approach
Parenting Opportunity
Parenting Characteristics
The Feel for the Business
Distinctive Parenting Characteristics
At the heart of this approach is the ‘better
off test’
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Conditions for Value Creation
Value is created under the following three
conditions
Business units are not fulfilling their potential
– Parenting Opportunity
The centre has the relevant resources and
capabilities – Parenting Skills
Centre managers understand the business
units well enough to avoid destroying value
– Sufficient Feel
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The Parenting Matrix
Heartland Businesses
Edge of Heartland
Ballast
Alien Territory
Value Trap
Look for fit between SBU and parent – skills and
resources and ability to leverage them
The degree of fit and opportunities to grow the
business
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What each means 1
Heartland: businesses for which parenting
advantage exists and are likely to be at
the heart of any future strategy.
Edge of Heartland: businesses where the
parent may be able to develop an
advantage, so are also likely to be part of
a future strategy.
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What they mean 2
Ballast: businesses where there is a fit
between their critical success factors and the
parent’s skills and resources but value creation
logic is weak. The business unit requires little
help from the parent so can be sold if a better
parent exists or moved to heartland if a new
value creation logic can be developed for them
Alien Territory: businesses that do not fit on
either dimension and need to be sold as soon
as convenient
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What they mean 3
Value Trap: businesses in which there is a value
creation logic, the business unit needs help, but
the parent’s strengths and weaknesses do not fit
well with the critical success factors. These
businesses need to be sold unless the parent is
able to change its skills and resources to reduce
the misfit.
Parenting Matrix
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The Parenting Matrix
High
Heartland
Ballast
Edge of
Heartland
Fit between SBU
critical success
factors and
parent’s skills
and resources
Alien
Territory
Value Trap
Low
Low
High
Fit between SBU parenting opportunities
and parent’s skills and resources
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CORPORATE PARENT AS MIDDLEMAN
Shareholders/Investo
rs
Parent
Organisation
Parenting skills
Businesses
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Summary 1
 The portfolio approaches - which seek financial
synergies through a balanced portfolio of business
units.
 The linkages approach - which aims to create
synergies through shared activities and/or
transferred skills between business units.
The core competences approach - in which the
organisation seeks to create and exploit synergies
through its core competences and core products.
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Summary 2
Together the approach to synergy and the
management style form a series of underlying
logics. The decisions managers take about the
development of their organisations and the
scope of the organisation are governed largely
by the views they hold about the logic of
synergy and management style. An
integrative framework links the directions
and methods of development to these logics.
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Summary 2
The work by Michael Goold and Andrew Campbell has
identified three broad management styles that
organisations may follow to address the challenges of
corporate strategy:
Financial control - the shareholder or investment
banker approach.
Strategic control - the strategic shaper approach.
Strategic planning - the master planner approach.
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Conclusions 1
Together the approach to synergy and the
management style form a series of underlying
logics. The decisions managers take about the
development of their organisations and the
scope of the organisation are governed largely
by the views they hold about the logic of
synergy and management style. An
integrative framework links the directions
and methods of development to these logics.
No one style is superior over any other.
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Conclusions 2
Finally, the concept of parenting advantage
suggests that the corporate centre needs to be
able to add more value to the business units
than any other parent. Based on this concept
the parenting matrix allows decisions to be
taken as to which business units fit into the
scope of the group as a whole. Positions within
the parenting matrix are affected by the choice
of logic made by the centre and this may
change over time.
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