*
CONTEMPORARY STRATEGY ANALYSIS
tenth edition
Robert M. Grant
John Wiley & Sons Ltd., 2019
Chapter 13
Implementing Corporate Strategy: Managing the Multibusiness Corporation
The Role of Corporate Management
Managing the Corporate Portfolio
Managing Linkages across Businesses
Managing Individual Businesses
Managing Change in the Multibusiness Corporation
Governance of Multibusiness Corporations
Implementing Corporate Strategy:
Managing the Multibusiness Corporation
Copyright © 2019 John Wiley & Sons, Inc.
OUTLINE
37
THE ROLE OF CORPORATE MANAGEMENT
Copyright © 2019 John Wiley & Sons, Inc.
•Managing the corporate portfolio
—including acquisitions, divestments, and
resource allocation
•Managing linkages among businesses
Managing each individual business
•Managing change
How does Corporate Management add Value to its Individual Businesses?
42
Books
Insurance
GEICO
General Re
Manufacturing
Lubrizoil
Main Portfolio Investments
- Heinz Kraft
- Apple
- Coca-Cola
- Wells Fargo
- American Express
- Phillips 66
- Goldman Sachs
- Delta Airlines
Energy
Mid American Energy
PacificCorp
BHRG
BH Primary
Media and Services
NV Energy
IMC
NetJets
Store Capital
Fruit of the Loom
Clayton Homes
CTB International
Business Wire
BH Media
Pampered Chef
Retail
Borsheims
See’s Candy
Nebraska Furniture Mart
RC Willey Home Furnishings
Pampered Chef
Home Services of America
Northern Powergrid
BERKSHIRE HATHAWAY INC.
Berkshire Hathaway’s portfolio of businesses
Dairy Queen
© 2019 Robert M. Grant,
www.contemporarystrategyanalysis.com
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- Allocating resources—indicating both the investment requirements of different businesses and their likely returns
- Formulating business-unit strategy—offering generic strategy recommendations (e.g.: “build”, “hold”, or “harvest”)
- Setting performance targets—indicating likely performance outcomes in terms of cash flow and ROI
- Portfolio balance—guiding business portfolio changes in order to achieve corporate goals such as a balanced cash flow by combining mature and growing businesses.
The Uses of Portfolio Planning Models
in Strategy Formulation
Copyright © 2019 John Wiley & Sons, Inc.
MANAGING THE CORPORATE PORTFOLIO
46
Low
Medium
High
Low
Medium
High
Industry Attractiveness
Industry Attractiveness Criteria Business Unit Position
– Market size – Market share (domestic,
– Market growth global, and relative)
– Industry profitability – Competitive position
– Inflation recovery – Relative profitability
– Overseas sales ratio
Business Unit Position
The GE/McKinsey Matrix
Copyright © 2019 John Wiley & Sons, Inc.
MANAGING THE CORPORATE PORTFOLIO
B U I L D
H O L D
H A R V E S T
45
HIGH
LOW
Annual real rate of market growth (%)
Relative market share
Earnings: high stable
Cash flow: high stable
Strategy: milk
Earnings: low, unstable
Cash flow: neutral or negative
Strategy: divest
Earnings: high stable, growing
Cash flow: neutral
Strategy: invest for
growth
Earnings: low, unstable, growing
Cash flow: negative
Strategy: analyze the
potential to
develop the
business
into a “star”
HIGH
?
The BCG Growth-Share Matrix
Copyright © 2019 John Wiley & Sons, Inc.
LOW
MANAGING THE CORPORATE PORTFOLIO
44
HEARTLAND
–businesses with
high potential
for adding value
EDGE OF
HEARTLAND
— less value adding
potential; more risk is
of value destruction
BALLAST
–typical legacy
business: good
fit high, but limited
potential to add
value
VALUE TRAP
–lack of management fit
limits potential to add
value
ALIEN TERRITORY
–exit: no potential for
value creation
LOW
HIGH
LOW
HIGH
Potential for value destruction from misfit between needs of the business and patent’s corporate management style
Potential for parent to add value to the business
Ashridge Portfolio Display:
The Potential for Patenting Advantage
© 2019 Robert M. Grant,www.contemporarystrategyanalysis.com
MANAGING THE CORPORATE PORTFOLIO
ADVANTAGES
- Simplicity: Quick and easy to
prepare
- Big picture: Permits one page
representation of the corporate
portfolio & 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
- Ambiguity: 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
Do Portfolio Planning Models Help or Hinder Corporate Strategy Formulation?
Copyright © 2019 John Wiley & Sons, Inc.
MANAGING THE CORPORATE PORTFOLIO
48
Shared corporate services: Centralizing services such as IT, HR, purchasing, research, facilities management exploits cost economies and develops capabilities
Transferring skills between businesses: E.g. LVMH transfers brand management capabilities; P&G transfers technologies and product development skills across product sectors and across countries
Sharing resources and activities: E.g. Virgin Group shares its brand across its businesses; Samsung Electronics’ globally dispersed design centers serve all its businesses
BUT, Exploiting synergies is not costless: Transferring skills and sharing resources and activities tends to involve the corporate HQ in managing relationships between the businesses and complicates the appraisal of business performance
MANAGING LINKAGES ACROSS BUSINESSES
Copyright © 2019 John Wiley & Sons, Inc.
Sources of Synergy within
the Multibusiness Corporation
MANAGING LINKAGES ACROSS BUSINESSES
Current
market
value
Maximum raider
opportunity
Current perceptions
gap
Company
value as is
Optimal
restructured
value
Strategic and
operating
opportunities
Potential value
with internal
improvements
Disposal/acquisition
opportunities
Total company
opportunities
1
2
5
RESTRUCTURING
FRAMEWORK
3
4
Potential value
with external
improvements
The McKinsey Restructuring Pentagon
Copyright © 2019 John Wiley & Sons, Inc.
MANAGING INDIVIDUAL BUSINESSES
50
Stewardship Review
Investment Reappraisals
Annual Budget
Exxon’s Strategic Planning Process
Copyright © 2019 John Wiley & Sons, Inc.
Economic Review
Energy Review
Stewardship Basis
Approval by Mgmt. Committee
Financial Forecast
Corporate Plan
Business Plans
Discussion with contact director
MANAGING INDIVIDUAL BUSINESSES
18
Critiques of strategic planning:
- Strategic planning systems don't make strategy—strategic planning a ritualistic process, but most strategic decisions are made outside the system
- Weak execution—procedures for converting plans into actions are weak. Proposals for improving execution include:
- Strategic milestones
- Strategy maps
- Replacing strategic planning units by “offices of strategy management”
Rethinking Strategic Planning
Copyright © 2019 John Wiley & Sons, Inc.
MANAGING INDIVIDUAL BUSINESSES
46
- Multibusiness companies have a dual planning process:
- Strategic planning: medium and long term
- Financial planning : short-term
- The two are closely linked. Strategic plan is a basis for:
- Operating budget
- Capital expenditure budget
- Annual performance plans
- Strategic milestones
- Balance between strategic and financial control:
- Varies by firm and sector
- There’s a trade-off between the two—more of one means less of the other
Performance Management and Financial Control
8
Copyright © 2019 John Wiley & Sons, Inc.
MANAGING INDIVIDUAL BUSINESSES
46
Input
control
Monitoring and approving
business level decisions
Output
control
Setting performance targets
and monitoring
their achievement
Primarily through strategic
planning system and capital
expenditure approval system
Primarily through performance
management system, including
operating budgets, scorecards,
milestones, and HR appraisals
Strategic Planning and Financial Control as Alternative Modes of Corporate Control
Copyright © 2019 John Wiley & Sons, Inc.
Two basic approaches
MANAGING INDIVIDUAL BUSINESSES
Alternative Corporate Management Styles
MANAGING INDIVIDUAL BUSINESSES
Copyright © 2019 John Wiley & Sons, Inc.
| Strategic planning | Financial control | |
| Business strategy formulation | Strategy formulated by businesses; corporateHQ guides and coordinates | Strategy formulated at business unit level;HQ exerts financial control |
| Controlling performance | Primarily strategic goals with medium- to long-term horizon | Financial budgets set annual targets—monitored quarterly |
| Advantages | Exploits (a) linkages among businesses, (b) innovation, (c) long-term development | Business unit autonomy conducive to initiative, responsiveness, and efficiency |
| Disadvantages | Loss of divisional autonomy and initiativeUnitary strategic viewTendency to persist with failing strategies | Short-term focus discourages innovation and long-term developmentLimited sharing of resources and capabilities |
| Style suited to | Companies with few closely related businessesCapital and technology-intensive sectors with large, long term investment projects | Highly diversified companies with low relatedness among businessesMature, low-tech sectors where investment projects small and short term |
The Problem: Counteracting Inertia
- The bigger and more complex the company—the greater the forces of inertia
Facilitating change:
- Adaptive tension Imposing high performance expectation on individual and departments can create not just stress, but dynamism and responsiveness that counteracts complacency (e.g. Jack Welch at GE)
- Institutionalizing change Shift focus of strategic planning from resource allocation to sensing and responding to external change (e.g. IBM)
- New business development Incubating the new businesses that will ultimately replace the old (Amazon, Netflix, Nokia)
- Top-down, large-scale development initiatives—the CEO as change leader e.g. Samsung Electronics; Haier
The Challenge of Leading Change
Copyright © 2019 John Wiley & Sons, Inc.
MANAGING`CHANGE IN THE MULTBUSINESS CORPORATION
41
- What are the rights of shareholders?
- To transfer shares, access company information, elect directors, share in the profits of the firm, vote on key strategic decisions
- Despite potential for divisions to develop distinctive strategies and structures—corporate systems may impose uniformity.
- What’s gone wrong?
- Failure by boards to prevent managers pursuing their interests rather than those of shareholders (e.g. excessive compensation)
- Failure board to take account of social/national interest
- What other problems do multidivisional corporations face?
- Lack of decentralization of decision making to divisional managers
- Standardization of management systems across divisions
The Challenge of Corporate Governance
Copyright © 2019 John Wiley & Sons, Inc.
GOVERNANCE OF MULTBUSINESS CORPORATIONS
- What are the responsibilities of Company Boards?
- To act in the best interests of the company and its shareholders
- To oversee strategy, budgets, management performance, etc.
41
Highest Earning CEOs of US Companies 2016
GOVERNANCE OF MULTBUSINESS CORPORATIONS
Copyright © 2019 John Wiley & Sons, Inc.
| Rank | CEO | Company | Direct compensation ($m) |
| 1 | Thomas Rutledge | Charter Communications | 98 |
| 2 | Leslie Moonves | CBS | 69 |
| 3 | Robert A. Iger | Walt Disney | 41 |
| 4 | David Zaslav | Discovery Communications | 37 |
| 5 | Robert Kotick | Activision Blizzard | 33 |
| 6 | Brian Roberts | Comcast Corp. | 33 |
| 7 | Jeffrey L. Bewkes | Time Warner | 33 |
| 8 | Virginia Rometty | IBM | 32 |
| 9 | Leonard Schleifer | Regeneron Pharmaceuticals | 28 |
| 10 | Stephen Wynn | Wynn Resorts Ltd. | 28 |
