Corporate Strategy and Parenting Theory
Michael Goold, A n d r e w Campbell and Marcus A l e x a n d e r
PAPER PROVIDES A BRIEF summary of what w e a t the Ashridge Strategic Management Centre believe we have learned about corporate strategy over the last ten years. It lays out the basis for our ideas about corporate parenting and the implications of parenting theory for management decisions. It is structured around nine propositions, each of which attempts to convey both what we have learned and w h y it matters. The paper concludes with our views about where future research priorities should lie. THIS
In November 1987, the Ashridge Strategic Management Centre was established, with the mission of carrying out research focused on corporate-level strategy and the management of multi-business companies. In November 1997, we ran a major conference to
Justifying the Parent
What We Have Learned
In multibusiness companies, the existence of a corporate parent, by w h i c h we mean all those levels of management that are not part of customer-facing, profit-responsible business units, entails costs. These costs, w h i c h include not only corporate overheads but also knock-on costs of corporate reporting in the businesses, are not balanced by any direct revenues, since the corporate parent has no external customers for its services. Furthermore, the business units often feel that they could be i n d e p e n d e n t l y viable and, indeed, could do better without a corporate parent. This belief is given credence by the success of so m a n y management buy-outs and spin-off companies. The parent can therefore only justify itself if its influence leads to better performance by the businesses than they would otherwise achieve as independent, stand-alone entities. It must either carry out functions that the businesses would be unable to perform as cost-effectively for themselves or it must influence the businesses to make better decisions than they w o u l d have made on their own. In other words, the parent must add more value than cost to the busiPergamon PIh S0024-6301(98)00017-X
have carried out during this time, we felt that it would be appropriate to publish the background paper that we prepared for the conference, which gives a brief overview of the main propositions that we believe we have
least important? What areas merit further research and investigation? © 1998 Elsevier Science Ltd. All rights reserved
nesses in the portfolio. The logic of the need to add value is now becoming more widely accepted.
Long Range Planning, Vol. 31, No. 2, pp. 308 to 314, 1998 © 1998 Elsevier Science Ltd. All rights reserved Printed in Great Britain 0024-6301/98 $19.00+0.00
However, there are still relatively few companies whose corporate strategies are based on powerful and convincing sources of value creation.
W h y it Matters The challenge to corporate parents to justify themselves is important because it concentrates attention on whether and how the activities of the parent do add value. Rather than assuming the existence of a corporate parent, and then asking what the businesses can do for it, it places the onus in precisely the opposite direction. Now the key question is what the parent can do for the businesses, and whether it can positively demonstrate that its u n d o u b t e d costs are more than offset by tangible benefits for the businesses. For m a n y corporate parents, this has been a new perspective, and has led to the elimination of worthless, bureaucratic routines and a sharper concentration on those things that genuinely add value. PROPOSITION: Many of the business units in multibusiness companies could be viable as stand-alone entities: To justify its existence, the corporate parent must influence the businesses collectively to perform better than they would as stand-alone entities.
to forget that parenting advantage should be in centre stage and, hence, to take decisions that...