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Strategy Term 3, 2011

Summary
undersLand Lhe 3 maln roles of corporaLe managemenL ln a mulLlbuslness company and analyze Lhe
synergles beLween a mulLlbuslness flrm's corporaLe sLraLegy organlzaLlonal sLrucLure managemenL
sysLems and leadershlp sLyles LhaL enable Lhe flrm Lo creaLe value Lhrough dlverslflcaLlon

anc for th cass
8elevanL for Lhose lnLeresLed ln corporaLe sLraLegy speclflcally buslness porLfollo managemenL for large
corporaLlons

commndat|on
8ead aL lelsure (33 pages readlng) for examples of successful and dlsasLrous corporaLe managemenL

y po|nts

O ase for buslness dlverslflcaLlon depends on wheLher Lhe dlverslfled company can creaLe value by
operaLlng across mulLlple buslnesses 1he sLrucLure of Lhe mulLlbuslness corporaLlon and Lhe role of Lhe
corporaLe head offlce lLs ablllLy Lo malnLaln relaLlonshlp wlLh varlous buslnesses deLermlne a
mulLlbuslness corporaLlon's success ln creaLlng value

O s per Cllver Wllllamson' Mform Lheory dlvlslonallzed flrms faclllLaLe value creaLlon Lhrough dlspersed
declslon maklng (hlgh frequency declslons made aL dlvlslonal level and oLhers aL corporaLe level)
mlnlmlzed coordlnaLlon cosL and avoldlng goal confllcL (dlvlslonal heads focus on proflL goals LhaL allgn
wlLh corporaLe goals lnsLead of funcLlonal goals) 1hls
4 nables effecLlve resource allocaLlon by creaLlng an lnLernal caplLal markeL where budgeLs
(caplLal) ls allocaLed accordlng Lo flnanclal (pasL and pro[ecLed dlvlslonal proflLablllLy) and
sLraLeglc crlLerla
4 elps avold agency problems beLween shareholders (whose lnLeresL lles ln maxlmlzlng company
value) and managers (agenLs whose focus ls on lncreased salary securlLy power) orporaLe
ManagemenL musL acL as an lnLerface beLween shareholders and dlvlslonal managers Lo enforce
adherence Lo proflL goals by deslgnaLlng dlvlslons as proflL cenLers and uslng performance based
compensaLlon sysLem

O 1he llve maln roles of orporaLe ManagemenL

l Managlng orporaLe orLfollo orporaLe ManagemenL should deLermlne whlch buslnesses Lhe company
should be ln and how lL can add value ln each uslng porLfollo plannlng models such as C$Mcklnsey
MaLrlx and 8C's CrowLhshare maLrlx 1hese slmple models help ldenLlfy key sLraLeglc varlables relaLed
Lo markeL aLLracLlveness compeLlLlve advanLage wlLhln Lhe markeL of lndlvldual buslnesses Lo assess
Lhelr poLenLlal for proflL ompanles can leverage Lhese models for effecLlve resource allocaLlon
formulaLlon of buslness unlL sLraLegy analysls of porLfollo balance ln Lerms of cash flow generaLlon
growLh prospecLs and seL performance LargeLs based on markeL aLLracLlveness compeLlLlve poslLlon
1he mosL effecLlve model ls shrldge orLfollo ulsplay (based upon Coold ampbell lexander's
parenLlng advanLage framework) whlch ls bullL on Lhe premlse LhaL Lhe value creaLlon poLenLlal of a
buslness wlLh ln a company's buslness porLfollo depends upon Lhe characLerlsLlcs of Lhe buslness as well
as of LhaL of Lhe parenL company 8y acqulrlng a clear lnslghL lnLo Lhe fundamenLal sLraLeglc
characLerlsLlcs of a buslness Lhe naLure of corporaLe managemenL sLyles and sysLems value can be
creaLed Lhrough conflguraLlon and reconflguraLlon of lLs porLfollo

Sss|on 7 Corporat Strat|s Mana|n th mut| bus|nss corporat|on

Impmnt|n th Corporat Straty Mana|n th Mut|bus|nss I|rm obrt M
Grant
ltepoteJ by lteetbl Notoyoooo
Strategy Term 3, 2011
ll Managlng lndlvldual 8uslnesses orporaLe ManagemenL should lmprove boLh sLraLeglc operaLlonal
managemenL of lndlvldual buslnesses wlLhln lLs porLfollo by appolnLlng Lhe rlghL manager lnfluenclng
managemenL developmenL successlon plannlng lnfluenclng Lhe shape lmplemenLaLlon of sLraLeglc
plans caplLal expendlLure proposals enforclng Lhe corporaLe culLure orporaLe ManagemenL can
exerclse conLrol over lndlvldual buslnesses ln Lwo ways
l) lnpuL conLrol conLrol declslons by requlrlng LhaL cerLaln declslons (lnvolvlng slgnlflcanL resources) are
referred upward for corporaLe approval
ll) CuLpuL onLrol conLrol by seLLlng and monlLorlng performance LargeLs backed by lncenLlves and
penalLles Lo moLlvaLe Lhelr aLLalnmenL
1he Lrade off wlLh Lhese models ls LhaL more of one lmplles less of oLher

ln a successful mulLlbuslness corporaLlon dlvlslonal managers lnlLlaLe buslness sLraLegy Lhe role of
corporaLe managers ls Lo probe appralse amend approve dlvlslonal sLraLegy proposals 1hrough
conLlnuous declslon orlenLed sLraLeglc plannlng (flrsL emphasls on crlLlcal lssues Lhen on declslon
maklng) effecLlve sLraLegy execuLlon (effecLlve llnkage beLween sLraLeglc plannlng operaLlonal
managemenL) a company can achleve an opLlmal blend of buslness level lnlLlaLlve and corporaLe level
guldance orporaLe ManagemenL should focus on boLh sLraLeglc plannlng (long Lerm) flnanclal
plannlng (shorL Lerm) Lo devlse and achleve performance LargeLs whlle derlvlng lnpuLs from lMS (roflL
lmpacL of MarkeL SLraLegles LhaL offer Lechnlques for appralslng buslness performance developlng
sLraLegles Lowards Lhem) Lo mlnlmlze Lhe Lradeoff beLween encouraglng buslness lnlLlaLlve exerclslng
corporaLe conLrol

lll Managlng Llnkages 8eLween 8uslnesses 1he maln value of a mulLlbuslness corp comes from sharlng
resources and Lransferrlng capablllLles among dlfferenL buslnesses 1hls can be achleved Lhrough
a enLrallzed provlslon of common servlces (such as sLraLeglc plannlng flnanclal conLrol 8u
8M legal counsel) aL corporaLe level by esLabllshlng a shared servlces organlzaLlon Lo avold
cosLs of dupllcaLlon
b 8ulldlng dlrecL llnkages beLween buslnesses Lhrough crossdlvlslonal Lask forces Lo faclllLaLe
coordlnaLed buslness developmenL new producL developmenL cenLrallzed quallLy and flnanclal
managemenL processes

lv Leadlng hange orporaLe ManagemenL can effecLlvely play Lhe role of a 'change agenL' by lncreaslng
responslveness Lo exLernal change and acceleraLlng Lhe pace of organlzaLlonal evoluLlon uslng Mcklnsey
enLagon 8esLrucLurlng lramework corporaLe managemenL can enable value creaLlon Lhrough corporaLe
resLrucLurlng based on a company' currenL markeL value value of company as ls Lhe poLenLlal value wlLh
lnLernal lmprovemenLs poLenLlal value wlLh exLernal lmprovemenLs and Lhe opLlmum sLrucLured value of
Lhe company tptote Moooqemeot sbJ me ftm o cott ceotet t o setlce ceotet tbot eoobes
foclltotes cbooqe by blJloq systems ooJ sttcttes tbot petmlt oJoptotlo 1hls wlll help achleve a
healLhy comblnaLlon of decenLrallzed flexlblllLy + lnlLlaLlve cenLrallzed purpose + lnLegraLlon wlLhln Lhe
organlzaLlon llexlble lnLegraLlon horlzonLal collaboraLlon beLween buslness unlLs and a sLrong sense of
ldenLlLy and assoclaLlon LhaL Lhe company's Lop execuLlves have wlLh lLs core values vlslon mlsslon and
corporaLe culLure are key facLors ln deLermlnlng a mulLlbuslness's ablllLy Lo effecL change

v ueveloplng xLernal SLraLegles Mergers and cqulslLlons are lmporLanL ln deflnlng exLendlng Lhe scope
of a buslness's acLlvlLles orporaLe ManagemenL should focus on exLenslve preacqulslLlon plannlng and
posLacqulslLlon managemenL sLrucLurlng Lo ensure successful mergers LhaL help expand Lhe company's
buslness horlzons