Executive Summary
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The parent company should add more value than other owners could.
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The skills at the center need to match the improvement opportunities in the businesses.
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Geographic and sectoral diversification are to be avoided; there are other ways to grow.
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Vertical integration is unlikely to succeed.
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When value added no longer seems feasible, demerge or break up completely.
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Good central managers never stop demanding real and substantial value added.
Introduction
Implementing a successful corporate-level strategy has become an urgent priority for all corporations. Parent companies must demonstrate that they are creating stockholder value by their own actions and initiatives, and not just reaping the profits of the businesses in their charge. The sanctions for being seen to fail in this challenge can be severe. At the very least, stock prices will suffer; at the other extreme, predators will force a breakup.
A Framework
The challenge of corporate-level strategy is to ensure that value is being added to every business in the company’s portfolio. That value must, of course, exceed its cost. Corporations with good corporate strategies do even better: they add more value than other companies in the same businesses.
Ensuring that this value-added process is productive requires several actions by top management:
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It must identify ways in which each business can be helped. This help must make possible a major improvement in business performance. Without an understanding of where improvement potential exists, the search for value added cannot be real and substantial. These improvement opportunities should be identified and agreed on through managerial dialog and business-planning systems.
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Central management must make sure that it possesses the skills to provide the help needed. Different kinds of improvement opportunities require different forms of help. Management must see that it has those capabilities.
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It must construct a portfolio of businesses in which this constructive fit—useful skills attuned to the needs of the businesses—exists. How businesses can be helped is bound to change over time. The strength of the fit must be continually reappraised.
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Management must ensure that it is sufficiently familiar with the requirements for the success of each business and that it will not damage that business, whether by approving the wrong investment proposals, appointing the wrong general managers, or giving poor strategic guidance.
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