,THE STRATEGY CENTER OF EXCELLENCE,Corporate Parenting/ Portfolio Strategy,The Strategy College June 1997,Introduction Historical and Best Current Thinking,Corporate Parenting Agenda,Introduction Historical and Best Current Thinking,Corporate Parenting Agenda,Our objectives:,Provide an overview of corporate strategy and parenting concepts. Explain historical and current best thinking on the topic, including the strengths and limitations of different approaches. Investigate corporate strategy抯 impact on client value. Provide contacts and resources for further exploration.,Corporate Parenting - Introduction,Before we begin a discussion of corporate strategy, we must have clear definitions of the kinds of players involved.,* Source: 揅orporate-Level Strategy,? 1994 Gould, Campbell, Alexander * Source: Dictionary of Finance and Investment Terms, 4th Ed. Barrons 1995,?Definition of Multibusiness Companies, Corporate Parents and Business Units,Multibusiness companies consist of businesses, many of which could exist independently, and a corporate hierarchy of line managers, functions, and staff outside these businesses.*,Businesses units are any grouping of products and services comprising a significant industry, which is an industry representing 10% or more of total revenues, assets, or income.*,The corporate parent is responsible for making overarching corporate strategy decisions. It is the parent which decides what new businesses to support, what acquisitions to make, and whether to form joint ventures or alliances. It is the parent which determines the structure of the corporation, defines budgeting and capital expenditure processes and sets the tone for corporate values and attitudes.*,Corporate Parenting - Introduction,It is important to remember that the corporate strategy is more than the sum of the business unit strategies, and that each affects the other on a continuous basis.,?Definitions of Corporate and Business Unit Strategy,Business Unit Strategy,Corporate Strategy,An integrated set of actions that creates value by: Creating products and services whose value exceeds the cost of providing them Capturing value from competitors, customers, distributors, and suppliers,More than the sum of the business unit strategies, it includes: Demanding long-term performance aspirations Statements of overall corporate direction which shape business unit strategies Explicit definition of how the corporate center will add value,Corporate Parenting - Introduction,Future,Corporate Parenting thinking has evolved dramatically over recent decades.,?Evolution of Corporate Parenting Theory,Build portfolio of businesses based on cash generation/need Use share advantage to drive down costs,Themes:,Diversification,LBO/ Shareholder Value,Core Competency,Debt based purchases Shedding of nonessential assets,Manage core businesses, 搒tick to your knitting Match corporate center role to needs of business units,Experience curve BCG growth/share matrix,Key Frameworks:,NPV/DCF analysis McKinsey抯 搑aider抯 pentagon,McKinsey Corporate Center Roles Core competency frameworks,Assumed shareholders could not easily diversify themselves Misunderstood 搒hared?experience Ignored all aspects of parenting beyond portfolio shaping,Current Thinking:,Massive debt drove bankruptcies, underinvestment Ignored strategic growth opportunities,Tended to be descriptive rather than prescriptive Core competencies difficult to define rigorously,1970s,Early 1980s,Late 1980s - Early 1990s,?,?,?,Corporate Parenting - Historical Context,Corporate Center costs can be a value-drag; the critical issue is how much value does a corporate parent add to ?or subtract from ?its business units.,* Typically 10% of market value,?NPV/DCF Explanation of Corporate Parenting,Business A,Business B,Business C,Total,Corporate Center Costs*,Corporate Center Value- Added,Corporate Center Value- Drags,Total Company Value,Business Unit DCF Valuations,Corporate Center Impact,Corporate Parenting - The Basics,AC has some examples of solid, significant experiences in Corporate Parenting/ Corporate Strategy.,Engagement Experience,Westinghouse: Role of Corporate Center,Corporate center value creating approaches Corporate center role evolution,Mike Porges Ken Mifflin James Ellis,Individuals?Prior Experience,Various,Various,Tom Shemo Brian Cote,Practice Development,Enterprise Transformation at Ingersoll Rand,Value of change research Roles of corporate center,Christopher Atkins,Screening criteria DCF valuation,Various: Acquisition Analysis,Jeff Pennington,Corporate Parenting: Organization Strategy Competence Cell,Roles of corporate center Matching corporate center role to business unit needs,Business unit value creation Portfolio analysis,Mark Giometti,Discussion on Value Creation Analysis,Iain Somerville,AC Experience Base,Client/Project,Key Themes,Contact,?AC Experience in Corporate Parenting/Corporate Strategy,Corporate Parenting - Best Current Thinking,Introduction H