CONTEMPORARY STRATEGY ANALYSIS
tenth edition
Robert M. Grant
John Wiley & Sons Ltd., 2019
Chapter 13
Implementing Corporate
Strategy: Managing the
Multibusiness Corporation
1
Implementing Corporate Strategy:
Managing the Multibusiness Corporation
OUTLINE
• 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
Copyright © 2019 John Wiley & Sons, Inc.
THE ROLE OF CORPORATE MANAGEMENT
How does Corporate Management add
Value to its Individual Businesses?
• Managing the corporate portfolio
—including acquisitions, divestments, and
resource allocation
• Managing linkages among businesses
• Managing each individual business
• Managing change
Copyright © 2019 John Wiley & Sons, Inc.
Berkshire Hathaway’s portfolio of businesses
Insurance
Energy
General Re
GEICO
BH Primary
BHRG
Mid American Energy
Northern Powergrid
PacificCorp
NV Energy
Retail
Nebraska Furniture Mart
RC Willey Home Furnishings
Borsheims
Pampered Chef
Pampered
Chef
Dairy Queen
BERKSHIRE
HATHAWAY
INC.
See’s Candy
Media and
Services
Home Services of America
Store Capital
BH Media
Business Wire
NetJets
© 2019 Robert M. Grant,
www.contemporarystrategyanalysis.com
Manufacturing
Lubrizoil
CTB International
Fruit of the Loom
Google
Books
Clayton Homes
IMC
Main Portfolio
Investments
• Heinz Kraft
• Apple
• Coca-Cola
• Wells Fargo
• American Express
• Phillips 66
• Goldman Sachs
• Delta Airlines
MANAGING THE CORPORATE PORTFOLIO
The Uses of Portfolio Planning Models
in Strategy Formulation
• 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.
Copyright © 2019 John Wiley & Sons, Inc.
MANAGING THE CORPORATE PORTFOLIO
Industry Attractiveness
The GE/McKinsey Matrix
High
Medium
Low
Low
Medium
High
Business Unit Position
Industry Attractiveness Criteria
- Market size
- Market growth
- Industry profitability
- Inflation recovery
- Overseas sales ratio
Copyright © 2019 John Wiley & Sons, Inc.
Business Unit Position
- Market share (domestic,
global, and relative)
- Competitive position
- Relative profitability
MANAGING THE CORPORATE PORTFOLIO
HIGH
Earnings:
low, unstable, growing
Earnings:
high stable, growing
Cash flow: negative
Cash flow:
neutral
Strategy:
Strategy:
invest for
growth
analyze the
potential to
develop the
business
into a “star”
Earnings:
LOW
Annual real rate of market growth (%)
The BCG Growth-Share Matrix
?
low, unstable
Earnings:
high stable
Cash flow:
neutral or negative
Cash flow:
high stable
Strategy:
divest
Strategy:
milk
HIGH
LOW
Relative market share
Copyright © 2019 John Wiley & Sons, Inc.
MANAGING THE CORPORATE PORTFOLIO
Ashridge Portfolio Display:
The Potential for Patenting Advantage
LOW
HEARTLAND
BALLAST
Potential for value
destruction from
misfit between
needs of the
business and
patent’s corporate
management style
--typical legacy
business: good
fit high, but limited
potential to add
value
EDGE OF
HEARTLAND
--businesses with
high potential
for adding value
-- less value adding
potential; more risk is
of value destruction
ALIEN TERRITORY
VALUE TRAP
--exit: no potential for
value creation
--lack of management fit
limits potential to add
value
HIGH
LOW
HIGH
Potential for parent to add value to the business
© 2019 Robert M. Grant,www.contemporarystrategyanalysis.com
MANAGING THE CORPORATE PORTFOLIO
Do Portfolio Planning Models Help or Hinder
Corporate Strategy Formulation?
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
Copyright © 2019 John Wiley & Sons, Inc.
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
MANAGING LINKAGES ACROSS BUSINESSES
Sources of Synergy within
the Multibusiness Corporation
▪ 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
Copyright © 2019 John Wiley & Sons, Inc.
MANAGING INDIVIDUAL BUSINESSES
The McKinsey Restructuring Pentagon
Current
market
value
1
Current perceptions
gap
Company
value as is 2
Strategic and
operating
opportunities
RESTRUCTURING
FRAMEWORK
Potential value
with internal
improvements
Copyright © 2019 John Wiley & Sons, Inc.
Maximum raider
opportunity
3
Disposal/acquisition
opportunities
4
5
Optimal
restructured
value
Total company
opportunities
Potential value
with external
improvements
MANAGING INDIVIDUAL BUSINESSES
Exxon’s Strategic Planning Process
Economic Review
Energy Review
Stewardship
Review
Business
Plans
Discussion
with contact
director
Financial
Forecast
Stewardship
Basis
Investment
Reappraisals
Annual
Budget
Approval by
Mgmt.
Committee
Corporate
Plan
MANAGING INDIVIDUAL BUSINESSES
Rethinking Strategic Planning
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”
Copyright © 2019 John Wiley & Sons, Inc.
MANAGING INDIVIDUAL BUSINESSES
Performance Management and Financial Control
• 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
Copyright © 2019 John Wiley & Sons, Inc.
8
MANAGING INDIVIDUAL BUSINESSES
Strategic Planning and Financial Control as
Alternative Modes of Corporate Control
Two basic approaches
Input
control
Output
control
Monitoring and approving
business level decisions
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
Copyright © 2019 John Wiley & Sons, Inc.
MANAGING INDIVIDUAL BUSINESSES
Alternative Corporate Management Styles
Strategic planning
Financial control
Business
strategy
formulation
Strategy formulated by
businesses; corporate
HQ 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
initiative
Unitary strategic view
Tendency to persist with failing
strategies
Short-term focus discourages
innovation and long-term
development
Limited sharing of resources and
capabilities
Style suited to
Companies with few closely
related businesses
Capital and technologyintensive sectors with large,
long term investment projects
Highly diversified companies with
low relatedness among businesses
Mature, low-tech sectors where
investment projects small and
short term
Copyright © 2019 John Wiley & Sons, Inc.
MANAGING`CHANGE IN THE MULTBUSINESS CORPORATION
The Challenge of Leading Change
❑ 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
Copyright © 2019 John Wiley & Sons, Inc.
GOVERNANCE OF MULTBUSINESS CORPORATIONS
The Challenge of Corporate Governance
•
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 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.
•
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
Copyright © 2019 John Wiley & Sons, Inc.
GOVERNANCE OF MULTBUSINESS CORPORATIONS
Highest Earning CEOs of US Companies 2016
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
32
9
Leonard Schleifer
10
Stephen Wynn
IBM
Regeneron
Pharmaceuticals
Wynn Resorts Ltd.
Copyright © 2019 John Wiley & Sons, Inc.
28
28
Module 12: Implementing Strategy
1. Multi-Business Companies
Over time, those who study strategic management, and even working managers, have used the
terms implementation and execution interchangeably. While we have learned that these actions
are hard to separate, these words do have distinct meanings, particularly when it comes to
business and organizational management. In a Harvard Business Review article, Favaro (2015)
drew attention to these words, articulating the difference between them, and how the confusion
could be affecting outcomes. He noted that “ignoring or blurring the differences contributes to
sloppy thinking, decision making, and action at all levels of an organization” (para. 2). Based on
this definition, it appears it is all but impossible for a strategy to ever be fully implemented. This
is because the assumptions that an organization makes about customers, technology, regulation,
and competitors when formulating the strategy are in a constant state of flux.
Implementation
Implementation is what happens
when we close the gap between
where a company is and what
the strategy calls for.
Execution
Execution is defined as “the decisions and activities a
company undertakes in order to turn an implemented
strategy into commercial success” (Favaro, 2015, para. 8).
Strategy and implementation are It is his position that to achieve execution excellence is to
almost always running in parallel, realize the best possible results a strategy and its
rather than in sequence.
implementation will allow (Favaro, 2015).
Managers must treat strategies
as constantly evolving and
therefore should be continuously
updating their strategies.
When business leaders confuse strategy, implementation,
and execution, they usually end up just running a company:
doing things such as setting goals and targets; making plans
and initiatives, but they achieve very little actual strategy,
implementation, or execution (Favaro, 2015).
One of the tools that can assist with strategy implementation, particularly for companies that
have the challenge of being geographically dispersed, is the 7-S model—also referred to as the
McKinsey 7-S. It’s a framework that represents an analysis framework for all the internal aspects
of an organization to make it more effective in achieving its intended objective. The model
illuminates seven internal aspects that need to be aligned if it is to be successful.
Review this article to learn more about the 7-S model: The Mckinsey 7-S Framework
Developed by Tom Peters and Robert Waterman, two consultants working for McKinsey
in the 1980s, the 7-S framework helps align all the internal aspects of an organization to
make it more effective, whether the organization is geographically widespread or
operates in one location. If something within the organization is not working, it is quite
possible that there are inconsistencies in or among some of the seven elements. Once
these inconsistencies are revealed, the organization can then work to align the elements
to ensure each is contributing to the shared goals and values.
Leaders diagnosing and assessing the ability to implement strategies must consider that
geographic distribution itself can greatly impact organizational culture and subcultures.
Unlike those firms doing business domestically, MNEs have many additional factors that
are affected by engaging in business overseas. These companies must consider such
things as the culture of the host country and its religion, politics, and economy (including
marketing, finance, and accounting), to name a few. To be successful internationally,
MNEs must preempt some of the difficulties of doing business outside the “home” by
developing a well-designed business strategy (David, 2016). For example, McDonald's
has managed to succeed in Saudi Arabia by offering various culturally and religiously
appropriate specialties. Not only does the fast-food giant respect Ramadan by restricting
service during fasting periods during the holy month, but it also offers special menus at
night. The chain adheres to local laws by segregating male and female diners.
In many ways, expanding options and opportunities requires careful consideration,
analysis, and a realignment of strategies and tactics in order to remain successful. The
success of a strategy depends on three critical factors: careful implementation and
monitoring; a realistic internal view of an organization’s core competencies and
sustainable competitive advantages; and a firm’s alignment with the external
environment. Organizations should know who they are, their current position, where they
want to be in the future, and what they need to do to get there.
The balanced scorecard (BSC) is a strategic, balanced system that organizations use for
these purposes:
•
•
•
•
Communicate what the organization is trying to accomplish.
Align the day-to-day work with strategy.
Measure and monitor progress toward strategic targets.
Prioritize projects, products, and services.
Strategy planning is never complete without evaluating whether the strategy was
ultimately successful. We have studied the importance of creating a sound strategy
implementation to the point of ultimately realizing that strategy. Implementing a bad
strategy, however, often results in failure. Strategy evaluation is based on the firm’s
metrics to determine if goals have been met.
Click through the tabs to explore some areas to consider:
Revenues:
•
•
Financial reports: The formal record of an organization’s financial activities
Revenue: The amount of money that a company receives for goods and services
during a specific period
Profits:
The financial gain to a company, especially the difference between the amount earned
and the amount spent in buying, operating, or producing a product or service
Customer Satisfaction:
A measure of how satisfied customers are with the products and/or services of a
company
Supplier Satisfaction:
Supplier satisfaction is essential in managing buyer-supplier relationships. The
satisfaction of the supplier can enhance information exchange between the buyer and
the supplier.
Industry Position:
The ranking of a product or company relative to competitors in the same industry
In all instances, the data collected may be the catalyst to initiate another round of
strategy planning. The process of conducting external industry analysis and internal
resource and capability assessment is the first step towards recognizing how to adapt the
strategy. Reviewing business and corporate strategies in alignment with the
organization’s vision and mission is imperative. Finally, assessing the strength of the
implementation and the flexibility and adaptability of the firm is a solid step toward
continuous improvement in the quest for competitive advantage.
Watch this video to learn more about how to evaluate strategy execution:
https://youtu.be/GanjyGmr25c
Evaluating and analyzing the external environment and the company’s internal situation
and performance to identify needed corrective adjustments is the trigger point for
deciding whether to continue or change the company’s vision, objectives, strategy, and/or
strategy execution methods.
The success of a strategy depends on three critical factors: careful implementation and
monitoring, a realistic internal view of an organization’s core competencies and
sustainable competitive advantages, and a firm’s alignment with the external
environment. An organization should know who it is, its current position, where it wants
to be in the future, and what it needs to do to get there (David, 2016).
2. Corporate Leadership
Consider what you have learned about corporate strategy so far, and you can see that
the role of the corporate leader is clearly a challenge. Plus, the approaches to strategy
implementation vary by industry and individual. Different levels of business unit control
as compared to corporate control exist within corporate headquarters, where some take
a hands-off role as an investor only. In other settings, the business unit follows the
direction of the corporate headquarters to complete the day-to-day operations. We have
followed the alignment of the business strategy, which should be supported by the
corporate strategy and now we must consider how the corporate headquarters can
facilitate and support implementation and execution of the strategic vision.
A traditional approach to corporate control uses strategic planning or financial control.
Companies that take a strategic planning approach have corporate headquarters lead
business‐level planning. Companies that take a financial control approach have corporate
headquarters monitor short-term financial performance but leave the business unit
responsible for strategy formulation (David, 2016). Review the following chart to compare
these approaches.
Watch this video to learn more about developing a strategy and executing it
proficiently:
https://youtu.be/djfJDpxNCeE
Strategy formulation is the process by which an organization chooses the most
appropriate courses of action to achieve its defined goals. The managerial process of
crafting and executing a company’s strategy is an ongoing, continuous process consisting
of five integrated stages.
Review this Alternative Corporate Management Styles chart to compare these styles.
Business
Strategy
Description
Advantages
Disadvantages
Strategic
Planning
Business unit
autonomy
Conducive to initiative,
responsiveness, and
efficiency
Loss of divisional autonomy
Financial
Control
Strategy formulated
at the business unit
level
Conducive to initiative,
responsiveness, and
efficiency
Short-term focus discourages
innovation and long-term
development
Similar strategic approaches frequently deliver different results in performance between
companies with the differentiator being identified as the quality of management and the
dependent factor being the identification of successful approaches to corporate leadership (Dou,
Alain, & Clerc, 2019; Rothaermel, 2017). These approaches focus on corporate leadership
achieving the strategic plan through the coordination and development of the leadership teams.
The leadership team should be integral in the strategic process and integrated throughout the
business unit and the corporate structure with a shared understanding of the whole strategy plan.
Research supports that organizations that develop their own leadership practices for strategy
leadership avoid a mismatch in implementation and execution capabilities (David, 2016; Dou et
al., 2019). Patagonia, Inc. is an apparel business that has developed its own approach to
leadership teams specific to company needs (Chouinard, 2012). Review the following chart and
consider the need to rethink strategic planning.
Stronger leadership at all levels of the organization supports the coordination needed to perform
the required business unit operations, plus lead strategic implementation of the strategic vision
and plan. The clear indicator of more successful strategic management does not rest on one
leader’s shoulders but rather on the corporate leader’s vision for the leadership culture within the
organization. Since leaders must have the right capabilities to support the business strategy, the
leadership culture that shares the importance of leadership teams in strategic planning may be
better aligned for success (David, 2016).
References
Chouinard, Y. (2012). The responsible company. Ventura, CA: Patagonia Books.
David, F. R. (2016). Strategic management: A competitive advantage approach, concepts and
cases. Essex, UK: Pearson.
Dou, H., Alain, J., & Clerc, P. (2019). Strategic intelligence for the future 2: A new strategic
and operational approach. Hoboken, NJ: Wiley.
Favaro, K. (2015, March 31). Defining strategy, implementation, and execution. Harvard
Business Review. Retrieved from https://hbr.org/2015/03/defining-strategyimplementation-and-execution
Grant, R. M. (2019). Contemporary strategy analysis (10th ed.). Hoboken, NJ: John Wiley &
Sons.
Rothaermel, F. T. (2017). Strategic management. New York, NY: McGraw Hill Education.
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