Chapter 13

Question 1

What is the Role of Corporate Management?

Answer 1

The primary strategic role of corporate managers is to create value within the businesses owned by the company. This involves:
Formulating and implementing corporate strategy
Managing the corporate portfolio
Coordinating and controlling the businesses
Adopting appropriate leadership styles
Operating under a suitable governance structure

Question 2

What does it mean to be Managing the Corporate Portfolio?

Answer 2

Portfolio management involves buying and selling businesses and managing the allocation of capital among them. For portfolio planning to create value, corporate management must be adept at:

Spotting undervalued companies
Allocating capital among businesses more efficiently than capital markets

Question 3

How can you Manage Linkages Across Businesses?

Answer 3

Multibusiness firms exploit linkages between businesses in two main areas:
Centralizing common services at the corporate level
Managing direct linkages among the businesses

A common service is a function or service that can be centralized at the corporate level to achieve cost economies, such as research, engineering, human resources management, and purchasing.

Question 4

What are some examples of Common Corporate Services?

Answer 4

Strategic planning:
Developing and implementing corporate strategy.
Financial control:
Managing financial resources and performance.
Treasury:
Managing cash and investments.
Risk management:
Identifying and mitigating risks.
Taxation:
Managing tax obligations.
Government relations:
Interacting with government agencies.
Shareholder relations:
Communicating with shareholders.

Question 5

What’s the benefit of Transferring and Sharing Resources and Capabilities?

Answer 5

To identify the potential for sharing resources and capabilities, Michael Porter advocates comparing the value chains for different businesses to identify similarities. This can be done in two ways:
Transferring resources and capabilities: Organizational capabilities can be transferred between businesses, such as design and brand management capabilities.
Sharing activities: Combining activities that use similar tangible and human resources can result in major economies.

Question 6

What are the Implications for Corporate Headquarters?

Answer 6

The more closely related a company’s businesses are, the greater the potential gains from managing the linkages among those businesses, and the greater the need for an active role by the corporate center.

Question 7

How is The corporate headquarters Managing Individual Businesses

Answer 7

The corporate headquarters can add value to its individual businesses by improving their management, known as vertical value-added. This can be achieved through:

Direct Corporate Involvement:
Corporate management improves business performance through interventions such as replacing managers or guiding strategy
Strategic Planning:
Corporate management guides business strategy to achieve long-term goals
Performance Management:
Corporate management sets performance targets and controls financial performance to achieve business objectives

Question 8

What are Private equity groups?

Answer 8

Private equity groups, such as Carlyle Group, Kohlberg Kravis Roberts, Blackstone, and Apollo Global Management, create investment funds that acquire full or partial ownership of private and public companies. Value is created through financial restructuring, management changes, and initiating strategic and operational changes.

Question 9

What is A restructuring strateg?

Answer 9

A restructuring strategy is a type of corporate strategy that involves significant changes to a company’s operations, management, or ownership structure in order to improve its performance and create value.

Question 10

What are Multibusiness Companies?

Answer 10

For most multibusiness companies, corporate management’s involvement in business-level decisions is less intrusive than that implied by a restructuring approach. Companies with superior financial performance over the long term tend to have close communication and collaboration between the business and corporate management.

Question 11

What is a Strategic Planning System?

Answer 11

A strategic planning system is a process used by companies to establish overall corporate goals and priorities. The role of corporate managers is to appraise, amend, approve, and integrate business-level strategies.

Question 12

What is some Criticisms of Strategic Planning?

Answer 12

Separates strategy formulation from strategy implementation

Fails to take account of uncertainty or the need for flexibility and creativity

Rigidities of formal planning cycles mean that senior executives make decisions outside the planning process

Question 13

How can you Improve Strategic Planning Systems?

Answer 13

Emphasize critical strategic issues:
Identify strategy issues that will have the biggest impact on future business performance.

Adapt strategic planning to meet a company’s specific needs:
Utilize traditional strategic planning systems for mature industries, and foster alertness to technologies and business models for e-commerce and information technology.

Systematize strategy execution:
Use milestones, balanced scorecard, and strategic maps to link strategic planning to operational management

Question 14

What is Performance Management and Financial Control?

Answer 14

Most multibusiness companies have a dual planning process: strategic planning is concerned with the medium and long term, while financial planning and control typically concentrates upon a two-year horizon.

Question 15

What are the Key Components of Performance Management?

Answer 15

Operating budget
Key performance indicators
Strategic milestones
Capital expenditure budgets

Question 16

Explain Strategic Planning vs Performance Management.

Answer 16

Strategic planning involves exerting corporate control over the strategic decisions made by businesses, while performance management involves establishing performance targets for businesses and allowing managers to make decisions to attain those targets. The distinction between these two approaches is between input control and output control.

A company can control the inputs into strategy (the decisions) or the output from strategy (the performance).

Question 17

How do you Manage Change in the Multibusiness Corporation?

Answer 17

The shifting priorities of corporate executives have had important implications for the strategic management of multibusiness companies. The emphasis has shifted from growth to shareholder value creation, and more recently, to innovation and exploiting linkages between businesses.

Question 18

What is Adaptive Capability?

Answer 18

Companies like IBM and Samsung Electronics have built adaptive capability to respond to changing business conditions. This involves:

Identifying opportunities for innovation and new product development
Exploiting linkages between businesses and with other companies
Facilitating adaptation to change through processes like strategic leadership forums, technology teams, and integration and values teams

Question 19

What are the Key Features of Adaptive Capability?

Answer 19

Emerging business opportunities (EBOs): business development processes that protect new business initiatives from financial rigor
Technology teams: assess emerging technologies and their market potential
Strategy teams: review business unit strategies and recommend new initiatives
Corporate Investment Fund: finances new initiatives identified by the integration and values team or EBOs
Integration and values teams: responsible for company-wide initiatives that cut across divisional boundaries

Question 20

What are some ways of facilitating corporate adaptation?

Answer 20

Counteracting Inertia: A company’s reluctance to change can be attributed to its inertia, which is the tendency to maintain the status quo and resist new ideas or initiatives.
Adaptive Tension: Adaptive tension is the internal stress that counteracts complacency. This can be achieved through decentralized decision-making and creating a sense of internal competition.
Institutionalizing Strategic Change:
involves redesigning a company’s strategic planning systems to sense external changes and respond to opportunities.
New Business Development: Develop, acquire and nurture start-ups.
Top-Down Development Initiatives: involve linking strategic intent to specific projects and programs.

Question 21

What are the key issues in corporate governance?

Answer 21

Rights of Shareholders:
The tendency for companies to operate in the interests of their senior managers rather than in the interests of their owners.
Responsibilities of Boards of Directors:
The board’s role in overseeing the management of the company and protecting the interests of shareholders.
Role of Corporate Management:
The management’s role in implementing the company’s strategy and making decisions that affect the company’s direction

Question 22

What are the Responsibilities of Boards of Directors?

Answer 22

The board of directors has the responsibility to ensure the strategic guidance of the company, the effective monitoring of management, and the board’s accountability to the company and its shareholders. This requires:
Board members to act in good faith, with due diligence and care, in the best interest of the company and its shareholders
Board members to review and guide corporate strategy, major plans of action, risk policy, annual budgets, and business plans
Board members to set and monitor performance objectives, oversee major capital expenditures, select, monitor, and compensate key executives
Board members to ensure the integrity of the corporation’s accounting and financial reporting systems