Different Types of Corporate Parenting Style - Assignment Example

EXAM QUESTIONS of the Question 2 Different types of corporate parenting style Corporate parenting style helps to look after the relationship between headquarters of a company with its different strategic business units (SBUs). The set up of corporate parenting style differ from company to company. Some organizations establish different divisions while some use subsidiaries in business structure to establish corporate parenting style. Corporate parenting style helps to add value to individual business units (Collis and Montgomery, 1998). Some writers have a perception that this parenting style some time adds extra cost to the business. There is a confusing regarding this statement. For this reason three types of corporate financing styles are described in details to highlight their contribution in business. Synergy manager Synergy manager means the person who enhances the value of business by sharing activities and resources of the company with its subordinates for making the work process more effective. This type of managers sometimes adds extra cost to business for managing and integrating different business units of the company. In the real world of business synergy managers sometimes tends to exploit the connection between different SBUs. The managers do not perform the functions which they are supposed to do. In many cases the manager faces difficulties in managing different business systems and cultures in a compatible way. The manager develops synergy in different business units where there is actually no need of it. As a result the company has to bear extra costs for this. For example the company GM brought an aircraft mfr. This purchase was done because GM has some similar electronics. But this purchase added extra costs to the company and did not provided any benefit (Goold, 1995). The company will only get competitive advantages if it meets three conditions of business. As per the conditions, activities performed by the synergy managers must be similar with company’s activities and the activities need to be meaningful. The activities must provide competitive advantage to the business. Synergy managers have to transfer the skills which are difficult to copy and unique (Goold and Campbell, 2000). Parental developer Parental developers use their own skills and competences for adding charge to the business. They manage different units of the business by applying their specific skills in different situations for solving various purposes. They need to have a clear idea about the business needs and their own capabilities. The value creating activities of them involves in establishing centralized service and handling resources of the company. But sometimes their effort of adding worth to the business does not provide any advantage to the company (Grant, 2005). Moreover the company has to bear huge amount of cost for them. Lack of focus of parental developer regarding their duty and job responsibilities become their value destroying activities. Different types of problems in the company arise for this reason. For example Virgin Company follows parental developer in its corporate parenting style. In this company they help in providing different facilities and coaching to SBUs (Hall, Lovallo and Musters, 2012). They take part in improving business situations by implementing different actions. They also do analysis of future opportunities of business. In this way they add different values to the company. But some of their activities destroy the value of Virgin. In this company developers add various types of bureaucratic complexities which add many costs to the company. Financial performance of developers is not good which cause huge loss to the company (Henry, 2008). Portfolio manager The corporate parent who acts as an agent for shareholder and financial market helps to improving and enhancing the value of SBUs in an effective way. The portfolio managers identify different undervalued business and put efforts to improve those businesses. The managers are responsible to lower business costs by providing central services. It helps to encourage different business units to use targets and incentives systems for developing high performances. They also develop different investment plans for benefiting the company (Porter, 1985). The portfolio managers often involve in managing different types of business which are not important or do not provide any advantage to the company. The managers also develop some plans which are not related to the business or with its development activities. As a result the company has to incur different types of unnecessary expenses. For example Acme Brick Company follows the corporate parenting style of portfolio manager (Shaver, 2006). Different units of this business are handled by portfolio managers. The company has diverse portfolio which add different values to the business. The portfolio managers are involved in managing these different business units but sometimes they make some wrong decisions which add huge cost to the company (Johnson, Scholes and Whittington, 2014). BCG Matrix BCG Matrix helps to show the show the position of the business in the competitive business environment. Virgin Company follows a parental developer style. Here BCG Matrix is developed on the basis of Virgin Company. Star: This portion of the matrix shows that the company is experiencing high growth. In this stage the company has a large market share. The company implements different strategies for enhancing its business process. In the BCG Matrix of Virgin Company their Entertainment division is into the star position (Nilsson, 2000). This business unit is experiencing huge growth and is having a large market share. Cash Cow: In this stage the company has large market share but the growth of its business is slow. Virgin’s media and telecommunication and flight division are in this stage. By doing little investments the company is able to generate cash which it invests in its other business divisions. Dog: In this stage the experiences small markets share in a mature industry segment. The railway division of this business is into this dog stage (DiClemente, 2001). This particular division of Virgin Company is putting effort to improve its position in the market. Question Mark: In this stage the company has small market share in a growing market. The company requires different resources for growing its market share. Virgin’s shopping, finance, social and environment division are into this stage. These business divisions of Virgin are not sure about its future growth (Baker and Hart, 2008). McKinsey Matrix This matrix is a strong marketing tool for the business. Mc Kinsey Matrix helps to map different business units of the company and shows SBUs position in the industry. The vertical side of this matrix shows the industry attractiveness of the business units. The horizontal side of this matrix shows the position business units in the market. This matrix explains that when the SBU position is weak in unattractive industry then the company should sell that SBU unit. Virgin company needs to sell its railway division of business (Hooley, Piercy and Nicoulaud, 2012). This is because this division deals in mature industry segment where growing this business unit is difficult for the company. Virgin needs to spent huge amount of money helping this business unit to grow. The upper extreme corner of this matrix shows the market segment where the business units hold strong positions and they experience high industry attractiveness. In this stage the company needs to invest more on these business units to get different competitive advantages. The entertainment division of Virgin Company is experiencing this stage. If the company invests more on this business unit then it can earn more profit (Joshi, 2005). When the business units experience low or medium industry attractiveness and the strength of business units positing is medium then the company needs to develop strategies for those business units in such a way which will focus in gaining more market share. The company has to allocate resources carefully in these business units. In Virgin Company, its telecommunication, flight and media divisions are into this stage. The parental developers of these business units have to focus more on their investment plans for enhancing the growth of these divisions (Onkvisit and Shaw, 2009). Compare and contrast three different styles of corporate parenting The three corporate parenting styles are synergy manager, portfolio manager and parental developer. Three of these different styles have some similarities in them. Companies implement these styles to get some benefit and advantages in their business process. Three of these parenting styles are involved in the value creation processes of the companies. There major function is to utilize the resources of the company in an effective way for developing business units of a firm. They try to keep different costs of the business units low by applying their capabilities and skills (Elliot and Kramvis, 2012). If these styles are applied effectively in the company for maintaining its different business units then these will facilitate the business units to develop a strong position in the competitive market. Ineffective applications of three styles add huge cost to the company and make the business process slow. There are some basic differences in three corporate parenting styles. The synergy manager focuses on the connection between the business units with the main company. He plays a vital role in co operating different work process with SBUs. Based on the future possibilities synergy manager develops business plans and guides the SBUs. He provides central service to business units. This type of manager often faces the problem of taking right decision at right time. Synergy manager also looks after the distribution system of the company. Ineffective manager adds huge cost to the company for establishing integration in the business. Synergy manager has to take actions for establishing synergy in different levels of business units. In contrast to synergy managers, portfolio manager focuses on some different issues. The main function of this manager is to develop different investment plans for the growth and development of different business units of a company. Portfolio manager takes necessary actions for making provision for investments. He manages and looks after different costs of SBUs for lowering company’s expenses. Portfolio manager has a strong connection with the company’s shareholders. This type of manager contributes a lot in improving undervalued business units. When the functions of portfolio managers are not related with the company objectives and requirements then they add extra cost to business. Parental developers rely on their own skills and abilities to develop different business units of the company. They are involved in different types of research and development programs for facilitating the SBUs. They indentify different opportunities for business units with the help of their clear understanding of business. Developers play an important role in evaluating the growth and developments of different business units and based on that they decide the future of business units. Parental developer can divest the business unit which does not provide any advantage to the company. For example Berkshire Hathaway Inc has many business units which are controlled by its portfolio managers. They develop different in different investment plans for the SBUs of the parent company. In contrast to this, Disney follows synergy manager style which helps the company to manage its different SBUs in an effective way by controlling their business process and analyzing the future opportunities of its SBUs. On the contrary to both of these, Virgin follows parental developer style in corporate parenting where the SBUs of this company are controlled by central services. Many research and developments are done for developing its SBUs. Parenting opportunities (Ashbridge matrix) This matrix helps to evaluate present business situation in the respect of its parenting style and the attractiveness of expected acquisition target. This matrix has four different categories which explain the relationship of SBUs with their parenting style. By this model one can analyze whether the parenting style suits with the SBUs. The vertical axis shows that whether the parents have good understanding about SBUs. The horizontal axis of this model shows the benefits SBUs get from their parent. Heartlands: This segment of this model shows that parental group can add value to the child firm without harming business units. For example portfolio managers of Berkshire Hathaway Inc add value to the company. Distractions: In this part the parent can put less effort to add value to SBUs. For example in Disney the synergy managers needs to put less effort to add value to its different SBUs. Value Traps: Parental firm can add value to SBUs but it harms it harm the SBUs more. Aliens: The parental firm does not suit with SBUs and contributes a lot in its development. For example the Railway business unit of Virgin does not match with the company’s corporate parenting style. Different types of corporate parenting style contribute a lot in managing the business units of large companies or group of companies. If these parenting styles are implemented effectively then they add values to the company and help the SBUs of a company to experience different competitive advantage. But ineffectiveness of parenting style adds many extra costs to business. Therefore companies have to be very cautious in implementing different parenting styles to manage its SBUs. Question 3 The Resource Based View (RBV) The Resource based view of the organization or the industry mainly deals with tangible, intangible and the human resources and this explains that the organizations are required to focus more on the factors or the elements inside the market or the industry and not on those factors that are outside the market or the industry and the organization can prefer the outside approach if the organization is unable to provide better or unique things. According to the researchers it has been advised that it is more favourable in applying or utilizing the resources from outside rather than hiring new skills for exploring different opportunities. The resource based view is mainly adopted by the organizations and the industry because it bassist and facilitates them in gaining competitive advantage in the market or in the industry (Barney, 1991). On the contrary the resource view strategy adopts very orthodox approach which is sometime very difficult to implement in reality and which may affect the profitability of the firm or the industry. The competition or the rivalry that exist between Apple and Samsung can be well explained in context with the resource based view , since both the companies are operating in the same industry and are exposed to similar external forces and they can attain different results due to the utilization of different resources by both the companies. Apple sells its product at much higher price as compared to Samsung but Samsung on the other hand is not able to adopt the same strategy as that of Apple since Samsung does not acquire the same brand image as that of Apple and it is not capable of designing various unique user friendly products in comparison to Apple (Wilson, Lindbergh and Graff, 2014). Value chain The value chain approach that is adopted by the organization or the industry is to gain competitive advantage as the resource based view is also focused on gaining competitive advantage from its competitors therefore porter have formulated the value chain model for reducing the cost and increasing the extent of differentiation of the products that the industry deals in and this model emphasizes that if the company is not able to gain competitive advantage by utilizing the internal resources than the company is required to outsource its resources or reduce the cost of production and therefore the activities that is required to be carried out by the company is required to be segmented (Grant, 1991), Figure 1: Porter Value chain The companies in order to gain competitive advantage are required to focus on value chain as it will assist in identifying the capabilities within the value chain activities which is required for gaining competitive advantage. For example in case of Toyota it is involved in managing the inbound logistics in terms of its inventory control system and its excellent material which ensures that the inventory are sufficient for fulfilling the demands of the customer by delivering the parts prior to its assembly. Considering the primary activities it is observed that the company has efficient plant with excellent quality control system and this is assisted by sales and marketing through the dealership networks, advertising and service and the use of warranties and guarantees. The value chain activities of Toyota and its relationship with value chain activities of its suppliers can be explained by the fact that it provides core competence and the capability of the company in gaining competitive advantage and which its competitors find difficult to imitate and implement. Toyota is capable of providing value added service from these activities and Toyota is able to make profit more than the other largest automobile industry of the world (Gobble, 2012). VRIN/VRIO VRIN/ VRIO framework is mainly used by the organization or the industry in analyzing the capabilities and the internal resources of the firm and gain competitive advantages (Hamel and Prahalad, 1990). Figure 2: VRIN/VRIO Model In order to analyze the internal resources of the firm or the company the VRIO/VRIN model is implemented or followed and this model explains that in order to gain competitive advantage and gain edge over its competitors it is required that the company must have rare, valuable, non substitutable and imperfectly imitable products (Johnson, Scholes and Whittington, 2014). This framework can be explained with the help of Google which has the ability to attract its customers and manage its customers in terms of differentiation and also cost advantages and it mainly uses the data for managing its employees and therefore Google is capable of hiring talented and skill employees who are very productive which is apart from being valuable it is also very costly which is very difficult for its competitors to imitate and therefore Google is capable of capturing its value from its competitors (Magretta, 2012). Comparison of Resource view based strategy with the porter five force model Resource based view strategy and the porter five forces model have different units or parameters for analysis. In case of the porter five force models only the determinants of the industry that are necessary for gaining competitive advantages as identified but the various resources that are required by the firm for its strategic planning are not identified. In case of the porters model the accumulation of the resources in the implementation of the strategy by considering the constraints in the external environment are considered whereas in case of the resource view of strategy the firm is required to exploit its resources according to the competitive environment and therefore Resource based view strategy is better than that of porters five force model as it suggest various ways for better exploiting the resources for gaining competitive advantages. The resource based view is considered as the efficiency based approach in determining the performance of the firm or the industry. Porter five forces model emphasizes on the external factors whereas Resource view based strategy is based on internal factors (Haberberg and Rieple, 2008). For example in case of the British Airways the company considers the tangible factors such as the fixed asset in order to compete effectively in the airline industry, the intangible resources of the company which includes the brand image and reputation of the company and the entities that are created by the employee and the mangers and the human resources for competing effectively with the rivals or the competitors. The above example explains that in order to gain competitive advantages the internal as well as the external forces are required to be considered which is included in the Resource view based strategy. Therefore Resource view based strategy is more suitable as compared to porters five force model. Therefore on the basis of the above analysis it is observed that in spite of the advantages of Resource view based strategy it also encounters constraint in the application of this strategy in the organizations is that the application of this strategy is very limited and its competitive advantage is very difficult to attain by the firm or the organization (Grant. and Jordan, 2012). But in spite of the limitations, Resource view based strategy is considered as the appropriate approach for determining the company’s profitability since it considers both internal as well as external forces and factors for gaining competitive advantages. References Baker, M., and Hart, S. (2008). The marketing book. Great Britain: Routledge. Barney, J. (1991). Firm Resources and Sustained Competitive Advantage, Journal of Management, 17(1), pp: 99-120. Collis, D and Montgomery C. (1998) ‘Creating Corporate Advantage’, Harvard Business Review, May-June 1998. pp71-83. DiClemente, R. J. and et.al. (2001). Parental monitoring: Association with adolescents risk behaviors. Pediatrics, 107(6), pp. 1363-1368. Elliot, G. and Kramvis, A.C. (2012). Breaking the strategic inertia: Tips from two leaders. Mickinsey Quarterly. Gobble, M. M. (2012). Innovation and strategy. Research-Technology Management, 55(3), pp: 63-72. Goold et al. (1995). The quest for corporate parenting advantage. Harvard Business Review, March-April 1995, pp120-132. Goold, M and Campbell, A. (2000), Taking Stock of Synergy: A Framework for Assessing Linkages Between Businesses. Long Range Planning, 33(1), pp.72-96. Grant, R. (2005). Contemporary Strategy Analysis, Blackwell. New Jersey: Wiley Grant, R. (1991), The resource based theory of competitive advantage, California Management Review, 11(9),pp: 114-135 Grant, R. and Jordan, J. (2012). Foundations of Strategy. London: OUP Haberberg, A. and Rieple, A. (2008). Strategic management theory and application. London: OUP. Hall, S., Lovallo, D. and Musters, R. (2012). How to put your money where your strategy is. McKinsey Quarterly. Hamel, G. and Prahalad, C. (1990). The core competence of the corporation, Harvard Business Review, 21(1), pp: 79-91. Henry, A (2008) Understanding Strategic Management. London: OUP. Hooley, G., Piercy, N., and Nicoulaud, B. (2012). Marketing strategy and competitive positioning, 5th Ed. New York: FT Prentice Hall. Johnson, G. Scholes, K. and Whittington, R. (2014). Exploring Strategy. Tenth Edition. FTPH. New York: Pearson Education. Johnson, G., Whittington, R. and Scholes, K.(2011). Exploring Strategy (9th ed.). Harlow, UK: Prentice. Hall. Joshi, R. M. (2005). International marketing. New York: Oxford University Press. Magretta, J. (2012). Understanding Michael Porter. New York: Harvard Business press. Nilsson, F. (2000). Parenting styles and value creation: a management control approach. Management Accounting Research, 11(1), pp. 89-112. Onkvisit, S., and Shaw, J. (2009). International marketing: strategy and theory. New York: Routledge Porter, M. (1985). Competitive Advantage: creating and sustaining superior performance. New York: Free Press. Shaver, J. M. (2006) ‘A paradox of synergy: contagion and capacity effects in mergers and acquisitions’, Academy of Management Review, 31(4), pp.962-976. Wilson, T., Lindbergh, L. and Graff, J. (2014). The Competitive Advantage of Nations 20 years later: the cases of Sweden, South Korea and the USA. Competitiveness Review, 24(4), pp: 306-331. Read More