Multibusiness companies typically have wonderful managers in the individual lines of business who know more about running their specific units than anyone in corporate management. At the unit level, each business pursues its own strategy and develops its own value proposition. These managers are trying to build competitive advantage in a distinct business, so they have to focus on their distinct value proposition. Why do customers buy from me rather than any of my competitors? And what do I do differently inside my organization that allows me, and me alone, to have that value proposition?
Executives at the corporate level, on the other hand, are trying to create value across a broad range of different businesses so they can support and enhance what unit managers do.
The first challenge is to determine the appropriate set of businesses. What's the proper scope of the business, and what should the business portfolio look like? Should the corporate parent add more businesses or subtract some? Another challenge is to add value across the lines of business to help them improve. What can the parent company add over and above what the units have now? What key resources and competencies can the corporate entity share and leverage and deploy across its disparate business lines?
Different corporations have different approaches to this—different sources of what we call "corporate advantage." They create different skills, and they leverage different resources.
There is not one right corporate strategy, but rather a continuum of effective strategies. At one end are tightly related businesses that simply "stick to their knitting." At the other end are disparate unrelated businesses that adhere to a conglomerate strategy.
What's important is alignment and consistency in the way a company creates value—achieving corporate advantage with the size of the corporate office and the degree to which the parent company gets involved in the performance of business units. A key part of this is pulling certain corporate functions out of specific business units and sharing them across all units.
At the conglomerate end is Danaher, the most successful conglomerate in the U.S., which is closing in on 30 years as a public company. This company has created six times more value than GE has over a comparable period. Looking at the individual businesses, there seems to be very little relationship between them. Yet the application of what they call the Danaher Business System has allowed them to improve operating margins by six or seven percentage points.
At the other end of the continuum is Sharp, the Japanese consumer electronics company that has problems right now, but has had a 30-year run leveraging liquid crystal display (LCD) technology. They're still the world leaders in LCD across an array of businesses. They were the first company to come up with the camcorder, and the first company that offered an LCD screen as an alternative to the viewfinder. Since then they've leveraged that technology into flat-screen TVs, and their brand is still probably the best-quality TV available. At Sharp, everything is tied together by LCD technology, and that's very different from the strategy at Danaher.
In the middle is probably a company like Disney. Most people think of Disney as an entertainment company, but they're actually in a range of businesses. Obviously they have the movie business and theme parks, but they're also involved in cruise ships, hotels, and even book publishing. All of this is tied together by the sort of value-creating insight that can be leveraged across a whole set of technology platforms.
These are just a few of the many examples of success at different points all along the continuum.
M&A can be an effective way for corporate management to change its portfolio of businesses. In a multibusiness firm, the parent company can provide capital, M&A expertise, and access to investment bankers—all of which are needed to enhance the portfolio. This is an advantage that stand-alone businesses don't have, so they cannot engage in M&As as effectively or as cheaply.
In past decades, part of the challenge of the corporate office was to create a balanced portfolio, with businesses at different stages of the lifecycle. This enabled them to take money from cash cows and reinvest it in fast-growing, innovative stars. And there would be a cycle—the stars would gradually improve their competitive position, and over time they would mature to become cash cows.
Although portfolio balance is still a concern for corporate management, there's less emphasis on that now. Why? Because, in an efficient capital market, every business that has a net present value and positive investments—even a high-growth business— should be able to fund itself independently. So there's less need today for a cash cow to balance a high-growth business. In fact, having a balance of businesses at different stages can actually be a liability because they can require different metrics and different management skills and capabilities. And having those together in one company can actually make the management task more difficult than running a business where most of the individual business lines are mature industries.
Of course, not everyone believes in efficient capital markets—so there is some value to having a balanced portfolio.
Corporate Level Strategy is a program designed for senior executives in corporations that compete across a range of businesses. The program investigates how a corporate parent can create value across individual units that are run by great management with more detailed, more current information about their businesses. At the same time, it teaches senior executives how to examine which businesses fit in the corporation's portfolio and what resources the parent company can provide to help its units succeed.
Overall, the program provides a framework for thinking about corporate strategy—not in isolation, but as a point along a continuum of strategy. While it is based on case studies, it also features open, interactive discussions in which faculty and participants explore underlying concepts and share their experiences managing multibusiness organizations.
The ideal participants are those who are in positions of responsibility for developing strategy and for managing multibusiness corporations. There are other programs available for business-unit-level strategy, but this program is really for those who are, or soon will be, responsible for creating value across discrete businesses.
A typical participant is a chief strategy officer, CEO, or chief financial officer—anyone in the C-suite of a corporation. Or it could be the head of one of the larger lines of business who is about to move into one of the C-level positions. Also, since some organizations have group functions that are responsible for a set of businesses, a group head would be ideal for this program.
