Goold and Campbell (1991) identified three broad approaches or 'parenting' styles reflecting the degree to which staff at corporate headquarters become involved in the process of business strategy development. The approach will have a significant impact on the role of central departments such as the accounting function.
The different styles are: strategic planning financial control strategic control.
Strategic planning companies
In strategic planning companies such as Cadbury Schweppes and BP. * There is a focus on a limited number of businesses where significant synergies exist leading to a concentration on a few core areas where it is possible to have a degree of expertise. * Corporate management play a major role in setting the strategies for each of the SBUs. * The approach is based on the belief that strategic decisions occur relatively infrequently and that when they do, it is important for corporate headquarters to frame and control the strategic planning and decision-making process. * There is good integration across the units, which is particularly useful when resources such as distribution may be shared. * Decisions are made at a senior level and hence there is less likelihood of short-term views predominating. * There may be a number of disadvantages: * difficulties in communication and co-ordination may slow down development * there may be less 'ownership' of the strategies by the operating unit managers. There is strong empirical evidence that there are fewer low-risk strategies pursued, which might otherwise be the case if strategy was centred on the unit managers * there is also a likelihood that this strategy formulation from the centre might result in getting 'locked into' failing businesses. There may be a resistance to the closing down of poorly performing units if the strategies have been sanctioned at the centre.
Financial control companies
In financial control companies such as Marconi (GEC). * Planning timescales tend to be shorter. * The head office takes a 'hands-off' approach but sets stringent short-term financial targets that have to be met to ensure continued funding of capital investment plans. * Failure to meet financial targets will lead to the possibility of divestment. * This type of strategy allows for diversity and companies generally have a wide corporate portfolio with limited links between divisions and acquisition/divestment is a continuing process as opposed to an exceptional event. * Empirical evidence suggests that lower risk strategies are pursued but with resultant higher profitability ratios. * Much of the growth in this scenario comes from acquisition as distinct from internal growth. * There may be a number of disadvantages: * there is a propensity to be risk averse and possibly to 'milk' the business * this type of decentralisation may make it difficult to exploit any potential synergies * the control framework set up by the head office might constrain flexibility.
Strategic control companies
In strategic control companies such as ICI. * Corporate management take a middle course, accepting that subsidiaries must develop and be responsible for their own strategies, while being able to draw on headquarters' expertise. * Evaluation of performance extends beyond short-term financial targets to embrace strategic objectives such as growth in market share and technology development, that are seen to support long-term financial and operational effectiveness. * Diversity is coped with more readily than the 'strategic planning' style. * There is also a danger of greater ambiguity.
Adding value
Corporate parents do not generally have direct contact with customers or suppliers but instead their main function is to manage the business units within the organisation. The issue for corporate parents is whether they: * add value to the
