The Value of the Parent Company

Much of our research was aimed at finding situations where value is being created by the influence of the parent. We would ask business unit managers: “What value are you getting from being part of the group and more specifically from your relationship with the corporate center.” More often that not, they would start by saying: “That's a hard question to answer. I can tell you about the disadvantages, costs, and constraints. But value received, well…”

See, for example, Green Sebastian Berry Dean F. , Cultural, Structural and Strategic Change in Management Buyouts (New York, NY: Macmillan, 1991); Jensen Michael , “Corporate Control and The Politics of Finance,” Journal of Applied Corporate Finance, 4/2 (Summer 1991): 13–33; Young David Sutcliffe Brigid , “Value Gaps—Who is Right?—The Raiders, the Market or the Managers?” Long Range Planning, 23/4 (1990): 20–34.

See Goold Michael Campbell Andrew Alexander Marcus , Corporate-Level Strategy: Creating Value in the Multi-Business Company (New York, NY: John Wiley, 1994) for a fuller description of our conclusions and the research on which they are based.

This categorization of the ways in which parents affect value is collectively exhaustive but not mutually exclusive: Particular actions can fall into one or more categories. The categorization has, however, proved practically useful. It is similar to categorizations developed by Collis David , “Managing the Multi-Business Company,” teaching note, Harvard Business School; McKinsey & Co, “Corporate Center Design,” McKinsey Quarterly, 3 (1991); Bain & Co., internal corporate strategy practice document on “The Role of the Center.”

Most authors on the topic of synergy have commented that it frequently fails to occur in practice. For example, Porter Michael , Competitive Advantage: Creating and Sustaining Superior Performance (New York, NY: Free Press, 1985); Kanter Rosabeth Moss , When Giants Learn to Dance (London: Simon and Schuster, 1989); Wells John , “In Search of Synergy,” doctoral dissertation, Harvard University, No. 8502578.

There is a large literature on the poor record of acquisitions, alliances, and new ventures. See for example, Porter Michael , “From Competitive Advantage to Corporate Strategy,” Harvard Business Review (May/June 1987); Franks Julian Harris Robert , “Wealth Effects of Takeovers in the UK,” Journal of Financial Economics (August 1989).

See Jensen M.C. Meckling W.H. , “Theory of the Firm: Management Behavior, Agency Costs and Ownership Structure,” Journal of Financial Economics, 3 (1976); Baiman S. , “Agency Research in Managerial Accountancy: A Survey,” Journal of Accounting Literature, 1 (1982).

See Yamanouchi Teruo , “Breakthrough: The Development of the Canon Personal Copier,” Long Range Planning 22/5 (1989): 11–21.

See Taylor William , “The Logic of Global Business: An Interview with ABB's Percy Barnevik,” Harvard Business Review (March/April 1991), pp. 90–105. See also Kennedy Carol , “ABB: Model Manager for the New Europe,” Long Range Planning, 24/15 (1992): 10–17.

See Prahalad C.K. Hamel Gary , “The Core Competence of the Corporation,” Harvard Business Review 3 (May/June 1990): 79–93.

Similar arguments help to show why “relatedness” is not a sufficient basis for corporate strategy. Different businesses may be related in terms of technologies, markets, or customers, but the real issue is whether the corporate parent has the ability to add any value to the businesses. Relatedness does not necessarily mean that there are any parenting opportunities, or that the corporate parent has the skills or resources to realize any parenting opportunities there may be. We believe that it is for this reason that research to demonstrate that related corporate strategies lead to better performance than unrelated corporate strategies has proved somewhat inconclusive. See Rumelt Richard P. , Strategy, Structure and Economic Performance (Boston, MA: Division of Research, Harvard Business School, 1974) for a basic statement of the “relatedness” thesis, and “Research and Corporate Diversification: A Synthesis,” Strategic Management Journal, 7 (November/December 1989): 523–551, for a summary of the large body of subsequent research.