Parenting Parenting by gauravjindal


Every business unit adds opportunities for the parent company because each unit may
have inherent strengths in different segments or the business unit may be able to glean
from the parent. A successful fit for parent-business unit according to Anthony
Henry in his book „Understanding Strategic Management’ depends on a few
critical success factors which determine its success in the marketplace. There are four
ways that a corporate parent can create value for their businesses

Stand-alone influence: This concerns the parent company‟s impact upon the
strategies and performance of each business the parent owns. It is things such as
setting performance targets and deciding capital expenditure direction. This can create
value as long as the targets and strategies are realistic and recognises the need of the

Linkage Influence: This works on increasing value through synergy, which is
transfer of capabilities and knowledge between the parent and the business units.
Tata- Corus deal is an example, Corus‟s abilities to produce high quality speciality
products is used to enhance Tata‟s product portfolio.

Functional and Services Influence: The parent can provide functional leadership
and cost effectiveness for the businesses. Let‟s consider, Tata-Corus again, Tata‟s
know-how of producing lost cost steel helps Corus to reduce costs.

Corporate Development Activities: Value is created by changing the portfolio of the
parent business. This involves actively investing, acquiring or divesting businesses.
For example, Coke actively invests in bottling plants and also sells them off according
to the situation. However, Porter has said that in reality, the parent company often
destroys value through its acquisitions by paying a premium which it fails to recover

Portfolio Decisions
To decide the most suitable portfolio for parent, two questions should be answered

      Does the parenting opportunities in the business fit with value creating
       insights of the parent, such that parent can create a substantial amount of

      Do the critical success factors have any obvious misfit with the prospective
       parenting characteristics, such that the parent might influence the business in
       such a way that destroys value?

The best fit would be the ones that create substantial value for the organisation and
don‟t hamper the organisation‟s game plan.
AOL Time Warner- Example of an unsuitable Parent- Business fit
This was a deal that had synergy written all over it. The merging of media properties
with distribution platforms (internet) was reported by The Wall Street Journal as
'the deal has potential synergies that make some observers drool''. The deal however is
considered as one of the biggest disasters in the corporate world.

Apart from the obvious reason of paying too much its worth, Rob Walker of New
York Times, states a few others

“The gap between the theory of far-flung businesses working in seamless concert and
the reality of protecting corporate turf- Reports have detailed the intense lack of
interest among various divisional chiefs at AOL Time Warner in consolidating ad-
selling operations and cutting sweeping marketing deals across multiple units. The
difference is generally a matter of hindsight, but either way, it's the opposite of

“Synergy is almost always thought of in a top-down way: Mix and match the
corporate properties and consumers will fall in line. One of the more puzzling
conundrums of synergy can be found in what one might call the money-to-stuff ratio.
Basically, consumers want more stuff for less money; companies want to sell more
stuff, but for more money. Synergy makes a vague promise to consumers that it will
deliver the first scenario and to investors that it will deliver the second”.

It clearly shows that the perceived value that was to be created was grossly
overestimated and this played against the whole organisation.

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