Theoretical models on the role of the corporate centre in strategy making attempted to address the dilemma of ―activist‖ vs. ―detached‖ corporate centre.
They postulated, very much in line with Mintzberg‘s configurational approach, that more than one type of value-creating role is possible for the corporate centre depending on the nature of the business model, industry specifics, types of synergies, and corporate life cycle. Porter (1987) elaborated a model for the interaction of corporate centre and business units that embraces both a
―detached‖ strategy (―Portfolio management‖) and one assuming deeper involvement of a corporate centre (―restructuring‖ – the most interventionist approach; ―skills transfer‖ and ―activities sharing‖ target intra-firm cooperation).
However, these models (like all works by Porter) are much more preoccupied with the content of strategy, rather than with its process, and therefore can only inform us on a more general level. For example, it is unclear whether ―skill transfer‖ or ―activity sharing‖ would necessarily involve a corporate centre‘s involvement in strategy process determination, or if it will limit itself to the ancillary role of resource provider, leaving strategy making to business units.
Goold and Campbell (1987, 1993 a,b) and Goold et al (1995) provide distinct typologies of the corporate centre‘s management styles and value-creation types, including the degree of a corporate centre‘s involvement in strategy development in business units. They argue that each style has strengths and weaknesses and may be value-creating, but for this, a style must fit the conditions facing the business. In their earlier model, Goold and Campbell (1987) classify eight strategic management styles based on 1) the influence of the centre in the planning process and 2) the type of centre‘s reaction to actual performance – tight financial control, tight strategic control and flexible strategic control. Three of those eight strategic management styles are relevant for multi-business groups (De Witt & Meyer, 2004) and employ distinct characteristics of the strategy process:
Strategic Management Styles Model (Goold and Campbell, 1987):
Table 19. The Model by Goold and Campbell Strategic management
styles:
Characteristics of strategy process:
Financial control Key model attributes: Low interference in planning process, tight financial control, focus on short-term performance
Business units are highly autonomous, the corporate centre does not coordinate activities across BUs
Control is based on financial objectives
Strategic decisions are almost entirely left to business units, very little/no corporate centre involvement in formulating business strategies. The centre‘s role is to agree and monitor demanding financial targets for businesses.
Strategic control Key model attributes: High level of interference in planning process, tight financial control
Overall emphasis is on decentralisation and delegation of responsibility to business units and control against demanding financial targets. However, the corporate centre participates in business strategies review through a formal planning process and tries to coordinate activities between BUs boundaries
Control is based on financial objectives, but the centre is also trying to review and assess strategic performance
Heavy involvement of the corporate centre in the extensive strategic planning process; the role of the centre is to add value by reviewing, challenging and – when necessary - adjusting business strategies
Strategic Planning Key model attributes: High level of interference in planning process; flexible strategic control, i.e. focus on long-term not short-term results
Many activities are centralised; corporate centre is heavily involved in cross-business coordination
Control is exercised through direct supervision
The centre actively participates in formulating business strategies and often initiates ―strategic thrusts‖ among interrelated businesses
In their later works, Goold and Campbell (1993 a,b) verified relevance of their strategic management styles by looking at the performance of companies adhering to each style. This confirmed their earlier stipulation that to succeed, a style should fit the composition of a business portfolio (diversity and relatedness of businesses) and nature of competition in the industry (high/low competition intensity, volatility, scale of investment projects, short vs. long-term orientation).
In particular, diversification into more than two core business areas or into unrelated businesses proved to be extremely challenging for the strategic planning style which requires good understanding of businesses by the corporate centre. Similarly, work in cyclical or technology-dependant industries creates additional obstacles for the financial control style. The strategic control style proved to be most challenging in terms of performance. To succeed it requires a good understanding of the businesses by the controlling centre which is difficult in cases of diverse portfolios with differing strategic characteristics.
Where businesses were too diversified, or distant from the centre, strategic control style did not perform well. However, the authors restate their believe that the strategic control style is still a viable option for a portfolio of businesses with related characteristics and when a corporate centre has a good feel of the businesses in the group.
Ward et al (2005) provide an interesting conceptual model of the corporate centre‘s role in multi-business groups that stipulates the types of activities that
the corporate centre performs for business units and the types of corporate centre‘s involvement with business units. They identified four generic configurations: control, scale, scope and creative. Essentially, Ward et al offer generic corporate strategies for multi-business groups that are based on the nature of the value-adding role of a corporate centre. Ward et al (2005) agree that the configurational approach to the study of strategy remains the most promising. They argue that one should study strategy, structure and context together and that corporate configurations can evolve over time. Hence, the configuration that they identify assumes a combination of ―fit together‖ corporate strategies, structures and processes. As far as strategy process is concerned, their configurations specify the style of the corporate centre‘s involvement and some other process attributes, but they are primarily preoccupied with the content of activities performed by the corporate centre and type of resources it leverages rather than by the process itself. However, they do provide a description of a ―planning and control process‖ which incorporates the strategy process.
We can identify the following strategy process-related attributes identified per the corporate configurations model by Ward et al (2005):
Table 20. The Model by Ward et al Corporate
configurations:
Characteristics of strategy process:
Control Indirect involvement – Strategy of business units is not directly affected by the corporate centre Core centre activity: Targets setting and control
The planning process is formal and well-defined; focus is mostly on short-term financial targets; relationships between centre and BUs are centred around a formal planning and reporting cycle
Process focus is on targets setting and monitoring; formulation of business strategies is left entirely to BUs, subject to fulfillment of a small number of strict and well-defined financial caveats (such as central approval of large capex (?) programmes).
Corporate strategy is in the exclusive domain of the corporate centre; the only coordinated activity is financial targets setting;
strictly defined rules on the way BUs can produce their business plans and financial reports to avoid ―game playing‖;
planning process can be very different for different parts of the group to reflect their diversity and competitive strategies Scale Direct involvement – Strategy of business units is directly affected by the corporate centre
Core centre activity: Cost reduction by centralisation
Planning and control process generally assumes higher level of coordination and centralisation of specific activities The control process focuses on the usage of centralised resources and relative cost performance
The planning process is driven by the centre but assumes shared responsibilities and high level of coordination and resource planning; relatively intensive interaction between BUs and the corporate centre
Essentially, it means (although the authors do not say it explicitly) that business units are invited to participate in corporate strategy formulation because without their participation it is impossible to agree to the appropriate level of the corporate centre‘s involvement.
However, depending on the nature and importance of centralised activities, business units may have a high or lower level of
core activities and focus on the development of the ―core‖ of their corporate strategy without much intervention from the centre. On the other hand, if the centre starts performing ―core‖ activities, business units may feel that they lose control over their own strategy and performance and become demotivated.
Therefore, the role of the corporate centre in formulation of business strategies may vary from effective ―ownership‖ of a major part of strategy (execution of ―core activity‖) to the focus on low-cost supply of periphery services and almost full delegation of strategy formulation to business units. However, one may argue that the position of a corporate centre that only centralises ―non-core‖ activities is not sustainable in the long-run. Hence, the model will either transform itself or move to centralisation of more of the core activities. That will assume the higher role of the corporate centre in determining essential parts (but not all) of business units‘ strategies.
Scope Direct involvement – Strategy of business units is directly affected by the corporate centre Core centre activity: Exploiting existing core competences
The planning process is focused on identification of group-wide competitive advantages. The centre then develops plans on how business units will use these advantages.
The involvement of the corporate centre is therefore more intensive. There is considerable debate and interaction between the centre and the business units.
Critical elements of the business unit‘s business strategies (core value-adding competences) are affected by a centre by knowledge and best practices transfer through group-wide functions and processes. In turn (although the authors do not say it explicitly), business units also affect corporate strategy by contributing their knowledge to the corporate pool.
The planning process is more strategic and forward-looking, whilst the control system is inevitably looser and focuses on both business units‘ long-term performance and contribution to the group.
Creative Indirect involvement – Strategy of business units is not directly affected by the corporate centre
Core centre activity: Provide strong unifying vision and values, identify new group competences, promote sense of unity within the corporation
Corporate centre influences business units‘ strategy through its strong vision and values setting. It provides a sense of unified direction and determines general corporate priorities.
The planning process is tailored to the concrete vision/values; it may be more or less formal with the focus on both long-term and short-term results. The organisation achieves financial focus through employment of tailored performance measures and development of results-conscious corporate culture.
The interactions between centre and business units are intensive and often informal; they achieve coherence through joint projects, information exchange and informal contacts, but they can supplement these with more formal events, training programmes and regular review processes. The corporate centre explicitly encourages intensive communication, cross-divisional initiatives and competence-sharing between Bus.
Corporate strategy is determined solely by the corporate centre. The corporate centre actively influences BUs business strategy, but this influence is indirect. It is translated through very demanding strategic goals, standards and initiatives. From the process perspective, BUs have a great discretion in the development of their business strategy. However, creative configuration assumes (although the authors do not state it explicitly) a higher involvement of the corporate centre in the business units‘ strategy process through the alignment of their strategies with corporate strategic priorities and its value system. This assumes a more in-depth strategic dialogue than in the control system where the centre usually only seeks achievement of pure financial goals.
Ward et al argue that there needs to be a complete agreement in the company on the configuration that exists and the configuration that is appropriate for the corporation. Also, as with Goold and Campbell‘s (1987) model, successful configurations depend on the external environment and types of businesses involved. Ward et al make a further step and conclude that, like with all configurations (Mintzberg et al, 1998), they may actually evolve with a company over its lifecycle. The challenge for the executives then is to recognise the need for such change and prepare a company and its corporate centre for evolution.
However, due to the issues of organisational inertia and entrenched practices, such moves require either significant changes in the composition of the business portfolio (to make the current configuration work) or change in the executive top team (to change configuration). Interestingly, Goold and Campbell (1987) also emphasise difficulty of transition from one strategic management style to another and argue that it requires either abrupt changes in the external environment or change in the top management team. Ward et al also note the importance of leadership in a configuration and necessity to align corporate management leadership style with the requirements of a particular configuration.
A related line of strategy-structure literature sheds further light on the work of big divisionalised corporations. Earlier works by Bower (1970), Bower and Doz (1979) and Burgelman (1983) stipulated that corporate top management shapes strategy by manipulating a ―structural context‖ that determines which types of strategic projects get to ―go ahead‖. The underlying purpose is to fit these projects into a prevailing ―strategic concept‖, i.e. company strategy. However, large diversified firms feature a fair amount of ―entrepreneurial‖ activity at the lower level which from time to time makes it through ―structural context‖ walls and leads to implementation of new strategies. Over time, this accumulated
―strategic renewal material‖ starts influencing the prevailing concept of strategy and ultimately leads to changes in strategy. Here the corporate centre does influence the strategies of business units, but this influence comes from a rather loosely defined ―structural context‖ of organisation, rather than from direct intervention and supervisions. Conceptual insight into the mechanism of a
corporate centre‘s influence on strategy, provided by Bower, Burgelman and others, is consistent with both models discussed above, but the models provide a more rigorous and well-defined framework for the assessment of the corporate centre‘s role.