| Roles and Relationships of
the Corporate Center
Point Summary
Books and Articles
Patricia
Anslinger, Dennis Carey, Kristin Fink and Chris Gagnon, “Equity
carve-outs: A new spin on the corporate structure,” McKinsey
Quarterly, 1997, (1), pp. 165-172.
Many
companies have chosen to spin off a single subsidiary by means of an
equity carve-out. Others, including Thermo Electron, Enron, and
Gennzyme, are going further and using the carve-out as a basic
organizing structure, repeatedly selling stakes in business units.
They are achieving striking results. McKinsey research has found
that over a 3-year period, these companies showed average compound
annual returns of 31.3%, compared with 10.2% for the Russell 2000
index. The reasons lie in the changed relationship between the
corporate center and the business unit after the carve-out, and the
effects this has on 3 important areas: corporate governance, human
resources, and finance.
William Barnett
Jr. and Terrance P. Berland, “Strategic thinking on the front
lines,” McKinsey Quarterly, 1999, (2), pp. 118-124.
Often
decentralization involves efforts to enable each individual unit of
the decentralized company to make its own strategic decisions, instead
of confining them to the senior executive level of the corporate
center. The idea is to help these units focus on value creation
opportunities much more narrow than those that would interest typical
centralized strategy departments. Senior executives should
therefore ask themselves two questions: how much will their companies
benefit from a broad-based strategic-thinking capability, and does the
reward exceed the commitment, resources, and patience required to
build it? Fifteen large companies in 12 industries are examined.
Their value depends on two things: the importance of insights and
foresight in an industry and the extent to which companies were
atomized - that is, diversified and decentralized. Of the 15
companies studied, 7 gave the development of a broad-based
strategic-thinking capability a high priority, mostly for the reasons
examined. The other companies concluded that the gains were not
worth the coast or that other objectives were more important.
Andrew Campbell, “Tailored Not Benchmarked:
A Fresh Look at Corporate Planning,” Harvard Business Review,
March, 1999.
In
today’s competitive markets, every company has an action plan. Yet for
most managers, the processes used to create these plans don’t work.
The root of the problem, suggests Campbell, may be that too many
companies benchmark their processes and by doing so, prevent managers
from focusing on what is unique to their situation. Good planning
processes, the author argues, are not generic processes but ones in
which both analytic techniques and organizational processes are
carefully tailored to the needs of individual businesses and to the
skills of corporate managers.
Royston
Greenwood, C. R. Hinings, and John Brown, “P2-Form" Strategic
Management: Corporate Practices in Professional Partnerships,” Academy
of Management Journal, December, 1990, 33(4), pp. 725-755.
Strategic
management in complex organizations involves an understanding of the
appropriate relationship between a corporate center and its principal
business units. A study examines that relationship in an unusual
form of organization - large professional partnerships. The
distinctive characteristics of such organizations limit the relevance of
presently available models. A more appropriate alternative is
presented called the P squared-form. The properties of the new
model are illustrated using a blend of qualitative and quantitative
methodologies and data from large accounting firms. The P
squared-form differs from the M-form in the process characteristics and
the specificity of the strategic direction emanating from the corporate
center of an organization and the tightness of the system of performance
accountability.
Charles
Handy, “Corporate center,” Executive Excellence, December,
1998, 15(12), pp. 20.
The
job of the corporate center is to be in charge of the future - keeping
an eye on the competition, on new markets, and on strategy. The
organization's overall architecture and design are also the center's
responsibilities. If the center is in charge of the overall
future, some money from the operating divisions must also be used to
invest in the future. Last, when it comes to marshaling the
corporation's overall forces, including its financial resources, the
center is in charge of that.
Charles Handy,
“Balancing Corporate Power: A
New Federalist Paper,” McKinsey Quarterly, No. 3, 1993, pp.
159-182.
The
final article in this issue of the Quarterly is a reprint from Harvard
Business Review of Professor Charles Handy’s 1992 McKinsey
Award-winning article on corporate “federalism.” One of the
world’s oldest political philosophies, Handy argues, is its newest
subject of interest. The European Community, the new Commonwealth of
Independent States, Canada, the former Czechoslovakia, and many other
countries are all re-examining what federalism really means. Everywhere
companies are restructuring, creating integrated organizations, global
networks, and “leaner, meaner” corporate centers. In doing so,
whether they recognize it or not, they are on a path to federalism as a
way to govern their increasingly complex organizations.
Gianni Lorenzoni and Charles Baden-Fuller, “Creating a
Strategic Center to Manage a Web of Partners,” California Management
Review, Spring, 1995.
Successful networks of partners are typically
guided by a strong strategic center which is far more than a broker and
organizer of contacts. This article examines three special features of
the activities of successful central firms: their ability to create
value for themselves and their partners, the agenda and core
competencies they develop, and the capacity to be innovative by
simultaneous strategizing and structuring.
Bruce A. Pasternack and Albert J. Viscio, The Centerless
Corporation: A New Model
for Transforming Your Organization for Growth and Prosperity,
New York: Simon &
Schuster, 1998.
Bruce
Pasternack and Albert Viscio, founding partners of Booz-Allen &
Hamilton's Strategic Leadership Practice, have used a comprehensive
study of current business behavior conducted by their consulting firm to
develop an intriguing new structure for companies of the future. In The
Centerless Corporation: A New Model for Transforming Your Organization
for Growth and Prosperity, they argue that decreasing bureaucracy
and increasing communication in an environment in which education and
idea sharing are actively promoted are successful alternatives to the
top-down style of central management still favored by many businesses.
Case
Studies
Michael E. Porter and Constance L. Irwin,
“General Mills, Corporate Strategy,” HBS Case, 9-338-123, 1992.
Follows
the evolution of General Mills' corporate strategy from the company's
founding. After presenting a history of related expansion in food
products and unrelated diversification through acquisition, the case
puts emphasis on the recent decision to shrink the company and focus on
three major businesses rather than five. A rewritten version of an
earlier case, no longer available, by E.T. Christiansen and C.L. Irwin.
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