[Typ hier]
Summary:
Strategy for the Corporate Level:
Where to Invest | What to Cut Back | How
to Grow Organizations with Multiple
Divisions
Campbell, Whitehead, Alexander & Goold
,Strategy for the Corporate Level Campbell, Whitehead, Alexander & Goold
Inhoud
Chapter 1 – Strategy for the corporate level: Summary of the main messages ............................................... 3
Chapter 2 – Some history: From Boston Box to three logics that drive corporate action ................................ 8
Chapter 3 – How to find good businesses and avoid bad businesses ............................................................. 21
Chapter 4 – How to make businesses more successful ................................................................................... 25
Chapter 5 – How to buy low and sell high ....................................................................................................... 30
Chapter 6 – Making decisions about where to invest and what to avoid ....................................................... 35
Chapter 8 – Nine sources of value from coordinating across business divisions ............................................ 39
Chapter 9 – Eight ways headquarters can destroy value ................................................................................ 43
Chapter 10 – How to identify sources of added value for you company ........................................................ 48
Chapter 11 – Structure the organization into businesses and divisions ......................................................... 53
Chapter 12 – Corporate-level strategy in integrated companies – The Apple example ................................. 58
Chapter 13 – How much to centralize: Designing corporate headquarters.................................................... 63
Chapter 14 – Developing new capabilities at corporate headquarters .......................................................... 70
Chapter 15 – Encouraging synergy and cooperation across business divisions.............................................. 73
Appendix – The links between international strategy and corporate-level strategy ...................................... 77
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,Strategy for the Corporate Level Campbell, Whitehead, Alexander & Goold
Chapter 1 – Strategy for the corporate level: Summary of the main messages
Almost all companies need a strategy at the corporate level that is in addition to the strategies for products
or markets or business divisions.
The book will help answer two important questions:
1. What business or markets should a company invest in, including decisions about diversifying into
adjacent activities, about selling businesses, about entering new geographies or markets and about
how much money to commit to each area of business?
2. How should the group of businesses be managed, including how to structure the organization into
divisions or units or subsidiaries, how to guide each division, how to manage the links and synergies
between divisions, what activities to centralize or decentralize and how to select and guide the
managers of these divisions?
We will refer to the first as ‘business’ or ‘portfolio’ strategy and the second as ‘management’ or ‘parenting’
strategy. The combination of these two types of strategy makes up corporate-level strategy.
Portfolio strategy
How should managers make decisions about which businesses, markets or geographies to invest in and which
to avoid, harvest or sell? There are three logics that guide these decisions:
1. Business logic concerns the sector or market each business competes in and the strength of its
competitive position. Is the market attractive or unattractive and does the business have a
competitive advantage or competitive disadvantage?
2. Added value logic concerns the ability of corporate-level managers to add value to a business. Is the
business one that corporate-level managers feel able to improve or create synergy with other
businesses, or is it one that corporate-level managers may misjudge and damage?
3. Capital markets logic concerns the state of the capital markets. Are prices for businesses of this kind
of inflated and hence likely to be higher than the net present value of future cash flows, or depressed
and hence likely to sell a less than net present value?
These three logics are each important for making good portfolio decisions. If a business is likely to sell for
more than it is worth (capital markets logic), there is little reason to buy and good reason to sell. You would
only buy if you felt that the business would perform much better under your ownership (added value logic).
If you are already in the business, you might consider selling now or doubling your investment with a view to
selling soon (capital markets logic).
• If a business is in a low margin industry and has a significant competitive advantage (business logic) you
are likely to want to sell it or close it, unless you can help the business overcome its disadvantage or
improve the margins in its industry (added value logic) or unless you believe that owning the business
adds value to your other businesses (added value logic), or unless the price you can sell it for is less than
the value of continuing to own it (capital market logic).
• If a business is in a high growth market and is earning high margins (business logic), you are likely to
want to invest in it, unless you believe that you are a bad owner of the business (added value logic) or
you could sell it for significantly more than it is worth to you (capital markets logic).
• If a business is one you are able to significantly improve or one that will add value to your existing
businesses (added value logic), you are likely to want to invest in it or acquire it. Even if it is likely to sell
at a price that is higher than the value of cash flows it generates (capital markets logic), ou are still likely
to want to retain the business.
Business logic
Business logic looks at the market the business is competing in and the position the business has in that
market. The core thought is that a company should aim to own businesses in attractive markets and that
have significant competitive advantage. These businesses are highly profitable. This analysis – market
attractiveness and competitive advantage – is part of the normal work done for business-level strategy.
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,Strategy for the Corporate Level Campbell, Whitehead, Alexander & Goold
Hence, business logic is the main area of overlap between business-level strategy and corporate-level
strategy: it is a tool used by both disciplines.
The attractiveness of a market can be assessed by calculating the average profitability of the competitors in
the market.
• If average profitability is significantly above the cost of capital, the market is attractive.
• If average profitability is significantly below the cost of capital, the market is unattractive.
Michael Porter developed a framework – the 5-Forces framework – that summarises the factors that drive
average profitability. He identified competitive rivalry, the power of customers, the threat of substitutes, the
power of suppliers and the threat of new entrants as the five forces that influence the average profitability
of a sector.
Of course, the attractiveness of a market to a particular company may be influenced by factors other than
average profitability. Growth is typically an important factor to most management teams. Size of the market
is typically another factor. Individual companies may want to develop their own measures of market
attractiveness.
The other dimension, competitive advantage, can be assessed using relative profitability: the profitability of
your business versus the average competitor in the market.
• If your business is more profitable than the average, it is likely to have a competitive advantage.
• If your business is less profitable than the average, it is likely to have a competitive disadvantage.
Competitive advantage may be created by many factors. Relative profitability captures the result of all these
factors.
These two measures – the average profitability of the
competitors in the market and the relative profitability of
your business versus the average – are good surrogates
for the market attractiveness and competitive position.
They can be combined into a matrix – the Business
Attractiveness matrix. Business units plot in the top right
corner of the matrix are most attractive and those in the
bottom left are least attractive. Companies should look
to hold onto or acquire businesses that are to the right of
the central diagonal, and exit or restructure businesses
that are to the left of the central diagonal.
Business logic steers companies towards investing in attractive businesses: those in markets where most
competitors make good profits and where the business has higher profits than the average.
Added value logic
Added value (or parenting) logic looks at the additional value that is created or destroyed as a result of the
relationship between the business and the rest of the company. There are two kinds of added value:
• Vertical added value: Added value can come from the relationship between the business and its parent
company – hence the term ‘parenting’.
• Horizontal added value: Value is also created or destroyed as a result of the relationship between the
sister businesses.
Together, vertical and horizontal added value make up added value.
In commercial companies, added value is measured by looking at the impact on future cash flows. If the
discounted value of future cash flows increases as a result of some headquarter initiative, value has been
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, Strategy for the Corporate Level Campbell, Whitehead, Alexander & Goold
added. In public sector organizations or charities, added value is measured by a ratio such as cost per unit of
benefit. If a headquarters initiative can lower costs for the same benefits or increase benefits for the same
cost, the ability of the organization to serve its beneficiaries has been increased: value has been added.
Value can be added or subtracted. Added value can come from wise guidance from headquarters managers
or from a broad range of other sources. Subtracted value happens when headquarters provides less wise
guidance or from a broad range of other sources.
The potential for added value and the risk of subtracted value can be combined to form a matrix – the
Heartland matrix. The issue at stake is the balance between the two types of value.
Each business unit is plotted on the matrix:
• Heartland: Where the potential for the
company to add value to the business unit
is high and the risk that the company will
subtract value from the business is low.
There is a good fit between the business
and the company.
• Alien territory: If the risk of subtracted
value is high and the potential for added
value is low. The fit is bad, and the
company should almost certainly sell or
close this business.
• Ballast: If the risk of subtracted value is low
and the potential for added value is low.
The danger there is that the business will consume the scarce time of headquarters managers without
resulting in any extra value. Unless headquarters managers can find ways to add value, these businesses
are candidates for selling; but can easily be retained until an opportune moment arrives.
• Value trap: If the risk of subtracted value is high and the potential for added value is high. The subtracted
value may well outweigh the added value. It is normally best to exit these businesses unless managers
at the group level can find ways to reduce the risks of subtracted value, and hence raise the business
into ‘edge of heartland’.
• Edge of heartland
Added value logic steers companies towards investing in businesses that will benefit significantly from being
part of the company or that will contribute significantly to the success of other businesses in the company.
Capital markets logic
Capital markets logic looks at the market for buying and selling businesses. At certain times, businesses are
given low values by the capital markets: there are few buyers and many sellers. At other times, businesses
have high values: there are many buyers and few sellers. As a result of these market trends, businesses can
have market values that differ from the discounted value of expected future cash flows. A difference between
market value and discounted value happens partly
because some buyers or sellers are not
knowledgeable about likely cash flows or appropriate
discount rates, and partly because cash flows are not
the only factor influencing decisions to buy or sell.
Managers can have ‘strategic’ reasons for buying or
selling that cause them to pay a price or accept a price
that is above or below the discounted cash flow (net
present value).
The Fair Value matrix plots the market value against
the net present value (NPV) of owning the business.
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