This post covers
1. Introduction & advantages of Corporate Parenting
2. Methods of application of Corporate Parenting
3. Maximising Value Across A Business Portfolio : Case of General Electric
1. Introduction & advantages of Corporate Parenting
Corporate parenting is a management approach that involves the active management of a company's portfolio of businesses to maximize overall value. It requires a parent company to provide resources, guidance, and direction to its subsidiaries to ensure they are well-positioned to achieve their goals and contribute to the overall success of the organization.
It refers to the role of a parent company in managing and coordinating its portfolio of businesses. It involves overseeing and providing resources to its subsidiary companies, as well as making decisions about their direction, structure, and investment.
One of the key advantages of corporate parenting is that it allows a company to leverage its expertise and resources across its portfolio of businesses. For example, a parent company may have specialized knowledge in a particular area, such as marketing or supply chain management, that it can share with its subsidiaries. This can help to improve the overall performance of the portfolio.
Another advantage of corporate parenting is that it allows a company to better manage risk. By actively managing its portfolio of businesses, a parent company can identify and mitigate risks across the organization. For example, if one business is facing financial challenges, the parent company can step in to provide support or resources to help the business recover.
2. Methods of application of Corporate Parenting
There are several ways in which corporate parenting can be applied in strategic management, including:
1. Portfolio management: Corporate parenting involves managing a portfolio of businesses with the goal of maximizing the overall value of the portfolio. This may involve identifying which businesses to invest in, which to divest, and which to grow.
2. Resource allocation: A parent company may allocate resources such as capital, talent, and technology to its subsidiary companies, depending on their needs and priorities.
3. Strategic planning: Corporate parenting involves developing and implementing a strategy that aligns with the parent company's overall vision and goals, while also taking into account the unique characteristics and needs of each subsidiary.
4. Risk management: A parent company may also play a role in managing the risks associated with its subsidiary companies, including financial, operational, and reputational risks.
Several companies have adopted corporate parenting as a management approach, including:
1. Berkshire Hathaway: This multinational conglomerate, led by Warren Buffett, has a diverse portfolio of businesses that includes insurance, energy, and consumer goods. The company's corporate parenting approach is focused on long-term value creation and capital allocation.
2. Alphabet Inc.: Alphabet is the parent company of Google and a number of other technology businesses. The company's corporate parenting strategy involves actively managing its portfolio of businesses to ensure they are aligned with the company's overall mission of organizing the world's information and making it accessible to everyone.
3. Procter & Gamble: This consumer goods company has a portfolio of brands that includes Tide, Pampers, and Crest. Procter & Gamble's corporate parenting strategy is focused on driving innovation, efficiency, and growth across its portfolio of businesses.
Corporate parenting is an important concept in strategic management, as it allows companies to effectively manage their portfolio of businesses and maximize overall value. For companies with diverse portfolios of businesses it actively managing their portfolios, companies can leverage their expertise and resources, manage risk, and drive long-term value creation.
3. Maximizing Value Across A Business Portfolio : Case of General Electric (GE).
GE is a multinational conglomerate with a diverse portfolio of businesses that include aviation, healthcare, renewable energy, and finance.
GE's corporate parenting strategy involves actively managing its portfolio of businesses to ensure they are aligned with the company's overall vision and goals. This includes:
Portfolio management: GE has a rigorous process for evaluating its businesses and deciding which to invest in and which to divest. For example, in recent years, GE has divested its financial services and oil and gas businesses to focus on areas such as aviation and renewable energy.
Resource allocation: GE allocates resources such as capital, talent, and technology to its businesses based on their strategic importance and growth potential. For example, in 2018, GE announced it would invest $2 billion in its healthcare business over the next five years to drive growth.
Strategic planning: GE has a robust strategic planning process that involves setting clear goals and priorities for each of its businesses. For example, GE's aviation business is focused on developing new technologies and expanding its global reach.
Risk management: GE actively manages risks across its portfolio of businesses, including financial, operational, and reputational risks. For example, in 2017, GE announced a plan to address issues with its power business, which had been facing challenges due to changes in the energy market.
Overall, GE's corporate parenting strategy has allowed the company to effectively manage its portfolio of businesses and position itself for long-term success in a rapidly changing global economy.
Image Credits :
1. <span class="text-link"><span><a target="_blank" href="https://pikwizard.com/photo/1691d854fc60448afc2fb6941eb10d8d">PikWizard</a></span></span>
2. https://energy.economictimes.indiatimes.com/news/power/general-electric-quarterly-profit-more-than-triples/69113903
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