The corporate centre and the parenting theory

Q1. The corporate centre and the parenting theory

Part A: Corporate centre and strategic issues

In a global organisation, the corporate centre is the unit that oversees the entire organisation and drives strategy at the corporate level. Corporate strategy incorporates focus on the strategic approaches, corporate vision and mission, markets targeted, products marketed and others (Yaprak, Xu and Cavusgil, 2011). The corporate centre therefore deals with the highest level strategies for the organisation and forms the point of reference for the organisation’s international subsidiaries in terms of brand, product range, expansion outlay, and overall approaches to management.

The main strategic issues are the overall strategic approach of the entire organisation, the parenting strategy to employ, and approaches to the management of strategic business units SBUs (Goold, Campbell and Alexander, 1998). The overall strategic approach could either be diversification or integration while the parenting strategy defines the relationship between the parent company and the subsidiaries. SBU management on the other hand determines the design of the units as well as measures for ensuring that they are delivering to expectations. A common strategic issue considered at this level is the choice on whether to pursue a globalisation approach or to allow subsidiaries to localise (Yaprak, Xu and Cavusgil, 2011). Considerations made depend on environmental factors, the level of trust in subsidiary management, and the culture distance between the parent country and the new markets. These choices are further defined in the approach to parenting.

Part B: Parenting theory and approaches

The parenting theory creates a framework which defines the relationship between the corporate centre and the subsidiaries (Goold, Campbell and Alexander, 1998). The former is regarded as the parent and believed to have an important role to play in influencing the performance of the subsidiaries. The parent can either add value or destroy the value of the subsidiaries.

Value addition can be done by enriching the subsidiaries in terms of offering expertise by seconding experts to the subsidiaries (Yaprak, Xu and Cavusgil, 2011). It also be done through provision of financial and technological knowhow. Value destruction can be done through insistence on management approaches that are not compatible with subsidiaries in view of the environmental factors in different localities. They can also destroy value by appointing unskilled managers to appoint subsidiaries or even fail to provide resources needed to pursue further strategies at the local levels (Haim and Khawaja, 2013). This is in addition to failure or delayed approval for strategies proposed by the subsidiaries.

Approaches to parenting depend on the kind of control exercised including financial control, strategic control, and strategic planning (Haim and Khawaja, 2013). In financial control, the parent finances subsidiary’s investment strategies and approves major expenditures and acquisitions. The SBUs on their part operate under tight financial targets (Goold, Campbell and Alexander, 1998). Strategic control involves the parent acting as the link between the subsidiaries and monitoring each subsidiary to ensure that financial and strategic targets are met as desired. The SBUs develop strategies but in coordination with the corporate centre. In strategic planning, the corporate centre drives strategy on important strategic approaches and coordinating between the subsidiaries (Haim and Khawaja, 2013). Under this approach, SBUs concentrate on implementation even though they can be involved in shaping strategic decisions.

References

Goold, M., Campbell, A., Alexander, M., 1998. Corporate Strategy and Parenting Theory, Long Range Planning, 31(2), pp. 308-314

Haim, H.A., Khawaja, K.M., 2013. Corporate parent value addition and challenges. Middle East Journal of Scientific Research, 15(11), pp. 1606-1617

Yaprak, A., Xu, S., Cavusgil, E., 2011. Effective Global Strategy Implementation: Structural and Process Choices Facilitating Global Integration and Coordination. Management International Review 51(2), pp. 179-192