Manag., July-2018 – Q53
- Option : C
- Explanation : Corporate Parenting Analysis: A diversified corporation or a multi-business company is often viewed as consisting of a corporate
headquarter or centre with SBUs acting satellites. The manner in which the center manages and nurtures individual
businesses is known as corporate parenting. The total corporation is viewed in terms of resources and capabilities that can be used to build individual businesses as well as create synergies across these businesses. In this manner, corporate parenting attempts to do
away with the one major drawback of the corporate portfolio techniques. While portfolio techniques consider the industry
attractiveness of various industries and focus on the cash contributions that individual businesses could make to the overall portfolio
of businesses, corporate parenting views the organization in its totality as a diversified corporation and focusses on the value created
from the relationship between the parent and its businesses.
Campbell, Goold, and Alexander suggest that the diversified corporation must address these two issues:
(a) What businesses should a diversified corporation own and why?
(b) What organizational structure, management processes, and philosophy will foster superior performance from the corporation’s individual business units?
If we do this, the search for the appropriate corporate strategy involves three steps.
1. Examine each business in terms of its CSFs
2. Examine each business unit in terms of those areas in which performance can be improved
3. Analyze how well the parent corporation fits with the business unit.
Strategic Business Unit: A strategic business unit, popularly known as SBU, is a fully functional unit of a business that has its own vision and direction. Typically, a strategic business unit operates as a separate unit, but it is also an important part of the company. It reports to the headquarters about its operational status.
A strategic business unit or SBU operates as an independent entity, but it has to report directly to the headquarters of the organization about the status of its operation. It operates independently and is focused on the target market. It is big enough to have its own support functions such as HR, training departments etc. There are several benefits of having an SBU. This principle works best for organizations that have multiple product structures. The best example of SBU is companies like Proctor and Gamble, LG, etc. These companies have different product categories under one roof. For example, LG as a company makes consumer durables.
It makes refrigerators, washing machines, airconditioners as well as televisions. These small units are formed as separate SBUs so that revenues, costs as well as profits can be tracked independently. Once a unit is given an SBU status, it can make its own decisions, investments, budgets etc. It will be quick to react when the product market takes a shift or changes start happening before the shift happens.
