Corporate strategist agonistesPosted: October 24, 2011
Russ makes an interesting point about SBU portfolios and headquarters’ impact on their performance, but from Rumelt on, variance decompositions cover multiple years (that’s how the business unit effect is identified). Business unit effects are therefore persistent phenomena. I don’t see how a transient improvement caused by HQ could be confounded with SBU effects as suggested. It could move some of the variance from the error term to the corporate account, I think.
Possibly one could directly look at corporate acquisitions and divestitures to see if particular parents differ in their impact on the time pattern of SBU ROIs. What would worry me about interpreting such a study would be distinguishing between an HQ that actually improved its acquisitions and an HQ that was just good at buying low and selling high.
It does seem that far too much corporate strategy research is done in a decontextualized large-sample way, so that it’s impossible to be sure whether findings are meaningful given the aggregation bias. Lumping together HQs pursuing very different approaches to adding value reminds me of the old Saturday Night Live commercial for the Bass-o-Matic–all the structure of the fish gets destroyed in the statistical blender. So we might be missing some important things. I’m attracted to disaggregative ideas like the Gould and Campbell taxonomy of HQ rationales, which at least try to make sense out of what the corporate strategy actually is.
My gut sense, however, is that most–though not all–actual American corporate strategy is a waste of time. Corporate constraints on divisional behavior are usually either pointless or counterproductive. The whole reason for the SBU structure is to make each market-competing unit accountable for its own results, with the requisite autonomy to adapt to its particular environment. That militates against exploiting most potential synergies and linkages across businesses. And when we do have businesses that are tightly linked, so that the SBU structure is inappropriate, HQ strategies that try to separate them to “unlock value” are likely to fail as well.
In other words, managing tight synergies isn’t really a separate realm of “corporate strategy” but merely business strategy with scope economies; managing portfolios that lack synergies, on the other hand, doesn’t add value to those portfolios.
Corporate strategy has to play on a thin middle ground of loose synergies. You may find some cross-SBU internal labor market gains, common control system gains, and possibly common culture gains IF you pick a portfolio of businesses whose industry contexts and positioning strategies are similar to one another AND you’re especially good at managing them. I find it hard to believe, though, that these types of effects are large enough to make a big difference most of the time. I would be surprised if better, disaggregated, analyses of corporate strategy, disproved this conjecture. I would enjoy such a surprise.