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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a webs ite, in
whole or part.
B. Each Core Competency Should Provide a Relevant Competitive Advantage to the
Intended Businesses
1. The core competency must assist the intended business in creating strength
relative to key competition.
a) This could occur at any step in the business’s value chain.
C. Businesses in the Portfolio Should Be Related in Ways That Make the Company’s Core
Competencies Beneficial
1. Related versus unrelated diversification is an important distinction to understand
as you evaluate the diversification question.
a) “Related” businesses are those that rely on the same or similar capabilities to
b) The products of various businesses do not necessarily have to be similar to
c) While their products may not be related, it is essential that some activities in
d) Exhibit 9.7, Top Global Strategist, describes how CEO Sam Palmisano and
2. Situations that involve “unrelated” diversification occur when no real overlapping
capabilities or products exist other than financial resources.
a) We refer to this as conglomerate diversification in Chapter 7.
b) Recent research indicates that the most profitable firms are those that have
c) The least profitable are broadly diversified firms whose strategies are built
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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a webs ite, in
whole or part.
D. Any Combination of Competencies Must Be Unique or Difficult to Recreate
1. Skills that corporate strategists expect to transfer from one business to another, or
from corporate to various businesses, may be transferable.
a) They may also be easily replicated by competitors.
b) When this is the case, no sustainable competitive advantage is created.
c) Sometimes strategists look for a combination of competencies, a package of
2. All too often companies envision a combination of competencies that make sense
conceptually.
a) This vision of synergy develops energy of its own, leading CEOs to
b) But what makes sense conceptually and is seen as difficult for competitors to
IV. The Corporate Parent Role: Can It Add Tangible Value?
A. Realizing synergies from shared capabilities and core competencies is a key way value
is added in multibusiness companies.
1. Research suggests that figuring out if the synergies are real and, if so, how to
capture those synergies is most effectively accomplished by business unit
managers, not the corporate parent.
2. How can the corporate parent add value to its businesses in a multibusiness
company?
3. Consider the following two perspectives to use in attempting to answer this
question: the parenting framework and the patching approach.
B. The Parenting Framework
1. The parenting framework perspective sees multibusiness companies as creating
value by influencing—or parenting—the businesses they own.
a) The best parent companies create more value than any of their rivals do or
would if they owned the same businesses.
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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a webs ite, in
whole or part.
2. Size and Age
a) Old, large, successful businesses frequently engender entrenched
b) Doing so may add value, and getting it done may be best done by an external
c) Small, young businesses may lack some key functional skills, or outgrow
d) Where there are relevant issues within one or more businesses, a parenting
3. Management
a) Does the business employ managers superior in comparison with its
competitors?
4. Business Definition
a) Business unit managers may have a myopic or erroneous vision of what their
business should be, which, in turn, has them targeting a market that is too
narrow or broad.
5. Predictable Errors
a) The nature of a business and its unique situation can lead managers to make
predictable mistakes.
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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a webs ite, in
whole or part.
6. Linkages
a) Business units may be able to improve market position or efficiency by
7. Common Capabilities
a) Fundamental to successful diversification is the notion of sharing capabilities
b) Parenting opportunities to add value may arise from time to time through
8. Specialized Expertise
a) There may be situations in which the parent company possesses specialized
b) Unique legal, technical, or administrative expertise critical in a particular
9. External Relations
a) Does the business have external stakeholders—governments, regulators,
10. Major Decisions
a) A business may face difficult decisions in areas for which it lacks expertise.
11. Major Changes
a) Sometimes a business needs to make major changes in ways critical to the
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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a webs ite, in
whole or part.
b) A complete revamping of a business unit’s information management process,
outsourcing all that capability to India, or shifting all of a business unit’s
12. Overlap in some of these 10 sources of parenting opportunities may exist.
a) The fact that overlap, or redundancy, may exist in classifying sources of
parenting opportunity is a minor consideration relative to the value of the
C. The Patching Approach
1. Another approach that focuses on the role and ability of corporate managers to
create value in the management of multibusiness companies is called “patching.”
a) Patching is the process by which corporate executives routinely remap
2. Proponents of this perspective on the strategic decision-making function of
a) They view traditional corporate strategy as creating defensible strategic
positions for business units by acquiring or building valuable assets, wisely
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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a webs ite, in
whole or part.
d) In these volatile markets, patchers’ strategic analysis focuses on making
approach.
3. To be successful with a patching approach to corporate strategic analysis and
a) Effective corporate strategists, they argue, focus on key processes and simple
4. Different types of rules help managers and strategists manage different aspects of
seizing opportunities.
a) Exhibit 9.10, Simple Rules, Summarized, explains and illustrates five such
types of rules.
b) These rules are called “simple” rules because they need to be brief, be
axiomatic, and convey fundamental guidelines to decisions or actions.
5. The patching approach then relies on simple rules unique to a particular parent
a) The fundamental argument of this approach is that no one can predict how
b) While managers in stable markets may be able to rely on complex strategies