Corporate Center Management: Creating Value from the Top

The Role of the Corporate Center

The corporate center (Corporate HQ) in a multi-business company must create value for business units—otherwise it is a parasite. Test: did business units create more value when they were independent?

How the Corporate Center Creates Value

Portfolio management: buying undervalued businesses, selling divisions to better owners, optimal allocation of capital among businesses.

Transfer of competencies: best practices from one division to another. GE "Talent Management"—the leader development system was applied across all 130+ businesses.

Centralized functions: legal services, HR, IT, finance—economies of scale and specialization.

Coordination: identification and realization of synergies between businesses that are impossible for independent companies (cross-sales, joint procurement).

Access to cheap capital: a large corporation has a higher credit rating and can raise capital more cheaply than small businesses individually.

"Parenting Advantage"

The concept of Gould, Campbell, and Alexander: the corporate center must possess a "parenting advantage"—a unique ability to create value in specific businesses. If there is no such advantage, it is better to sell the business or let it be independent.

Performance Management Systems

How the center manages business units: (1) financial control (strict financial targets, autonomy), (2) strategic control (strategy alignment, monitoring implementation), (3) strategic planning (the center actively participates in the development of business unit strategies).

Practical Assignment

AFK "Sistema" owns MTS, Segezha Group, Ozon (partially), Medsi, and several other businesses. Determine: (1) What synergies are actually realized? (2) How does the corporate center create value for each business? (3) Which businesses would have a higher value in the hands of another owner?