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Interrelationships Between Corporate BusinessesView Template for: Interrelationships Between Corporate Businesses The purpose of this section is to systematically analyze current and potential interrelationships between business units. A commonly used line in many planning textbooks and planning speeches is that, "corporate strategy makes the company worth more than the sum of the individual businesses." The key question for business executives, however, is, "How?" Some books go one step further and answer this question with the perfectly correct, "By maximizing the value of the interrelationships between the business units." However, the key question for business executives is, again, "How?" The theoretically correct answer is to analyze each strategically relevant activity and to analyze the potential for sharing between each SBU and every other SBU. In practice, for most companies, it's usually sufficient to analyze 'the top ten' corporate (group) activities for possible sharing. Analyzing just 'the top ten' activities gets past the political bickering of how important does an activity have to be for it to be what is called "a strategically relevant activity." It is also politically more difficult for non-supportive managers to complain about analyzing just 10 activities. Once the organization gets accustomed to analyzing ten activities, the process will become the default standard anyway. A list of the most common forms of sharing are listed on the template web page. The list (a subset from Michael Porter's list which is found in his book Competitive Advantage) should be customized to meet the needs of your company. The big issue is often, should 'Activity X' be centralized, decentralized, or partially decentralized (a third choice for companies with three or more businesses). The purpose of this structured methodology is to improve the common all-or-nothing approach into a more sophisticated approach. For example, the question doesn't have to be, "Should all information systems be centralized or decentralized?" It is possible that data center support and maintenance of the software subroutine library should be centralized; that applications development should be decentralized; and that local area network support should be partially decentralized. In practice it is clear to most people that even when an activity is centralized, efforts should be made to meet the needs of the business units, no excuses accepted. What is sometimes less clear is that when an activity is decentralized efforts should be made by the business units to share information and anything else that would benefit the group. Continuing with the applications development example, a corporation with a decentralized I/S organization might find it beneficial to facilitate an annual meeting of all programmers from all business units so that they can exchange ideas and software and information on future development plans. For merger and acquisition analyses, this systematic method for analyzing potential interrelationships is vital. In practice, when contemplating an acquisition, it is useful to distinguish between potential sharing which will result in increased revenues and sharing which will result in decreased expenses. For completeness, it is also prudent to forecast the cash flow impact over time and to calculate its present value. |
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