Linkages with Other Corporate Businesses

View Template for: Linkages with Other Corporate Businesses

This section is designed specifically for businesses operating within a corporate structure of two or more business units. If this business unit analysis is for a stand-alone business, this section should be deleted.

For business units operating within a corporate family this section is critical. The basic design of this section allows the business unit to measure the additional value it provides to the corporation by helping other business units in the corporate family.

Corporate business units which are very profitable will find many other business units ready to claim partial credit for the success.

In practice, many business units that are not very profitable will claim that their true importance lies with the benefit they bring the rest of the corporation. These business units often overstate their importance to the corporation by over estimating their added value. Centralized cost centers and executives with 'special projects' will also attempt to burden successful business units with extra expenses because that's where the money is.

This section allows the business unit to clearly and specifically itemize the benefits it brings to the rest of the corporation. A principal objective of corporate strategy is to promote synergies between business units to maximize the value of the whole corporation. This objective should be actively pursued, promoted and rewarded. However, to state the obvious, a business unit should not overstate its contribution to other business units for political purposes.

In practice, a very interesting reality check takes place when a business unit is asked to write down the specific benefits it offers other corporate businesses. Requiring specifics and openly sharing the estimates with the benefiting SBU managers helps to promote accurateness.

The structured process shown on the template page facilitates the measurement of the real contribution made. It offers the business unit the opportunity to take credit for what it actually and specifically contributes to other business units, by business. The linkage between the SBU developing the strategy and each linked SBU is discussed along the following four dimensions:

(1) This year's expected customer revenue contribution to/from the linked business. (This information answers the question, "How much revenue would Business A not receive if Business B were not in operation?")
(2) This year's expected profit contribution to/from the linked business. (This information answers the question, "How much profit would Business A not receive if Business B were not in operation?")

(3) The interoffice charges between the two businesses, and/or cost savings from sharing an activity.
(4) The present value contribution provided to/from the linked business. (This information answers the question, "How much does Business A benefit Business B in terms of shareholder value or discounted cash flow?")

In practice, this exercise is best done when business managers communicate with one another.

Using a structured methodology such as this also exposes situations where multiple SBUs take credit for the same revenue.

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Last modified:   Tuesday February 19, 2008