The Hare and the Tortoise: The race is not to speedy (XXV). How does time affect corporate parenting?
… “The tortoise meanwhile kept going slowly but steadily”…The hare and the tortoise, a fable by Aesop
Have a magnificent and wonderful weekend. Look, my adorable readers, we have good news for you. We are going to finish soon. We will conclude this saga on July 23rd. We are closer to finish the race. Afterward, we will splash into our well earned 2 weeks’ vacation, just to return back on August 10th, for the inauguration of the third saga of 2021: “Portfolio Analysis: Igniting a long term spirit in a short term world”.
But in the meantime, this is our outline landscape until today.
Today we will continue with the topic: How time affects corporate parenting? The third decision making component that corporate strategists perform is about how to handle their SBUs (multiple strategic business units) from their headquarters office. The corporate parenting concept places the headquarters site, as the place where the strategic management debate takes place. And this applies to every single organization on earth you can name. Let[s consider the next examples:
- United Nations. Where is the headquarters office of United Nations? New York City, United States or Geneva, Switzerland? If your answer is New York, of course you are correct. “The United Nations (UN) has six main organs. Five of them — the General Assembly, the Security Council, the Economic and Social Council, the Trusteeship Council and the Secretariat — are based at UN Headquarters in New York. The sixth, the International Court of Justice, is located at The Hague in the Netherlands”. So, what is the role of the United Nations Office of Geneva? How does Antonio Guterres lead its corporate parenting decision making?
- Credit Suisse. Where is the headquarters bureau of this bank? It is more than its location in Paradeplatz, Switzerland; it is the place where the top decision makers meet to decide how to offer parenting approach, and make the best out providing potential sources of value creation to all the business segments and units of this bank.
- European Union. The city of Brussels in Belgium is considered the headquarters locations for the European union, because it hosts several seats of the EU such as the European Commission, the European Council, and the Council of the European Union. Nevertheless, the corporate parenting advantage is done not only in this place, but it takes place when they meet in Strasbourg or in Luxembourg too.
- General Motors. This American company that sells $122.5 billion per year has its headquarters office located in Detroit Michigan. This is the place where they take decisions about growth, stability, retrenchment and portfolio analysis.
- Eleonora Escalante Strategy. My entrepreneurial endeavor has its headquarters location in the skirts of the Volcano of San Salvador. This is the place where we take decisions too!
Now that we have established the importance of a headquarters office; it is also relevant to acknowledge that the parenting advantage concept is only relevant when we understand the theoretical foundations and we gather the right information. The reason why it is so important to go to school and the university, to study from books; is to recognize and admit that we need certain years of our life to dedicate fully to grasp the theories first, otherwise with time (and here we start analyzing time) we will forget it; and we would not know where to go to refresh our concepts again. The internet is full of wide of the mark information, do not expect that google will provide what a university or a good professor can offer.
Corporate parenting foundations. The theoretical foundation of corporate parenting requires to define (as I explained on June 22nd):
- Understanding the characteristics of the Parent organization (Board of Directors and Corporate Directors) of a multi SBUs entity.
- Understanding the Parenting Opportunities.
- Understanding the SBUs Critical success factors.
- Understanding the degree of importance of potential sources of value creation from the corporate parent:
- Stand-alone influence: The corporate parent influences the strategies and performance of the business units through distinctive capabilities and resources.
- Linkage influence: The corporate parent seeks to create value by enhancing and fostering linkages among the business units in its portfolio (synergies)
- Central functions and services: The corporate parent launches central functions and creates value by providing functional leadership and cost-efficient services
- Corporate development: The corporate parent creates value by altering the composition of the corporate portfolio.
Once we have all these variables analyzed, and defined in place, some authors also provide a frame of reference to determine the type of corporate parenting that your multi-business company is. For these authors there are at least 5 type of parenting approaches clusters in corporate practice: the parental development, the synergy management, the central services procurement, the holistic portfolio management and the hands-off portfolio management (Krueler, Pidun).
The terms fit and misfit. In order to proceed to make a map or a matrix, we need to calculate in numbers or a punctuation scale two elements:
Horizontal Axis (X): Fit Between each SBU parenting opportunities and the corporate parent characteristics. Please remember the axis X is for fit.
Vertical Axis (Y): Misfit between each SBU critical success factors and the corporate parent characteristics. Please remember the axis Y is for misfit.
To organize the differentials between all these variables, helps us to offer a scale point for each value in the Axis X and the Axis Y. And this is the last part of the art of doing this graph. It is insignificant to use a matrix to position our SBUs, if we have not understood well the characteristics of the parent organization, or the SBU parenting opportunities, or the SBUs critical success factors or the sources of value creation. Nothing that I can teach you about using the matrix will be correct, if we fail to ask ourselves the correct questions and gather the intelligent facts when defining all the latter indicators.
What, where and how is the role of time (beyond physics and philosophy) in corporate parenting?
- Time for observing the reality of the parent and the SBUs takes time. If we wish to do a correct corporate parenting analysis, we need to train consultants to be observers of time and thinkers of time. As founders and CEOs of consulting companies, in our industry, it is the worst mistake to send the youngster analysts alone to visit clients (this always happens, because directors and managers are attending several cases at the same time). It is a mistake to send the most inexperienced ones) to gather information for corporate parenting mandates. Why do I write this? Corporate Parenting at the Board of Directors level is not done only by them. They hire consulting companies to help them with this task. So when a company as Bain, or BCG, or Price Waterhouse Coopers, or Deloitte is hired for this mandate, it is not advisable to send people with zero experience to collect the data. Why? Because I was also a youngster consultant a long time ago, and I had zero patience, and null tolerance to wait at that time. To become an observer of time in consulting takes quite a while. The only way in which a consulting house can help with corporate parenting is by taking several months (if not a year at least) to understand the parenting characteristics, the parent sources of value creation, the culture of operation of the parent, and each SBU key critical factors. It is not about filling surveys or sitting in front of managers and personnel to ask questions and fill questionnaires, or use the P&L and income statements to analyze numbers. It is about observing how the corporate parent does its things, and how each of the SBUs operate on a day to day basis.
- Time for understanding the parent and the SBUs. Once the observing phase has concluded, consultants require to understand. And understanding necessitates experienced senior consultants (with at least 20 years of experience) all together working with the youngsters. It is a mélange or a mix of minds what takes the leaps of success when classifying the parent characteristics, the SBUs parenting opportunities, and the SBUs critical success factors. All this requires the considerate and thoughtful comprehension. And this task requires time. Time to learn to love the company that consultants are analyzing for this purpose. It is insane to believe that a mandate for corporate parenting can be done in less than 6 months or a year. Corporations with multiple SBUs, after this pandemic, will need at least mandates of a three years span, for the purpose of corporate parenting. Particularly, if they wish to diversify and be ready for the next pandemic, or environmental or social crisis, these types of mandates are obligatory.
- Time for empathy and patience beyond profits. Wrongly, many SBUs which are not profitable end up being dismissed. The retrenchment path is chosen, and usually consulting companies recommend to sell out the division before the time is right. Some consultants are even hired for the liquidation process to be fulfilled as soon as possible. I understand that companies located in the Alien, Ballast or the Value Trap territories are always under “soaking waters” pressure. Managers of these SBUs know what it means to lead an SBU that is not perfectly functioning, and particularly when there is a misfit between the SBU critical success factors and parenting characteristics. But this world requires to make those misfits into fits, not just because of “positive profits”, but for the sake of waiting until the time will come to move up into the Heartland territory.
Let me explain with my own example. Eleonora Escalante Strategy has three SBUs:
- We write strategic reflections (this is not a blog anymore; it is a collection of eBook sagas with multiple purposes)
- We provide or give corporate strategic advice
- We make this world a better place by supporting the hand-made or traditional arts (particularly visual arts), the caring for the environment and the balance between work and quotidian family life.
Persistence pays off. Slow and steady wins the race. We started our efforts around year 2017, and still I have not monetized any revenue yet. I have survived because I still live with my parents, and as a side dish, I sell some organic antioxidant and anti-cancer fruit once a year, for those who believe that we are healthy because of what we eat. Five years have passed, and I am convinced that Eleonora Escalante Strategy endeavor will be successful, but it has taken more time than you can imagine. It has not been automatic, but it will occur. I am convinced of it. Why? Because I am faithful of God´s presence in this business. And I also believe in my own premises of integral corporate strategy. If I were not sure of it, I wouldn´t have taken the risk to do it and continue doing it without receiving anything in return. Time for Eleonora Escalante Strategy is all what it takes to make it beautifully for you. Money comes once you get the correct fit sponsors in place. Those who are in the same wave of thoughts, aligned with my own corporate strategy. I can´t knock the door to those universities or academic programs who do not love or care for what I do, or will like to invest on it to change my own founder´s philosophy.
I will stop here. Next week we will continue with our predetermined outline. See you then!
Bibliography utilized today.
Disclaimer: Illustrations in Watercolor are painted by Eleonora Escalante. Other types of illustrations or videos (which are not mine) are used for educational purposes ONLY. Nevertheless, the majority of the pictures, images, or videos shown on this blog are not mine. I do not own any of the lovely photos or images posted unless otherwise stated.
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