Understanding HQ Influence Models

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Do curso por University of London

Corporate Strategy

76 ratings

University of London

Corporate Strategy

76 ratings

Corporate strategy is the strategy a firm uses to compete across multiple businesses. Many small firms want to grow by entering new businesses. Many large firms already are in multiple businesses, e.g. a photo camera producer selling also sunglasses. We developed this course to help you make good corporate strategy decisions. Of the many decisions a firm has to make, corporate strategy decisions are among the most consequential. We will look at these key corporate strategy decisions: - Diversification: How and which businesses should your firm enter? - Divestiture: How and from which businesses should your firm exit? - Corporate HQ: How should we organize corporate headquarters to create value across the different businesses?

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Corporate Headquarters

Welcome to week 4! A key decision in corporate strategy is determining how to organize to create value across businesses. This week we look at corporate headquarters and how they can influence the different businesses. If you get stuck on the quiz or assignment, you should post on the Discussions to ask for help. (And if you finish early, I hope you'll go there to help your fellow classmates as well.)

Who Controls Corporate Headquarters?6:25

How to Control More than You Own6:05

Understanding HQ Influence Models5:40

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Bart Vanneste
Associate Professor
UCL School of Management

We've looked at who controls corporate headquarters.

And in particular, we focused on the role of families and their usage

of pyramids and voting rights to control more than they own.

Now the question is, how can corporate headquarters control the separate businesses?

In this video, we're going to look at four different ways that

corporate headquarters can influence the underlying businesses.

We can think of headquarters influence models along two dimensions.

First, the nature of the relationship between the businesses in the portfolio.

On the one end, standalone.

The headquarters does not encourage

any meaningful relationship between the different businesses in the portfolio.

Headquarters influence is felt solely through

the direct relationship between headquarters and the businesses.

The basic idea is that the businesses independently benefit from

a valuable resource located at headquarters.

On the other end, linkage.

The headquarters encourages businesses to work closely together.

Headquarter influence is felt through the relationship between businesses

that are encouraged or administered under the supervision of headquarters.

The second dimension of HQ influence is

the nature of the relationship between headquarters and the businesses.

Directive control is when headquarters is heavily

involve in the strategic decisions of the businesses.

For example, by approving,

vetoing or ordering such decisions.

In contrast, evaluative control is when HQ

lets the responsibility for the strategic decisions with the businesses.

But it would evaluate those decisions

afterwards through monitoring of outcomes and financial targets.

Directive control is more steering on behavior and

evaluative control is more steering on outcomes.

These two dimensions lead to four different HQ influence models.

Of course, many intermediate points exist,

but for us, it's useful to start with a small set of influence models.

Let's look at an example of each of them.

Virgin is active in many businesses

including in airlines, telecommunications and banking.

The key resource is its brands,

which is carefully maintained at headquarters.

And there's no push towards strong relationships between the businesses.

The businesses themselves can decide on their own actions.

Thus, the HQ influence model is standalone evaluative.

Danaher is active in multiple businesses: dental,

life sciences and diagnostics.

Like Virgin, Danaher keeps its businesses independent from each other.

But the involvement of HQ is much more direct.

In particular, they look for businesses that will

benefit from what they call the Danaher Business System,

which is a lean manufacturing system.

So, the idea is that HQ helps to improve

the performance of the businesses through direct intervention.

The HQ influence model is standalone directive.

Tata is active in many businesses including cars, IT and hotels.

It might be difficult for Tata to adopt a directive control for two reasons: First,

the businesses are very diverse.

So, it's difficult for headquarters to have in-depth knowledge about

all businesses and to suggest strategic decisions for each of them.

Second, it does not fully own or control many of its businesses.

Instead, Tata promotes internal alliances between the businesses.

This model is linkage evaluative.

Lastly, Sony is keen to foster deep relationships between the businesses.

For example, by clustering related businesses.

Furthermore, HQ takes a directive approach towards the businesses.

For example, they provide input on the technological direction.

This model is linkage directive.

Thus, HQ can take quite different approaches towards influencing its businesses.

Now, the most suitable approach will depend on

the key resources and the synergies that

can be shared across the portfolio of businesses.

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