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.
Bart VannesteAssociate Professor
