Parental Value Creation

Parenting Advantage

How a parent company adds value:

Summary of Parental Value Creation. Abstract

Goold Campbell Alexander

The Parenting Advantage model is a VBM framework that describes how a parent company can (help) create value. In their article, "From Corporate Strategy to Parenting Advantage", Michael Goold and Andrew Campbell argue the parent company should not only add value to a business unit, but add more value than any other potential parent - they call this parenting advantage. In their book: "Corporate-Level Strategy : Creating Value in the Multibusiness Company" they mention four types of parental value creation:

Stand-alone influence – each subsidiary is viewed as a separate profit centre. Using basic performance targets, the businesses are controlled and monitored. Value creation is provided by making strategic decisions such as the appointment of managers and approving major capital expenditures.
Linkage influence - value is created by improved co-operation and synergy benefits.
Central functions and services – corporate value is created through the provision of administrative and managerial services to the businesses.
Corporate development – value creation through portfolio management.

Some authors have claimed the role of the corporate center should be minimal (Hedley: The overarching role of the corporate level is that of portfolio manager: to manage the allocation of scarce financial resources over the business units). Others have emphasized the importance of synergy (Prahalad & Hamal: The corporate center should not be just another layer of accounting, but must add value by enunciating the strategic architecture).

Which type of influence is best to maximize value creation? The answer is complex but depends and can be determined upon the corporate purpose, history and culture and upon the reconciliation of multiple paradoxes of parenting advantage (control versus empowerment, responsiveness versus synergy, portfolio versus core competence).

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