Editor's Note: Take a look at our featured best practice, Organization Design Toolkit (103-slide PowerPoint presentation). Recent McKinsey research surveyed a large set of global executives and suggests that many companies, these days, are in a nearly permanent state of organizational flux. A rise in efforts in Organizational Design is attributed to the accelerating pace of structural change generated by market [read more]
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In today’s fast-paced business world, large corporations face a big challenge: how to effectively manage and improve their subsidiary companies. Each subsidiary is unique, with its own market demands and strategies, making it hard for parent companies to ensure they all perform well. This is where the Corporate Parenting Advantage Model (CPAM) comes in. CPAM is a strategy that helps big organizations to get the best out of their subsidiaries, encouraging growth and innovation.
Nell and Ambos (2013) emphasized the need for scholarly focus on distinct value-creating activities to assess the significance of parenting advantage, leading to the generation of subsequent propositions:
- Stand-Alone Influence vs. 10% vs. 100%
- Linkage Influence vs. Enlightened Self-interest
- Central Functions and Services vs. Beating the Specialists
- Corporate Development vs. Beating the Odds
The Corporate Parenting Advantage Model (CPAM) pertains to the strategic advantages that organizations can acquire through the efficient administration and assistance among their subsidiary enterprises. Understanding the dynamics of the Corporate Parenting Advantage equips organization managers with a strategic lens to evaluate and promote innovation management among its subsidiaries.
Corporate value destruction typically stems from various sources. If a parent organization lacks a deep understanding of its subsidiaries, it can lead to mismanagement, misaligned priorities, and the imposition of unsuitable performance standards.
Here are the 4 propositions by which a corporate parent destroys or creates value for the organizations it possesses:
- Stand-Alone Influence vs. 10% vs. 100%: Parent companies help subsidiaries by offering strategic guidance and resources. However, parents might only spend about 10% of their time on each subsidiary, which could be less effective than a dedicated manager’s full attention.
- Linkage Influence vs. Enlightened Self-interest: Parents encourage subsidiaries to collaborate for collective benefits, like shared services. However, parents may not always identify the best collaboration opportunities, leading to suboptimal collective benefits.
- Central Functions and Services vs. Beating the Specialists: Parents centralize services to save costs and improve efficiency. However, the paradox emerges as external experts might deliver superior services, challenging parents to keep improving their centralized functions.
- Corporate development vs. Beating the Odds: Parent companies are in a better position to identify and pursue investment opportunities, like mergers and acquisitions, to drive corporate development. However, the paradox points out that despite these efforts, the success rates of such investments often do not surpass those made by independent businesses or competitors, highlighting the challenge for parent companies to truly outperform the market or expectations in corporate development.
We can evaluate how a parent organization’s capabilities match an organization unit’s success factors and potential improvements with the Ashridge-Fit Matrix which is a strategic tool used to assess the alignment between an organization’s strategy and its internal capabilities. This matrix helps in evaluating the alignment between an organization’s strategy and its resources or competencies. The Corporate Parenting Advantage Model (CPAM) uses the Ashridge-Fit Matrix to help parent companies manage their subsidiaries by categorizing them into 4 types.
This presentation will also include more in-depth discussions on the propositions and paradoxes of the 4 methods by which a corporate parent destroys or creates value for the organizations it possesses. We will also have discussions on how CPAM manages and creates value to its subsidiary businesses through the adaptation of Ashridge-Fit Matrix as a tool for implementation.
Interested in learning more about Corporate Parenting Advantage Model (CPAM)? You can download an editable PowerPoint presentation on Corporate Parenting Advantage Model (CPAM) here on the Flevy documents marketplace.
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31-slide PowerPoint presentation
Organizational Design involves the creation of roles, processes, and structures to ensure that the organization's goals can be realized. Organizational Design span across various levels of the organization. This framework focuses on the following 3 initial steps of the full 10-step Organizational
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Organizational Design (AKA Organizational Re-design) involves the creation of roles, processes, and structures to ensure that the organization's goals can be realized. Organizational Design span across various levels of the organization. It includes:
1. The overall organizational "architecture" (e.g. decentralized vs. centralized model).
2. The design of business areas and business units within a larger organization.
3. The design of departments and other sub-units within a business unit.
4. The design of individual roles.
In the current Digital Age, there is an accelerating pace of strategic change driven by the disruption of industries. As a result, to remain competitive, Organizational Design efforts are becoming more frequent and pervasive—with the majority of organizations having experienced redesign within the past 3 years. This has only been exacerbated by COVID-19.
Frustratingly, only less than a quarter of these Organizational Design efforts are successful. Most organizations lack the best practice know-how to guide them through these Transformations effectively.
Learn about our Organizational Design (OD) Best Practice Frameworks here.
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