The 4 Models of Management

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In a study conducted by global management consulting firm Strategy& (formerly Booz & Company) of 100s of organizations of varying sizes and types, they synthesized a spectrum of 4 different corporate management models.  These 4 management models are defined by the way senior management and the “Corporate Core” engage with the rest of the organization.

To understand the various models of management, let us first define the “Corporate Core.”   The Corporate Core is comprised of the CEO, his or her senior management team (e.g. CXO), and a defined set of support functions necessary for the entire organization.

The Corporate Core serves the following purpose:

• Provide Organizational Leadership.
• Create the context for Growth.
• Represent the organization to the public and investment community.
• Provide essential services to Business Units.

Each Corporate Core is a unique combination of skills, responsibilities, and personal management styles evolved to match the organization, industry, and competition.

The 4 models of management are as following, as visualized on the PowerPoint slide below:

1. Holding Company
2. Strategic Management
3. Active Management
4. Operational Involvement

It is interesting to note organizations may migrate from 1 model to another.  Furthermore, different business units within the same organization may fall under different models.

Let us provide a bit more clarity into how each management model is defined.

Holding Company

This is the highly diversified holding company with the most disengaged management style with its subsidiary operations.

Under this model, we manage businesses similar to how a Hedge Fund manager overseas a portfolio of investments.  The CEO has minimal involvement in the operational decisions of its subsidiaries.  The CEO is only interested in the results of the businesses, not in the nuances of how the results are generated.

In other words, the management only wants the results of its subsidiaries.  The businesses are run by second-tier executives.  If there are any issues, these second-tier executives deal with addressing and resolving them.

It create value through effective Portfolio Strategy & Management. A marquee example of this type of corporate management is Berkshire Hathaway.

Strategic Management

The company strategic management company offers guidance and leadership on strategic direction and provides performance objectives for a group of related businesses.

Under this model, the Corporate Core offers strategic guidance to its local businesses, but not the supervision of operational decision making.

Typically, the Corporate Core will conduct a Strategic Planning session with leaders of all the business units to discuss, understand, and reach consensus on the strategic goals and targets of the businesses.  Then, the businesses have accountability over reaching their performance objectives.

Active Management

The active management company oversees more tightly linked organizations and advise on operational issues.

Under this management model, the Corporate Core begins to share accountability with the business units for major operational decisions and adds value through close guidance and expertise.

Under this model, we should be clear in establishing and communicating the rules of engagement between the Corporate Core and the business units, i.e.:

• When the businesses should expect Corporate to be involved; and
• When businesses should assume the authority and decision making power to move forward on their own.

Operational Involvement

This model is very operationally involved, where senior management plays an active role in day-to-day business decision making.

This doesn’t mean the CEO and top management team are involved in every aspect of day-to-day operations of the business units.  Execution remains the domain of the business units themselves.

Instead, the Corporate Core adds value through the development of cross-organization capabilities and functional expertise.  It gets involved in strategic decision making for most or all business units.

Interesting in learning about these 4 management models, as well as how each model impacts CEO behavior and critical decisions?  We have a framework presentation that dives deeper in the FlevyPro Library, found here: 4 Models of Management.  It is a fully editable PowerPoint presentation and also also includes slide templates for you to use in your own business presentations.

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