Holding Company Parenting Strategy 

​The parenting strategy or the management model describes the relation between the Holding Company and the Subsidiaries, or in other cases where there is only one company and it includes multiple businesses, parenting strategy describes the relation between the head office and the subsidiaries, where each subsidiary represents a separate business or profit center, each is distinct and self-contained with its own functional hierarchy.

Investment Management

The investment management preserves a complete independence among the subsidiaries. Unlike the subsidiaries included in the operationally involved management and active management, the subsidiaries in the investment management do not share common corporate/ head office strengths, and for that, integrating devices are not developed for use by the subsidiaries.

The greatest advantage of the investment management is achieving flexibility to the head office in dealing with current subsidiaries and starting new businesses according to the profitability.

Another advantage is achieving internal competition between subsidiaries at the group, which leads to the following:

  • Internal competition enables the head office to identify those subsidiaries with the greatest future potential. Resources can then be allocated to those promising subsidiaries to fuel the entire organizations success.
  • Internal competition challenges the inertia, because subsidiaries managers know that the resources would be allocated to the most promising businesses and their positions are not completely safe.
  • Internal competition motivates effort. The challenge of competing against internal peers can be as great as the challenge of competing against external marketplace competitors.

Exhibit 3:  Four Parenting Strategy  

The differences between the four parenting strategies.

In the investment management model, organizational controls and primarily financial controls are used to emphasize and support internal competition among separate subsidiaries and as the basis for allocating head office capital based on subsidiaries performance.

To emphasize competitiveness among subsidiaries, the head office maintains an arms-length relationship with them and does not intervene in subsidiaries affairs, except to audit operations and discipline managers whose subsidiaries perform poorly.

​The head office relies on strategic controls to set rate-of-return targets and financial controls to monitor division performance relative to those targets. The head office then allocates cash flow on a competitive basis, rather than automatically returning cash to the subsidiary that produced it. Thus, the focus of the head office is on performance appraisal, resource allocation, and long-range planning to verify that the groups portfolio of businesses will lead to financial success.

The structure has the following characteristics:

  • Head office has a small staff.
  • Finance and auditing are the most prominent functions in the head office to manage cash flow and ensure the accuracy of performance data coming from subsidiaries.
  • The legal affairs function becomes important when the firm acquires or divests assets.
  • Subsidiaries are independent and separate for financial evaluation purposes.
  • Subsidiaries retain strategic control, but cash is managed by the head office.
  • Subsidiaries compete for head office resources.

Strategic Management

In the strategic management, each subsidiary is a profit center that is controlled and evaluated by the head office financially and strategically.
The structure has the following characteristics:

  • Structural integration among subsidiaries, but independence across subsidiaries is achieved.
  • Strategic planning may be the most prominent function in the head office for managing the strategic planning approval process of each subsidiary.
  • Each subsidiary may have its own budget for staff to foster integration.

​Support functions and finance are available in each subsidiary, and similar support functions are available at the head office to serves as consulting firm to the support functions at the subsidiaries

Active Management

​Different characteristics of structure are used as integrating mechanisms by the active management to facilitate cooperation between subsidiaries.

Centralization is one of these mechanisms. Centralizing some of organizational functions (human resources management, information technology, supply chain management, business development and finance) at the head office level allows the linking of activities among subsidiaries.

​Frequent, direct contact between subsidiary’s managers, is another integrating mechanism that encourages and supports the cooperation and the sharing of either competencies or resources that have the possibility of being used to create new advantages. Sometimes, liaison roles are established in each subsidiary to reduce the amount of time subsidiary’s managers spend integrating and coordinating their units work with the work occurring in other subsidiaries.

The structure has the following characteristics:

  • Structural integration devices create tight links among all subsidiaries.
  • Head office emphasizes centralized strategic planning, human resources, and marketing to foster cooperation between subsidiaries.
  • Rewards are subjective and tend to emphasize overall group performance in addition to subsidiaries performance.
  • Culture emphasizes cooperative sharing.

Operationally Involved Management

The functions are highly centralized in operationally involved management. Most of the functions are centralized (human resources management, information technology, supply chain management, business development, finance and sales planning/ production planning) at the head office level which allows usage of same resources more efficiently and less costly.

The structure has the following characteristics:

  • Subsidiaries role is mainly executing day to day tasks that aim at achieving plans developed at the head office.
  • Very tight links among all subsidiaries.
  • Head office emphasizes centralized strategic planning, human resources, marketing, finance and sales / production planning to foster maximum cooperation between subsidiaries.
  • Emphasize on the overall group performance.

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