Parenting Fit Matrix

Tianzon, Suzzette M. BSA-4 Assignment in Business Policy September 18, 2013 Parenting  –  Fit  Fit Matrix

Parenting –  Parenting –  Fit  Fit Matrix summarizes the various judgments’ various judgments’ regarding  regarding corporate/business unit fit for the corporation as a whole. This Th is matrix emphasizes their fit with the Corporate parent Fit. Matrix composed of 2 dimensions : Positive contributions  Negative effects Positive contributions that the parent can make and the negative effects the parent can make. 2 dimensions create 5 different positions Heartland Businesses:

Should be at the heart of the corporation’s future –  have   have opportunities for improvement  by the parent, and the parent understands their critical success factors well. Heartland Businesses should should be at the heart of the corporation’s future. These Heartland Businesses have opportunities for improvement by the parent, and the parent understands their critical success factors well. These businesses should have priority for all co rporate activities Heartland“businesses have improvement opportunities that the parent is well-suited well-suited to exploit. Furthermore, they are sufficiently well-understood that the parent does not inadvertently destroy value through other areas of misfit or unsuitable influence. Heartland businesses, as their name implies, should be at the heart of the corporate strategy and of acquisition activity. It is these  businesses that will benefit most from inclusion in the group, and the parent should focus its attention on them. Edge-of-Heartland Businesses:

In these businesses some parenting characteristics fit the business, but other do not. The  parent may not have all the characteristics needed by a unit, or the parent may not really understand all of the units’ strategic units’ strategic factors. E.g.:  When Cooper Industries acquired Champion, the sparkplug company, it judged Champion to have many of the characteristics of its traditional heartland and to offer many of the same improvement opportunities. But Champion also involved some ceramics technology that was unfamiliar ground for Cooper, and it had a much more international spread than Cooper’s  previous acquisitions. It was therefore outside the heartland proper. Parents must work actively to learn about edge-of heartland businesses and try to bring them into the heartland as soon as  possible.

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Ballast Businesses:

Ballast Businesses fit very comfortably with the parent corporation but contain very few opportunities to be improved by the parent. Like cash cows may be important sources of stability and earnings. But if environmental changes, ballast could move to alien territory. Therefore corporate decision makers should consider divesting this unit as soon as they can get a price that exceeds the expected value of future cash flows. E.g.: IBM’s mainframe business Alien Territory Businesses:

Alien Territory Businesses have little opportunities to be improved by the corporate parent, and a misfit exists between the parenting characteristics and the units strategic factors. There is little potential for value creation but high potential for value destruction on the part of the parent. The corporation must divest this unit while it still has value. Alien territory“ businesses are not well understood by the parent, have  have  few improvement opportunities that the parent can address, and are likely to be damaged by some misfit with the  parent’s characteristics. E.g.: The parent may apply a complex planning process or sophisticated linkage mechanism to a business that is largely independent and too small to bear the overhead burden or to suffer the opportunity cost of losing its managers to head office meetings. Alien territory businesses should clearly be candidates for rapid divestment. Even if they are currently profitable, the influence of the parent will reduce their value over time. Value Trap Businesses:

Value Trap Businesses fit well with parenting opportunities, but they are a misfit with the  parent’s understanding of the units’ CSF. This is This is where the corporate headquarters can make its  biggest error . It mistakes what it sees as opportunities for ways to improve the business units’  profitability or competitive position. E.g.:  To make the unit a world-class manufacturer (because the parent has world-class manufacturing skills) it may not notice that the unit is primarily successful because of its unique  product development and niche marketing expertise