In management jargon, a corporation is a company consisting of two or more business units. While each business unit has its own strategy and focuses on succeeding in its own market, to make economic sense a corporation needs to be more than just the sum of its business unit parts. An overarching corporate strategy is needed to ensure corporate value-added.
It is the task of the corporate center, the level above the business units, to drive this corporate value creation process. In carrying out this task, a number of corporate center roles can be played, each with their own activities, instruments and types of value-added.
The 7I Corporate Center Model describes the seven possible roles with which the corporate center can add value to the company. Every corporate center needs to choose which roles they want to play, in what way and with which intensity. The roles fall into three general categories; corporate composition roles determining which businesses should be part of the corporate portfolio, corporate synergy roles stimulating cross-business linkages, and corporate management roles focused on steering the businesses towards optimal performance.
The seven possible roles of the corporate center are the following:
- Investor Role. As investment portfolio manager, the corporate center can actively optimize the allocation of financial resources across existing business units, pumping funds into some, while withdrawing it from others. At the same time, it can consider opportunities for acquisition and potential divestment.
- Incubator Role. As driver of new business development, the corporate center can nurture the founding of novel business activities outside the scope of the current business units, by supplying internal or external entrepreneurs with advice, knowledge, contacts, money and facilities. This support is particularly important for innovative business ideas.
- Infrastructure Role. As provider of shared services, the corporate center can offer high quality support activities in such fields as IT, HR, Finance, Legal, SHE (safety, health & environment) and Facility Management. This support infrastructure can unburden business units, while creating synergy by bundling expertise and achieving economies of scale.
- Integrator Role. As architect of competitive advantage, the corporate center can integrate the business models of two or more business units, leveraging strengths in such areas as R&D, operations, marketing and sales. By facilitating synergy across such primary activities, the strategic position of the business units can be greatly improved.
- Internal Role. As line manager for the business unit heads, the corporate center can steer their behavior by setting strategic guidelines, challenging their strategic plans, checking on performance, assisting in solving problems and giving feedback. The recruitment, promotion, retention and rewarding of business unit heads is also part of this role.
- Interface Role. As external stakeholder manager, the corporate center can be a more authoritative and active counterpart for such actors as shareholders, investors, banks, governments, regulators, unions, industry associations, NGOs and media organizations. Lobbying and corporate communications are also part of this role.
- Identity Role. As heart of the organization, the corporate center can foster a sense of community within the company, encouraging the business units to work together as a team towards a common interest, sharing and helping each other along the way. Building and maintaining this joint identity can support being effective in all of the previous six roles.
- Corporate centers need to add value. A corporate center costs money, directly through the extra staff and facilities required, but also indirectly through the slower decision-making, additional reporting, multiple meetings and bland compromises. Therefore, every corporate center needs to have a clear strategy for adding more value than the money they cost.
- Corporate centers have parenting roles. Just as parents shouldn’t just “have kids” but need to think about how they want to “raise kids”, corporate centers need to think about the various parenting roles they want to play, to bring each of their “daughter companies” to a higher level and build a stronger family.
- Corporate centers can play seven roles. Corporate centers can determine the family composition, as investor acquiring and divesting units, and as incubator growing new ones. They can build family linkages, in an infrastructure role creating shared services and in an integrator role linking business models. They can manage the family, internally guiding the daughters and interfacing with externals. And at the core they can foster the family identity.
- Corporate centers need to determine their parenting style. Some families are very tight, others very loose. Which roles a corporate center selects and how they are played – the parenting style – needs to be aligned with the overall corporate strategy.
- Corporate centers need regular rethinking. Over time corporate centers grow and evolve for reasons other than strategic choice. A regular check-up can keep them aligned.