Brand parents need strategy

26 March 2012

BOSTON: Corporate parents often damage the brands they own due to easily-avoidable errors in strategy, a new survey from the Boston Consulting Group (BCG) has suggested.

According to the report, entitled First, Do No Harm, confusion reigns over the issue of whether group-level managers should actively intervene in the companies they own, or whether they should allow these units more autonomy.

"As much as corporate parents focus on creating value, they also need to understand how they destroy it," the report authors said. "Many business-unit managers will say that group functions and group-level bosses are often more hindrance than help."

The authors added: "In our experience, few companies have an explicitly formulated parenting strategy."

BCG questioned CEOs, CFOs and other executives worldwide for the report, with the survey garnering 150 responses from managers at companies with an average of €23bn in revenues.

From these results, BCG identified two particularly common value-destroying activities practiced by parents. First, managers' insufficient expertise and skills were leading to "inappropriate" policies and services being imposed on brands, and second, inefficient corporate processes were causing widespread confusion.

"What stands out is that the most relevant categories – insufficient expertise and skills and inefficient processes – are those that, at least in theory, corporate executives have some control over," the report added. "This suggests that [value destruction] is... frequently organizational and therefore can be managed."

To address these shortcomings, BCG identified six separate strategies that can be used by parents to build brand value. These ranged from "Hands-Off Ownership", where the parent avoided central control over the brands' day-to-day operations, to "Hands-On Management", in which the brand owner gets "deeply involved" in the processes.

Between these two extremes, four other options for parents are basing the relationship on providing financial sponsorship, creating business synergies, providing strategic guidance, and offering functional leadership.

In analysing the way survey respondents managed their brands, BCG suggested that this last strategy created the largest "valuation premium" for parent companies. But the authors added that there was no one-size-fits-all solution.

"[Functional leadership] may have been the highest-performing strategy on average for our sample, but the most appropriate strategy for any specific company could well differ," they added.

"A sound parenting strategy... is a reinforcing combination of activities that is consistent with the capabilities of the corporate center and the specific needs of the business units."

Data sourced from BCG; additional content by Warc staff