Long Range Planning, Vol. 26, No. 2, pp. 125 to 127, 1993 002+6301/93 S6.00 + .

OO 125
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Brief Case: The Long Road to

Parenting Advantage zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLK

David R. Sadtler

By now we all know that unrelated diversification owners.’ Learning how to do this, how to add a lot
does not work. Of course, when companies acquire of value, for a particular business sector or category
others with whom they have real synergy (for of business, simply put, takes a long time.
example, when they can share an existing factory or
salesforce), there is immediate money to be made by Good parents achieve superior performance in their
cutting out the redundant cost. The merger of respective industries because they really understand
Beecham and SmithKline made money almost from how to add value and because they have gone
the start because of the opportunity to eliminate through a long, and usually painful, learning
overlapping research organizations and distribution process. They discover what sorts of people to
networks. appoint to key jobs; they learn what ratios to look
at; they know when to intervene. In short, they
But if there is not some undeniable benefit of this gradually learn how to get the most out of their
sort up front, it does not seem to work. Companies operating management teams.
seeking to escape dependence on a small number of
businesses in limited geographical areas often seek to Those companies who do develop a well thought
broaden the scope of their activities and launch through approach to parenting and who make it
themselves into unfamiliar businesses. All too often, their business to understand what kinds of businesses
high prices are paid, performance lags expectations, respond well to that approach can add real value to
management teams are replaced, ‘jam tomorrow’ is them. The Marriott Corporation made the move
promised, and yet the desired breakthrough never from restaurants into hotels in 1957 by leveraging
comes. The business is sold and the deal is explained two skills-meticulous and detailed operating con-
in terms of ‘depressed market conditions’ and the trols and excellent customer service--built up over
like. 30 years in the restaurant business. The founder, J.
Willard Marriott, believed that hotel food was
So why are big companies, with impressive financial indifferent and that, with excellent service and good
histories, legions of successful operating managers, food, he could build a successful hotel business. He
deep pockets, and all kinds of technical skill and also believed that rigorous cost controls learned in
know-how, unable to extract superior performance the restaurant business would not only lead to
from any newly acquired business? superior financial returns, but would enable the
company to fund superior accommodation, with
resulting better than average room rates. Marriott’s
enormous growth in the hotel business during the
The Power of Parenting Advantage 1970s and 1980s is testimony to the quality of his
The answer is that corporate strategy must be built thinking and the relevance of his parenting skills.
on parenting advantage---the idea of being a better
parent for a given business than other possible GrandMet has built an unrivalled capacity for
turning around under-managed consumer busi-
Brief Case is a portfolio of commentary, opinion, research and nesses, based on early skills learned following its
experience. The editors welcome contributions, comments and ideas acquisition of Watney Mann in 1972 and further
from readers. These should be sent to Andrew Campbell, Marcus honed by the turnaround of Express Dairies in the
Alexander and Michael Goold at Ashridge Strategic Management
Centre, 17 Portland Place, London Wl N 3AF. early 1980s. In the late 198Os, these skills were used
David Sadtler is an independent strategy advisor and a Fellow of the to generate major improvements in Pillsbury,
Ashridge Strategic Management Centre. GrandMet’s largest acquisition to date. Over the
126 Long Range Planning Vol. 26 April 1993

period in question, the skills of a few senior A more gradual approach to diversification has been
managers were inculcated into the organization and exemplified by the British brewing industry, which
a broad-based capacity for continuous and far- had been engaged in a process of vertically integ-
reaching improvement built and institutionalized. rated diversification for at least 100 years. Victorian
brewers-the forerunners of today’s giants-built
pubs as outlets for their beer. With the advent of the
railroad, nationwide networks were built up. Many
Parenting Failures
publicans offered rooms for travellers and the
Conversely, companies which are doubtless the best brewers gradually learned innkeeping. By way of
in the world in their particular business, consistently expanding their product offerings, several brewers
fail in other businesses, simply because they do not early in the twentieth century formed ties with
allow for the time it takes to learn how to parent Scottish distillers and offered whisky on an ‘own
them. label’ basis. Further expansion into restaurants and
off-license establishments were initiated, particu-
The experience of the tobacco industry is instruc- larly during the 1960s and 197Os, in an effort to
tive. Few industries are as profitable as tobacco, exercise greater control over their markets. Thus a
especially for the five world majors (Philip Morris, pattern of brewery involvement in hotels, res-
RJR Nabisco, American Brands, BAT, and Roth- taurants, spirits and beverage retailing was gradually
mans). But the industry’s record of diversification built with widespread success. The major partici-
has been dismal. Virtually no business entered by pants today-Allied, Bass, Courage/ GrandMet,
any of the tobacco majors since they began Guinness, Scottish & Newcastle, and Whitbread-
diversifying, following the health-driven scares of -remain in a number of these businesses and, for
the 1960s and 197Os, has been as rewarding as the the most part, do very well out of them. But the
core businesses they sought to escape. And many of road has indeed been a long one.
these initiatives have gone dramatically wrong.

BAT’s diversification programme has included a

series of cosmetics and perfume companies in the
1960s; U.S. department stores (1973); a German
home improvements company (1978); a U.K.
Implications
catalogue showroom operation (1979); a 40% It can be argued that some companies will never
shareholding in a Canadian retailing and financial learn. Even if given enough time, the monkey still
services concern at the end of 1970s; more U.S. may not write Hamlet. But over decades, manage-
retailing (1982) ; and an entry into financial services ments change. If they are to survive, they must assess
in the U.K. in 1982 and 1984 and in the U.S. in 1988. their own performance and take continual steps to
None of these acquisitions has performed as well remedy weaknesses. Eventually, one hopes, the
financially as tobacco, and everything, except for requisite skills will be learned. But one must be
the financial services sector, has now been sold. realistic. In sectors where superior parenting is the
rule, some companies, however well intentioned,
Even Philip Morris, the most profitable tobacco will never catch up.
company in the world and also the world’s largest
consumer products company, went through a It might also be said that some extraordinary
painful learning process. Early acquisitions in razor performers learn what to do overnight. More often,
blades and chewing gum, bought for their strong I suspect, these are situations where leaders with
brand positions, failed and were divested; a foray exceptional skills learn individually from their
into hospital products also failed to meet expec- collective experiences and then make a big impact
tations. But after this 20-year period of experimen- quickly on an organization. Even they take time,
tation and capability building, Philip Morris began however, to learn what works.
its more successful move into foods, which is only
now beginning to show attractive returns. The advice from all of this is sombre stuff. There
appear to be only three possibilities:
Many of Philip Morris’s early acquisitions were
Proceed very slowly; edge into new businesses
based on the notion of getting into attractive
and ensure your inevitable mistakes are inconse-
industries, like hospital supplies, California real
quential financially until you really know what
estate and soft drinks, businesses they knew little
you are doing; learn how to experiment and
about. Over time, however, they focused their
understand your leveragable strengths without
acquisitions more on those businesses where their
‘betting the store’.
very considerable branding skills could be brought
to bear as a basis for parenting advantage. The Only consider major steps into new businesses
eventual moves to focus in on beer and food and the when the benefits of combination with existing
improved returns so realized demonstrate the business are so compelling and foolproof that
importance of this kind of value added thinking and major failures can be compensated for by the
the time it takes to get it right. combination benefits or when your capability to
 Brief Case 127

add value is undeniably proven from earlier past two decades, the results would have been
smaller scale successes. dramatically better.

* Alternatively, do not diversify at all; pursue

every possible avenue of expanding the existing
business: enter new market segments; reinvent
the business with new and improved value
Reference
chains; and revolutionize market demand and
(1) This is one of the basic conclusions from current work at the
share with dazzling new products. zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
Ashridge Strategic Management Centre on corporate strategy;
see Goold and Campbell, From Corporate Strategy to Parenting
If all large companies had taken this advice over the Advantage, Long Range Planning, 24 (I), 115-l 17.