Strategic management companies (Model 2) exercise a bit more oversight in managing their operations. The corporate core offers strategic guidance to its local businesses, but not the supervision of operational decision making. A good example is the Korea-based LG Corporation, a US$104 billion company originally known for its brand name Goldstar. (LG once stood for Lucky Goldstar.) At first glance, because of its global operations spanning consumer electronics, mobile communications, home appliances, chemicals, and more, LG might seem to fit the definition of a diversified holding company such as Berkshire Hathaway. But Juno Cho, president and CEO of LG Corporation, notes that the company’s corporate core has always operated more in a strategic management model.
Cho describes his role, and that of other senior management, as closely engaged in strategic goal development with executives of subsidiaries such as LG Chemical and LG Electronics, where central core team members often sit on the boards. “We effectively agree on strategic goals and targets with the businesses and give them accountability,” says Cho. Once each year the group chairman of LG Corporation conducts a consensus meeting with the presidents of all the business units to discuss, understand, and agree on their annual business plan. “This is the backbone of our communication,” says Cho. “Corporate executives chair the board of each business unit, so we have a real-time understanding of performance, but it would be impractical to get deeply involved in operational matters. Since LG is such a big organization, the corporate core limits its voice to brand-building, R&D expenditures, high-level human resources decisions, and capital investment.”
Active management companies (Model 3) have a corporate core that starts to share accountability with the business units for major operational decisions and adds value through close guidance and expertise. John H. Hammergren, chairman, president, and CEO of the McKesson Corporation, a leading pharmaceutical distributor and healthcare IT company based in North America, describes his corporate core as moving back and forth between the strategic and active management models.
“We want our businesses to drive the McKesson culture,” says Hammergren, “but the corporate executive team also wants to guide the businesses on how they do it. We follow a similar approach when it comes to leadership development — whereas with sales training, we expect the businesses to take the lead, because sales training is more specific to their business.”
Hammergren says that the corporate officer group at McKesson performs several key roles. “First, it sets the culture: the tone at the top — for example, what standards we are going to hold for ourselves, both at the executive committee level and in our interactions with the leaders of the business units. Second, corporate upholds a set of principles that ensure all of our business units put the customer at the center of everything we do. Third, we manage the cadence of the management team: in other words, how we plan our strategy; how we conduct our operating reviews; what we expect of the business units; and what processes, like Six Sigma and the corporate calendar, we use to drive results.” The top group also establishes the rules of engagement between the corporate core and the business units, determining when businesses should expect that headquarters will be involved, and when they can assume the authority and decision-making power to move forward on their own.
“We manage the corporation through two key management teams,” says Hammergren. “The first is the executive committee, comprising my direct reports; the second is an operating team that consists of the presidents of the major businesses. I inspect each major business at least quarterly, and I’m actively involved in the budget-setting process and leadership decisions at the business unit level. The executive committee meets every other week to take up performance within the various businesses, large M&A transactions, Wall Street expectations, deployment of capital, leadership development, succession planning, balance sheet management, board reporting, overall corporate strategy, and those kinds of issues.”