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The Clash Between a Parent and Subsidiary Company

"A" Company, the new parent company of "B" Company, is a large multinational conglomerate. It is an extremely financially well-run company, with an emphasis on short-term, quarterly results. In fact, it is Walden's key value proposition to its stockholders that each quarter's sales and pretax profits will be greater than the prior year's corresponding quarter. A Company has a 35-year record of consecutive quarterly increases and absolutely every other corporate objective is subordinate to extending this streak indefinitely. A Company works very quickly re-engineering and consolidating the common functions of its acquisitions into its own administrative services. These functions include accounting, legal, engineering, and customer service. The savings that are realized through the elimination of these common services are usually passed on to the bottom line. Sometimes, if a good case can be made, those funds are reinvested in the new subsidiary.

One of the biggest obstacles to the implementation of a successful business strategy is the clash of value systems between a parent and subsidiary. These differences often manifest themselves in conflicts between the various levels of strategy: corporate, business, functional, and operating.

"A" Company is the new parent company of "B" Company. Below are a number of the sticking points between B Company and A Company. Discuss the steps you would take to address the issues.

- How would you reconcile B Company's need for building market share (long-term strategic business objective) with A company's drive for year-to year quarterly increases in sales and pretax profit (short-term, corporate objective)?
- A Company's success metrics of head count control, inventory management, inventory turnover, and day's sales outstanding can be inhibitors to growth vitally needed by B Company. What would you do to moderate these functional objectives and make them work for B Company?

Solution Preview

How would you reconcile B Company's need for building market share (long-term strategic business objective) with A company's drive for year-to year quarterly increases in sales and pretax profit (short-term, corporate objective)? A Company's success metrics of head count control, inventory management, inventory turnover, and day's sales outstanding can be inhibitors to growth vitally needed by B Company. What would you do to moderate these functional objectives and make them work for B Company?

Please note that the so called sticking points relate to the objective of setting up financial discipline by Company A and the objective of building market share by Company B. These are not irreconcilable objectives. There are companies that have built excellent market share with observing financial discipline. And there is no reason why Company B cannot do that. In fact maintaining financial discipline is a healthy way of ...

Solution Summary

This solution is provided in about 600 words, and also discusses some of the inherent limitations of the question in general. Nevertheless, this solution is detailed and well presented, clearly explaining the concepts related to market-share and metrics of success.

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