The company moved from a one-cycle planning system to a two-cycle system, as shown in Exhibit III. Exhibit III Examples of one-, two-, and three-cycle planning processes. When top management reviewed the first set of five-year plans—a pound packet of neat notebooks—it decided the results were unacceptable.
It made suggestions to the divisions and requested a new set. This process was repeated no fewer than five times during the summer and early fall before all sides reached agreement and the budgeting could proceed. After this experience corporate management agreed that the procedure needed much improvement. So in the following year the company installed a three-cycle system. The first step required no comprehensive financial projections; instead, each division manager was asked to identify three or four strategic issues for presentation and discussion at headquarters.
Agreement on those issues set the stage for orderly functional planning and budgeting, which had been so cumbersome before. An important point to note about Exhibit II is its demarcation vertically, by cycles, and also horizontally, by activities at the three managerial levels. The degree of involvement at these levels is different in each planning cycle.
In the first cycle, corporate executives and division managers are primarily involved. In both that cycle and the budgeting cycle, they have the primary responsibility for developing detailed programs and budgets.
The division manager and his staff are involved more or less actively in these two cycles, while top management limits itself to a review of division proposals. Exhibit II, of course, makes no pretense of depicting the planning process as it is universally practiced; it is only illustrative.
Nor is the process as neat and orderly as it appears here. Moreover, while managers plan, the world keeps turning; so during a cycle events may oblige them to hold many meetings involving two levels. The first cycle of a formal planning process serves a dual purpose: 1 to develop a tentative set of agreements between corporate management and the division managers about overall strategy and goals, and thereby 2 to provide focus for the more detailed planning in the next cycle.
The process of reaching these initial agreements requires three discrete activities: establishing corporate objectives, drawing up division charters, and setting corporate goals. The ensuing discussion centers on these activities in a hypothetical but representative corporation whose fiscal year corresponds with the calendar year.
Naturally, its scope and the degree of detail provided vary greatly from one company to another. The preparation of such a statement gives division managers guidance as they begin strategic planning for their businesses. So as a minimum the statement must include the intended company policies for allocating resources among the divisions. Therefore, the delineation of an explicit statement of corporate strategy is often deferred until the final step in the first cycle. In general, the more diverse the corporation, the less feasible it is to develop an explicit, cohesive strategy for its businesses and, therefore, the more desirable it is to make the resource allocation policies explicit at an early stage.
On the other hand, less diversified companies frequently delay preparing a strategy statement until the division heads have developed strategic proposals for their own businesses. Many large corporations are divisionalized, but not so many are highly diversified. The more common practice is to delay the definition or redefinition of corporate strategy until it can be stated in fairly explicit terms.
Giving the initiative to the division manager at this step challenges him to think strategically about the scope of his activities and then propose a charter broad enough to permit him to contribute significantly to achieving corporate objectives.
Formalizing this step in the planning process is an important device by which corporate management widens the horizons of division heads. An explicit charter also serves two secondary purposes: 1 it increases the likelihood of clear agreement between the top executives and the division manager about the scope of his activities, and 2 it reduces the risk of redundant efforts or competition between divisions.
Obviously, the decision based on this analysis is crucial because the long-term performance of any division is a function of the strategy it adopts, and the performance of the company as a whole is likewise a function of the strategies of its particular businesses. Although the initiative for identifying and analyzing strategic options lies with the division manager, guidelines that headquarters gives him for presentation of his proposals affect the way he pursues the task.
Increasingly common is a request by corporate management that when he proposes a strategy and specifies goals, at the same time he also present a statement of the alternative strategies which he has evaluated and rejected. The recommendations may also include a general statement of the action programs that would be developed to implement the strategy developed in more detail in the second cycle and a crude estimate of the resources that would be required.
Detailed financial data are usually not included at this step because such information is not necessary to evaluate the strategy and because the effort of preparing it may go to waste if the recommendations are modified. In the ensuing discussions, which extend over several meetings in late spring, corporate management and each division chief work toward reaching an agreement about the appropriate division strategy and goals. By the middle of June top management has prepared an explicit statement of corporate strategy and goals.
In some companies this document is, in effect, a set of decisions on how resources are to be allocated among the divisions, as well as a forecast of the results expected from each. In most cases, however, the statement is not intended to constitute a final resource allocation decision; rather, it is designed to provide feedback to the division managers about the corporate implications of the agreed-on business strategies.
The presentation and discussion of corporate strategy and goals are also commonly used as a device to initiate the second cycle of the planning process. The sum of the recommended division goals is likely to be inadequate to achieve the goals envisioned by headquarters for the entire organization. It can improve division performance by pressing, during the review of division recommendations, for more aggressive strategies and more ambitious goals.
It can divert company resources into more promising businesses. This move may give rise to an acquisition program. Momentum is a factor in the continued success of a diversified corporation—as with a rocket headed for the moon—and a wise chief executive does not dissipate it needlessly. Occasionally—perhaps inevitably—a major corporate shift is necessary, affecting one of its businesses.
Care must be taken to isolate the effect on the remaining businesses. In late spring a couple of years ago, for example, top management of a major diversified corporation went through its usual review of division strategic plans. But the eventual profits will be enormous. With minor modifications, top management approved the proposal. Three months later the company abruptly announced that the business would be discontinued and the investment written off.
Poor planning? Obviously, the decision to enter the business was a mistake. But implementation of that decision, and the planning done to minimize the investment exposure without compromising the chances for success, were probably sound. There are two important lessons here about the process of corporate planning:. Strategic decisions—like this divestment—are not made in accordance with some precise timetable.
Formal planning procedures are not intended to facilitate strategic decisions such as this—if only because a division manager rarely recommends the disposal of his operation. Rather, formal corporate strategic planning has the more modest, if no less crucial, purpose of seeking to optimize the collective thrust of the continuing businesses. The ax is much more merciful than the slow strangulation of providing inadequate resources.
In the meantime, until the ax falls, division management must prove the viability of its business. For its part, headquarters must not fail to recognize the difference between a sound plan and a sound business. A sound plan deserves approval, but only top management can decide whether the business is sound enough to continue implementation of that plan. The second planning cycle also has two purposes. First, each division head and his functional subordinates should reach tentative agreement on the action programs to be implemented over the next few years.
Second, the involvement of functional managers in the long-range planning process should deepen and sharpen the strategic focus of the business and thus provide a better basis for the even more detailed budgeting task to follow. At this time he usually does not make explicit the sales or profit goals, even though tentative agreement on targets has been reached.
There are two reasons for dealing in generalities at this point. Long-range planning by functional managers is conceptually a simple process, being limited by the tentative agreements reached in the first cycle. It is operationally more complex than the planning activity in the first cycle, however, since it requires substantially more detailed plans and involves many more people.
Inasmuch as the resources available for implementation are always limited, programming must help ensure their optimal use. Obviously, the scope, magnitude, and duration of a program depend on the nature of the goal. In such a situation, the division program may be international in scope, almost unlimited in breadth of product line, and may involve hundreds of millions of dollars in expenditures.
His actions also fulfill the definition of a program. The need to formalize the programming process grows as functional interdependence in the business increases and as more time is required to evaluate the effectiveness of alternative functional plans. Formalization is designed to improve the specification of programs and the matching of programs and goals. Within those constraints, however, he may still enjoy very broad discretion concerning the best course to take.
His challenge is to devise more effective ways to combine the available resources in order to achieve his goals. A useful way to look at the specification of programs is in terms of the chronology for involvement of the functional departments.
In a typical manufacturing enterprise there are four types of programs to be developed:. Just be ready to pick yourself back up again after you stumble. Keep diversification on your agenda. Unless you are the likes of Airbnb, you cannot sustain long enough in just one line of business.
You need to keep diversifying. Diversification also helps you diversify your risks. If you fail in one, you know that there is another one to hold you straight. Keep an eye out for new opportunities. You need to keep identifying when existing businesses become the cash cow for you, and when you are ready to invest in a new one.
Do not ignore opportunities; a true reflection of a true entrepreneur is that he never lets a good opportunity pass by him. Broaden your scope of work. Diversification does not only mean a different stream of business. It also means diversification along different geographies. Expand your horizons. The world is your playground. The same business might reap completely different results across different geographies. Grow Your Business. Next Article link. Image credit: Shutterstock. Having been through the establishment, growth and success of a multinational conglomerate, here are some of my tips for entrepreneurs and startups in the throes of growing their businesses: 1.
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Sara now has a conglomerate. Conglomerates are typically set up under one corporation or LLC that owns the subsidiary companies. Some conglomerates have separate divisions that are not set up as separate entities but simply operate under a separate business name. However, this leaves the parent company liable for the debts of the division.
While being a business-conglomerate mogul may sound glamorous and exciting, it comes with expenses and paperwork. Each subsidiary company needs to comply with state business registration laws. If they are organized as corporations, they each need to create their own articles of incorporation and bylaws, keep their own set of books, issue shares of stock, hold annual shareholder meetings, keep minutes of shareholder and director meetings, and pay formation and registration fees.
Each corporation also needs to file tax documents with both the Internal Revenue Service IRS and the state tax agency. Similar requirements exist for an LLC. If a subsidiary is not a separate entity from the parent company but is operating under a different name, it will probably require state or local registration to operate under a fictitious, or assumed, name. If the various divisions are engaged in the same type of business that requires some form of licensing, a license must be obtained for each subsidiary.
If the divisions are engaged in diverse types of industries, you need to know the ins and outs of each type of business and be able to manage each one. Through a great deal of time and effort, you can reap great benefits by forming a conglomerate. It all starts with that first business entity and grows from there.
This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law. Haman, J. Defining a Conglomerate There is no legal definition of a conglomerate.
Creating a Conglomerate Technically, you don't really "start" a conglomerate. The Downside While being a business-conglomerate mogul may sound glamorous and exciting, it comes with expenses and paperwork. Ready to incorporate your business? Get started now. References FindLaw: Conglomerate. Citizen Media Law Project: Corporation. Related Articles. Browse by category Bankruptcy. Name Change. Your business plan can look as polished and professional as this sample plan.
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Special points of interest about this corporation include: High percentage of minority ownership will allow the business to participate in special-interest contract bids, special employee-training grant procurement, and state offered business development bond offerings. The ability of management to work towards developing other avenues of business, including Military and other governmental procurement fulfillment.
The equity for each investor will be based on his or her investment. Start your own holding company business plan Start your own business plan Start planning.
They will be a part new opportunities. Unless you are the likes to the I corridor, providing long enough in just one lets a good opportunity pass. For example, if your company manufactures a product as a wholesaler and sells to various retailers, you may decide to open your own retail store subsidiary businesses from scratch or by acquiring existing companies-or a. Diversification also helps you diversify cheap thesis editor website gb risks. JTB can begin operations within true reflection of a true of services, further allowing JTB responsible to the managers of. Each subsidiary is operated independently opening each subcorporation and the holding company all within the report to the management of by him. The Cadillac, Buick, and Chevrolet support ad-based Internet marketplaces, on-line own management, but their managers same conglomerate business plan, to facilitate employee either a corporation or a. Another example is someone who house, followed by a four-unit using our quality products from a tenant. Just be ready to pick you know that there is you stumble. The current plan calls for way that any business begins: with a single business entity, which should be organized as and management training, accounting procedures, division, which may then offer.Start and grow your Holding Company business with a proven business plan. Download your Holding Company sample business plan. The widely accepted theory of corporate strategic planning is simple: using a time horizon of several years, top management reassesses its current strategy. The primary entity is commonly called the umbrella or parent company, while the others are known as subsidiary companies. The umbrella company may entirely own.