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External Partners Alumni Search Submit Return to home Search Search About About Olin Home Why Olin Equity, Diversity & Inclusion Leadership & Strategy News & Media Events Contact Us Programs Programs Home Explore Our Programs BS in Business Administration MBAs Specialized Master's Doctoral Executive Education Dual Degrees Faculty & Research Faculty & Research Home Faculty Directory Research Research Centers Olin Brookings Commission Olin Award Student Resources Student Resources Home Career Services Center for Experiential Learning Entrepreneurship Academic Calendars Student Organizations For Current Students For Military Veterans Admissions Admissions Home Scholarships & Aid Attend Program Events Visit Olin Ask a Student Student Profiles Request Information Refer a Candidate External Partners Alumni Research shows that, yes, headquarters can add value to business units November 17, 2020 By Jill Young Miller 2 minute read Home News Research shows that, yes, headquarters can add value to business units A central puzzle of corporate strategy is whether headquarters can add value to their business units beyond the burden of their own overhead. The record is bleak: On average, corporations trade at a 20% discount relative to their breakup value. &＃8220;This is the problem that we want to try fix,&＃8221; said&＃160;Anne Marie Knott, Olin&＃8217;s Robert and Barbara Frick Professor of Business. Anne Marie Knott She proposed and tested a theory of how corporations could overcome that record. On November 10, she presented the findings as part of the Olin Business Research Series. More than 60 people tuned in for the virtual event. The 20% discount could mean that multibusiness firms fundamentally destroy value or that they are poorly managed. Regardless, a whopping $5 trillion economic gain could be had from a better understanding of how headquarters add value in multibusiness firms, Knott says. Bank One and its return on assets Bank One, a bank holding company, motivated the theory. Knott and co-author Scott Turner, of the University of South Carolina, explain how in&＃160;&＃8220;An Innovation Theory of Headquarters Value in Multibusiness Firms&＃8221;&＃160;in&＃160;Organization Science. Bank One increased the return on assets of its target banks by 40-70%. &＃8220;This would be really easy if they were purchasing underperforming banks,&＃8221; Knott said. But they weren&＃8217;t. They were buying well-managed banks. The theory relies upon dynamics between business units where laggard units improve their performance by imitating leaders. In turn, this &＃8220;competition from below&＃8221; stimulates leaders to innovate more. Knott polls audience members during her Business Research Series presentation. Beyond demonstrating that headquarters can add value through innovation and growth, the theory offers prescriptions on how to do that. For instance, they can establish systems that create norms for sharing, which eases innovation. They also can offer high-powered incentives to fuel innovation. In general, Knott&＃8217;s research examines the optimal environment and policies for innovation, which she summarizes in her book, &＃8220;How Innovation Really Works&＃8221; (March 2017). This interest stems from issues arising during an earlier career in defense electronics at Hughes Aircraft Company. KEY TAKEAWAYS: A $5 trillion economic gain could be had from a better understanding of how headquarters add value in multibusiness firms. Bank One increased the return on assets of its target banks by 40-70%. The theory relies upon dynamics between business units where laggard units improve their performance by imitating leaders. In turn, this &＃8220;competition from below&＃8221; stimulates leaders to innovate more. Do company headquarters add value? Olin Business Research Series presentation by Anne Marie Knott. Research also conducted by Scott Turner, University of South Carolina. Play video About the Author Jill Young Miller As research translator for WashU Olin Business School, my job is to highlight professors’ research by “translating” their work into stories. Before coming to Olin, I was a communications specialist at WashU’s Brown School. My background is mostly in newspapers including as a journalist for Missouri Lawyers Media, the Atlanta Journal-Constitution, The Washington Post and the Sun-Sentinel in South Florida. Contact Us For assistance in finding faculty experts, please contact Washington University Public Affairs. Monday&＃8211;Friday, 8:30 to 5 p.m. Sara Savat, Senior News Director, Business and Social [email protected] &＃160; Kurt Greenbaum,Communications [email protected] Twitter: WUSTLnews Share article Apply Now Visit Us Request Info One Brookings Drive, St. Louis, MO 63130-4899 [email protected] 314-935-7301 News & Media Events Faculty Directory WashU Center for Career Engagement Washington University home Olin Links Sitemap Privacy Policies Title IX Accessibility ©2024 Washington University in St. Louis