To analyze the management and control mode of group is the prerequisite to upgrade the management of business group. The parent company-subcompany mode represents parent company-subcompany management system. The parent company-subcompany management system is the summary and abstraction of distribution of powers between parent company and subcompany, which is divided into relative centralization, relative decentralization, and combination of centralization and decentralization.

There have been diverse theories about management and control mode of group. Goold and Campbell define eight different strategic styles or control modes in terms of planning influence and control influence: centralization, strategic planning, strategic programming, strategic venturing, strategic control, financial programming, holding company, and financial control. Planning influence refers to the intervention degree of group company before deciding strategy of subcompany; control influence refers to the group company’s reaction and disposal mode of the result or performance of the subcompany. Among all the eight control modes, strategic planning, strategic control, and financial control are the three most general ones. Their definitions are as follows:

We believe: any type of business group is made up of multilevel legal persons. Group management is management of company by company, management of legal person by legal person. Parent company manages subcompany through the administration level of the subcompany. Therefore, division of management and control mode should be based on the soundness of subcompany administration. 

Inspur researches more than 100 cases of domestic large-scale business group, and divides management and control mode of business group into three types: administrative mode based on disposing nonfeasance of subcompany, governance mode based on subcompany disposal, and independent management mode based on subcompany disposal (in short: administrative mode, governance mode, and independent management mode). This division has gotten positive approval of the group’s managers.
 
Administrative mode:

Under administrative mode, parent company executes centralized management on subcompany directly skipping board of directors. Under this mode, although subcompany is a legal entity with equal status as parent company in legal meaning, actually it does not have independent decision-making authority. Parent company directly controls all functional departments of subcompany, including appointment and dismiss of personnel, finance, investment, and business operations. Subcompany is in the full charge of general manager, and all its income belongs to parent company. The control subject is mainly the manager level and functional departments of the parent company, and the control object is mainly the manager and functional departments of subcompany. Administrative mode centralizes maximum power and is a general control mode for parent company-subcompany management in China.

Governance mode:  

Under governance mode, parent company respects the subcompany’s status as independent legal entity and manages it through sound governance of subcompany. Specific features: parent company cooperates with subcompany to great extent; parent company keeps necessary control of subcompany; subcompany has independent decision-making authority; parent company could take part in decision of subcompany under precondition of possessing information. The core of governance-type Company is improving the decision, instead of supervising manager. Its objective is to reduce the possibility of making mistake and quicken the speed of correcting mistake; management subject is board of directors or manager level of parent company, and management object board of directors of subcompany, and the board of directors decide the appointment of high-level managers; functional departments of parent company play definite controlling function over subcompany, provide service and assist parent company in evaluating subcompany; decision-making power of management of the subcompany’s manager is under more limit. Governance mode combines centralization and decentralization.

Independent management mode:

Under independent management mode, parent company manages subcompany through the governance of subcompany. Board of directors of subcompany has total decision-making and control power of the company’s operation, and the management level enjoys the operation power of the subcompany. Specific features: subcompany has sound legal entity governance structure; management subject is board of directors or manager level of parent company, and management object is mainly board of directors of subcompany; the management and control by parent company is completely indirect; functional departments of parent company do not play controlling function over subcompany, but they can provide service and assist parent company in evaluating subcompany; board of directors of subcompany actually controls the subcompany, which is in full charge of the employment or dismiss of manager level; parent company made little interference in the transact business of subcompany, and subcompany has strong decision-making power; directors sent to subcompany from parent company have relatively independent speaking right. If parent company is not satisfied with the business achievement of subcompany, it will interfere in the operation of subcompany by reorganizing board of directors. This mode is the one most typical of decentralization.  

Different management and control modes and centralized management

Concentration does not mean centralization. Both centralization and decentralization modes are not absolutely good or bad. We believe that either administrative mode or independent management mode needs centralized management. The difference lies in the degree of centralization. Centralization can be interpreted at two levels: centralized management first refers to the centralization of information, and then the concentration of functional management (personnel, finance, material, production, supply, and sale). It tends to centralization mode if the centralization degree of special functional management is high, and tends to decentralization mode on the contrary. Both centralized management and decentralized management need the centralized management of information.

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