Holding- is an organization which brings together different, theoretically "independent" operators, in more or less clearly linked to each other, one of the entities in these relationships is dominant and subordinate the other. Parent company usually perform strategic management functions on the whole holding structure, and the subsidiaries focused on operative management functions and activities of production or service.
Holding is a formal institution, i.e. that the holding company and the subsidiaries are separated legal entities, between which there are capital and personal connections.
This is an organization that groups the different, theoretically independent companies, more or less clearly related to each other, with one of the entity that is dominant and subordinate others. Subordination can result in having, by one of the companies (often referred to as "parent" or "mother"), a substantial part of the assets of another company or companies (hereinafter referred to as "subsidiaries" or "daughters"). The parent company performs strategic management functions on the whole holding structure and subordinated companies focus on operative management functions and production or service activities.
Causes of holding
- improvement in effectiveness of human resource management
- improvement in efficiency of financial and goods management
- diversification of economic risks through diversification of their ranges and markets customers and suppliers
- reduction of cost of obtaining external funds to finance operating and investing activities
- reduction of the production costs of goods and services delivery using internal transfer pricing system
- expanding and diversifying the range of products, which may be important for reducing the risk of a demand limitation on the existing market
- new groups of customers or expand their existing group
- acquisition of new technologies that can be protected by patents, secret production, etc.
Types of holding
Using a industry criterion there are the following types of holdings:
- Horizontal - include companies operating in the same field.
- Vertical - grouping of companies related to particular market, for example: the refinery and gas station operators.
- Diagonal - covering entities belonging to various branches of the industry.
Due to the subjective and objective criteria:
- Holding subjectively uniform
- Holding objectively uniform
- Holding of entities in mixed
Due to the criterion of the territorial scope of the holding structure:
Advantages of holding
- Companies within the holding company have their own, separate legal personality - in the event of the collapse of one of the parties of holding the remaining part is exposed to only partial loss from economic cooperation and participating interests. There is no need to cover obligations of failed subsidiary. None of the participants of the holding lose its own name, and its own trademark, reputation in the market and customers.
- The possibility of consolidated management which enables the formulation of common strategic objectives to improve the effectiveness of the whole structure.
- Holding structure, because of its flexibility gives the opportunity to shape the individual company's strategy, in uniformly defined strategic framework.
- Thanks to the transparency and simplicity of this structure, its great capacity and the possibility of change, holding properly managed, is a unique combination of size, strength and resistance to the turbulent changes in the environment.
- The ability to create own raw materials supply facilities, its own sales network and the accompanying service network and to keep own pricing policy.
Disadvantages of holdings
- Special surveillance is required on the part of the board of directors of the holding information system, Errors and omissions on this issue will lead to errors and even the disappearance of the coordination between the various elements of holding.
- The possibility of excessive influence on the subsidiaries by the parent entity.
- The possibility of large differences between actions and processes of weaker participants in the holding company.
- Lewin, A. Y., Long, C. P., & Carroll, T. N. (1999). The coevolution of new organizational forms. Organization Science, 10(5), 535-550.
Author: Sara Skowierzak