Cuadernos de Administración (Universidad del Valle) ISSN: 0120-4645 Universidad del Valle

Alzate Fernández, Felipe; Rivas Montoya, Luz María Multi-business companies: The Leonisa case Cuadernos de Administración (Universidad del Valle), vol. 34, no. 60, 2018, January-April, pp. 81-95 Universidad del Valle

DOI: https://doi.org/10.25100/cdea.v34i60.6219

Available in: https://www.redalyc.org/articulo.oa?id=225057030007

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Print ISSN: 0120-4645 / E-ISSN: 2256-5078 / Short name: cuad.adm. / Pages: 81-95 Facultad de Ciencias de la Administración / Universidad del Valle / Cali -

Multi-business companies: The Leonisa case

Empresas multinegocios: Caso Leonisa

Entreprises multi-affaires: Cas Leonisa

Felipe Alzate Fernández1 Head of Development and Motivation Plans and Goods and Services, Leonisa. e-mail: [email protected]

Luz María Rivas Montoya2 Full professor, Department of Organization and Management, Universidad EAFIT, Medellín, Colombia. e-mail: [email protected]

Article of Scientific and Technological Research, PUBLINDEX-COLCIENCIAS classification Submitted: 06/12/2017 Reviewed: 30/03/2018 Accepted: 02/04/2018 Core topic: Administration and Organizations JEL classification: M1, M10, M19 DOI: 10.25100/cdea.v34i60.6219 Abstract

The joint management of multi-business companies is a challenge that deserves to be studied from an administrative perspective. This exploratory work aims to show how Leonisa, a Colombian multi-business company in the textile sec- tor, has managed its business. Particularly, it presents the purposes of forming the Leonisa group, as well as its main corporate functions. In addition, it identifies the multi-divisional structure adopted for the joint management of its bu- sinesses from two fronts, commercial and industrial. This qualitative study is based on semi-structured interviews with managers from various businesses and levels of this multi-business company. The findings show thatLeonisa is cha- racterized by not having a corporate center (CC) with a formal structure. Instead, these headquarters are evidenced by the functions exercised by its directors at the corporate level of the strategy, such as: 1) definition of the business portfolio and 2) internal management of centralized processes. These two functions are performed from the CC, which is set up according to the needs of the business as a whole at specific times. In other words, Leonisa does not have an autonomous corporate center, but it does have a multi-divisional structure wherefrom to manage its entire business.

Keywords: Corporate center, Multi-business Company, Multi-divisional structure (M-form), Leonisa.

Resumen

La administración conjunta de empresas multinegocios es un reto que merece ser estudiado desde una perspecti- va administrativa. El presente trabajo exploratorio tiene como objetivo mostrar la manera como Leonisa, empresa multinegocios colombiana del sector textil, ha administrado su conjunto de negocios. En particular, se presentan los propósitos de conformación del grupo Leonisa, así como sus principales funciones corporativas. Además, se identifica la estructura multidivisional adoptada para la administración conjunta de sus negocios desde dos frentes, el comercial y el industrial. Este estudio cualitativo se basa en entrevistas semiestructuradas con directivos de diversos negocios

1 Processes Engineer, Master’s in Administration, Universidad EAFIT, Colombia. 81 2 Economist, Universidad Autónoma de Manizales, Colombia PhD in Administration, Universidad EAFIT, Colombia. Felipe Alzate Fernández :: Luz María Rivas Montoya

y niveles de esta empresa multinegocios. Los hallazgos Campbell and Alexander, 1994; Kanter, 1989; evidencian que Leonisa se caracteriza por no tener un Porter, 1987). In the literature on corpo- centro corporativo (CC) con una estructura formal. Más rate strategy, multi-business companies are bien, ese centro se evidencia en las funciones que ejer- also recognized as conglomerates, modern cen sus directivos en el nivel corporativo de la estrate- corporations or diversified firms. In Latin gia, tales como: 1) definición del portafolio de negocios y 2) gestión interna de procesos centralizados. Estas dos America, this type of company is also recog- funciones son realizadas desde un CC que se conforma nized as an economic group (Leff, 1978; Ra- en momentos específicos según las necesidades del machandran, Manikandan and Pant, 2013; conjunto de negocios. Es decir, Leonisa no cuenta con Stolovich, 1995) and as a business group in un centro corporativo autónomo, pero sí con una estruc- Colombia, on account of Law 222 from 1995 tura multidivisional desde la cual administra su conjunto (Supersociedades, 2008). The groups called de negocios. the “big four” are an example of this type of Palabras clave: Centro corporativo, Empresa multi- multi-business company in Colombia: Famil- negocios, Estructura multidivisional (M-form), Leonisa. ia Santodomingo, Familia Ardila Lulle, Familia Sarmiento Angulo and the Grupo Empresar- Résumé ial Antioqueño (Wilches-Sánchez and Rodrí- guez-Romero, 2016). L’administration conjointe d’entreprises multi-affaires est un défi qui mérite d’être étudié à partir d’une pers- Normally, the multi-business strategy pective administrative. Le présent travail exploratoire is defined and executed from a general or a comme objectif celui de montrer la façon dans la- centrale offic (Chandler, 1962, 1991), also quelleLeonisa, une entreprise multi-affaires colom- bienne, dans le secteur du textile a géré son groupe known as a corporate headquarters (HQ) (Bir- d’affaires. Notamment, les objectifs de la formation kinshaw, Braunerhjelm, Holm and Terjesen, du groupe Leonisa ainsi que ses fonctions principales 2006; Collis, Young and Goold, 2007). It is d’entreprise sont présentés. En plus, la structure mul- also known as a parent company (or Corpo- ti-divisionnelle adoptée par l’administration conjointe rate Parent) (Campbell, Goold and Alexander, de ses affaires à partir de deux domaines, le commer- 1995). These corporate headquarters have cial et l’industriel. Cette étude qualitative est basée sur been recognized as the most relevant organi- des entretiens semi-structurés avec des dirigeants de zational innovation of the 20th century, since différentes entreprises et des niveaux de cette entre- it separated the operations of individual busi- prise multi-business. Les résultats mettent en évidence que Leonisa se caractérise pour ne pas avoir un centre nesses from the strategic responsibilities of d’entreprise (CE) avec une structure formelle. Plutôt, the multi-business company (Menz, Kunisch ce centre est évident dans les fonctions pratiquées par and Collis, 2015). ses dirigeants au niveau de l’entreprise de la stratégie, tels que : 1) la définition d’un portefeuille d’affaires et Headquarters are understood as a cen- 2) la gestion interne des processus centralisés. Ces tral organizational unit wherefrom business deux fonctions sont exécutées à partir d’un CE qui est units (BUs) are managed (Menzet al., 2015). formé à partir de moments spécifiques selon les besoins From the beginning of the strategy academ- du groupe d’affaires. C’est-à-dire que Leonisa n’a pas ic field, Chandler (1962) in his text Strategy de centre d’entreprise autonome, mais qu’elle a une and Structure refers to the headquarters as structure multi- divisionnelle à partir de laquelle elle a central office wherein executives coordi- gère son groupe d’affaires. nate, evaluate, define goals and policies and Mots clés: Centre d’entreprise, Entreprise multi-affai- allocate the resources required by a series res, Entreprise multi-divisionnelle (M-form), Leonisa. of semi-autonomous and self-contained divi- sions (Chandler, 1962, p. 9); nowadays, these divisions can also be understood as business 1. Introduction units. In other words, the headquarters are staffed by corporate executives who, from The multi-business company, understood a central office, manage the multi-business as a group of businesses managed jointly, is company (Chandler, 1991). the result of the growth of a company from the creation or acquisition of other business- Birkinshaw et al., (2006) state that the es. The formation and management of this headquarters (HQ) have two essential ele- set of businesses is the focus of the study ments: 1) a senior management team which of strategy at the corporate level (Chandler, typically has an official meeting location; and 82 1991, p. 9; Goold and Campbell, 1998; Goold, 2) a series of corporate functions that have Cuadernos de Administración :: Universidad del Valle :: Vol. 34 N° 60 :: January - April 2018 the formal responsibility of fulfilling cer- Leonisa is a company with over 60 years of tain roles (treasury, investor relations, cor- experience in the production and marketing porate communications, among others). Each of underwear and swimwear. Over the years, of these functions is performed from a physi- the company has made changes in its strate- cally locateable location. Furthermore, these gy and structure to speed up its production authors argue that there is a third element processes and reach its customers in more that characterizes the headquarters: the le- than 20 countries. gal domicile. That is, a location from which the legal representation that bestows “na- The first part of this paper presents a re- tionality” on the company is exercised. view of the literature on corporate centers and multi-divisional structure. In the second, In Colombia, there is an economic group the methodological approach of the research that does jointly manage its business from its is detailed, and the third describes Leoni- headquarters, but has neither staffing nor a sa as a multi-business company. The fourth central office. Even so, the senior manage- section discusses the results of the research ment of this group exercises functions relat- thereafter. Finally, the paper concludes with ed to the corporate level of the strategy. This the most relevant results, an invitation for is the case put forward in Londoño-Correa’s future research and the identification of this (2002) research on the Grupo Empresarial research’s limitations. Antioqueño (GEA). Therein, the author char- acterizes this group as a corporate center due to the corporate functions it has devel- 2. Literature Review oped, such as: portfolio definition, internal management and external management (Lon- While corporate strategy addresses the doño-Correa, 2003). This Colombian group questions: what business to be into and what is recognized because “it is not a legal en- business to be out of? (definition by porta- tity, nor does it have a corporate name. Yet, folio) and how to manage the business as a it is one of the most powerful conglomerates whole) (Porter, 1987), competitive strategy in the country” (Dinero, 2016). This group’s concerns itself with responding: who is my strategic management’s particularity should client? What is my value proposition? Where draw the attention of academics and practi- am I going to compete? What are my capa- tioners of corporate strategy. bilities and strategic resources that allow me to create and sustain competitive ad- Corporate strategy is concerned with both vantage? (Osterwalder and Pigneur, 2010; the definition of the business portfolio and Osterwalder, Pigneur, Bernarda and Smith, its management. Therefore, it is convenient 2014; Porter, 2008). Along the same line, it is to know in greater detail the functions, strat- important to clarify that it is the corporate egies and structures from which multi-busi- strategy that deals with multi-business man- ness companies are managed in emerging agement, while the competitive one is at the countries, in which particular cases such as level of each business unit and may be differ- GEA appear. The specificity of this case mo- ent for each of one. Functional strategies sup- tivated this research into the management of port the fulfillment of the value proposition Leonisa, a Colombian company in the textile and the creation and maintenance of compet- sector. This exploratory work presents the itive advantage (De Wit and Meyer, 2010). characterization of this company’s headquar- ters, based on the analysis of its operation Hence, the corporate strategy deals and the revision of the organizational struc- with the configuration and management of ture adopted for joint management. Further- multi-business companies (MBCs), under- more, the purposes that keep Leonisa togeth- stood as an organization structured through er as a multi-business company are analyzed. business units (BUs) that focus on different This exploratory research is one of the first product/market segments but have some de- phases of a major research project, conduct- gree of connection between them (Eisenhardt ed in more than 20 multi-business companies and Piezunka, 2011). Such organizations have in six Colombian regions (Rivas-Montoya and been recognized in the literature as multi-di- Londoño-Correa, 2017). visional (M-Form) organizations, highlighted by Chandler (1962) in his research on Strate- 83 Felipe Alzate Fernández :: Luz María Rivas Montoya

gy and Structure in four major U.S. corpora- sibilities from the strategic responsibilities tions (General Motors, Dupont, Standard Oil that remain at the headquarters. The multidi- of New Jersey and Sears Roebuck). visional structure clearly expresses a tension typical of multi-business companies: central- This paper draws on the concepts of orga- ization vs. decentralization. While centraliza- nizational structure from the perspectives of tion offers the benefits of economies of scale, (Mintzberg, 1984; Whittington, 2003) Sán- process consistency, knowledge and capac- chez-Bueno and Suárez-González, 2010) to ity building possibilities, decentralization address the concept of multi-divisional struc- allows managers greater autonomy in deci- ture, understood as that form that prevails sion-making and resource allocation, thereby in multi-business companies and reflects the facilitating the speed, creativity and innova- tension between the autonomy to which busi- tion required by competitive markets (Kates ness unit managers aspire and the control and Galbraith, 2007). exercised by a higher-level corporate hierar- chy recognized as a corporate headquarters In relation to the management of the (HQ) (Rivas, 2013). multi-business company, Eisenhardt and Pie- zunka (2011), three main choices posited by In his text on organizations structuring, the corporate strategy stand out: control Mintzberg (1984), presents five structural and motivation of the BUs; collaborations be- configurations (simple structure, machine tween BUs and scope of the firm. In addition, bureaucracy, professional bureaucracy, divi- these authors refer to two perspectives from sional form and adhocracy), most often de- which multi-business companies have been scribed in the literature on organizational studied: the traditional one and the complex theory. According to this author, most organi- one. While the traditional one focuses on the zations experience them all, leaning towards leading role of the headquarters in strategic one, according to the corresponding config- choices, the complex one emphasizes the role uration in each organization. Regarding the of Business Units’ managers and suggests divisional configuration, it specifically refers that the HQ rather than controlling should fa- to the multi-divisional form (M-form) as the cilitate collaboration processes between BUs. structure that emerges when companies be- It is then possible to infer that competition as come so large that the simple divisional form the focus of each business unit’s strategy is becomes insufficient and, therefore, divisions insufficient when the BU is focused not only appear above divisions. Whittington (2003), on its own performance, but also on the joint describes the organizational structure based creation of economic value for the multi-busi- on questions such as: ness company. Thusly, the idea of collabora- Who has the resources, who communica- tion between BUs appears as essential for the tes with whom, who is responsible for what, materialization of this jointly created value, who can do what, what can be done on their recognized in literature as synergy (Rivas own and what can be done with others, what and Londoño-Correa, 2017). kinds of careers are available and what is the flow of knowledge throughout the orga- In this respect, Sánchez-Bueno and nization(p. 319). Suárez-González (2010) expand the concept of a multi-divisional structure with three As can be inferred from the above quote, new forms: multi-divisional cooperative, the relationship between strategy and struc- multi-divisional competitive and inner net- ture is of the essence for the achievement work. The cooperative multi-divisional struc- of the company’s objectives (Whittington, ture is characterized by less decentralization 2003). Additionally, this author warns that, and greater integration between divisions, in the case of multi-business enterprises, the while the competitive structure has less inte- functional (or divisional) structure in terms of gration between divisions and a high degree Mintzberg (1984) is insufficient to deal with of operational decentralization. In contrast, the tension between the headquarters and the inner network is characterized by a high the business units or divisions that charac- degree of operational decentralization and terize this type of company. On this account, integration between divisions. These three the multidivisional structure is adopted as it new forms were the result of studies carried 84 separates the business or operational respon- out in one hundred Spanish companies in the Cuadernos de Administración :: Universidad del Valle :: Vol. 34 N° 60 :: January - April 2018 period between 1993 and 2003. The arising are the functions of Leonisa’s headquarters? of structures other than the divisional ones, To answer these questions, the general pur- due to their processes and mechanisms for pose consisted in characterizing Leonisa’s decision-making, such as the so-called multi- headquarters by analyzing its structure. To ple divisional network (N-form: multidivision- this end, specific objectives were defined as al network), shows the substitution of tradi- follows: 1) Identify the purposes for creating tional structures by new forms that differ in the Leonisa Group; 2) Identify the structure aspects such as technological and human in- of the organization; and 3) Describe the busi- terdependence, critical organizational levels, ness and administrative functions of the Leo- the communication network, the role of the nisa corporate headquarters. headquarters, amongst others (Sánchez-Bue- no and Suárez-González, 2010). The N-form To characterize Leonisa’s headquarters, emphasizes lateral rather than vertical in- its structure was researched on the corpora- teractions; it proposes a shift to a place of te level of the strategy. Firstly, an exploration command and control as opposed to bureau- on journals specializing on the Business and cratization. In addition, it posits the creation Management area and the category of Stra- of networks, instead of managerialism (Whit- tegy and Management from Scimago Jour- tington and Mayer, 1997, p. 253). Namely, as nal and Country Rank (2015) and ISI Web of argued by Whittington and Mayer (2000), the Science was carried out for the period com- N-form is a flatter, more flexible and horizon- prised between 2005 and 2015. The search tal form of organization than the M-form, but was conducted using keywords that could ac- there are no differences in decentralized op- count for the multi-business company from erations and the centralized corporate strat- an administrative perspective such as Head- egy as it seems to remain intact. quarters, Multi-business Firm and Multidivi- sional. The initial result yielded 142 papers, On the subject of strategic management of which 28 were selected, published in Engli- from a central office or headquarters, Mintz- sh or Spanish, directly related to the field of berg (1984) asserts the latter is concerned corporate strategy. Subsequently, 15 papers with managing a strategic portfolio, allocat- were selected, which specifically referred to ing global financial resources, designing per- the multi-divisional structure in the context formance management systems, replacing of multi-business companies. Furthermore, and appointing division managers, monitor- some books and handbooks by authors recog- ing divisional behavior on a personal level nized in the field of strategy for their contri- and providing support services to divisions. butions on organizational structure were re- In turn, Menz et al. (2015) refer to the cor- viewed. porate headquarters as the central organiza- tional unit in the contemporary corporation, The literature review on multi-divisional through which value is created for the entire structure gains relevance in publications firm or multi-business enterprise. produced between 2005 and 2015, particu- larly in the context of developed countries. Once the concepts of multi-divisional These articles have been published by wi- structure and corporate headquarters have dely recognized journals, such as Organiza- been clarified, the following section presents tion Science, Journal of International Manage- the methodological approach of the research ment, Strategic Management Journal, among on the Leonisa group. others. As shown in table 1, which presents the authors’ universities and countries of affiliation, Latin American universities and 3. Methodological approach authors therefrom are lacking, which justi- fies this type of research. For the characterization of Leonisa’s head- quarters, a qualitative study was conducted In the theoretical approaches on orga- in 2016 (Galeano, 2004) which addressed the nizational structure presented by the revi- following research questions: What are the sed papers, the Resource Based View of the purposes of the company in forming a busi- Firm (RBVF) stands out with eight papers ness group? What structure does the Leonisa (Alfoldi, Clegg and McGaughey, 2012; Bar- Group adopt to support these functions? What dolet, Fox and Lovallo, 2011; Cao, Gedajlo- 85 Felipe Alzate Fernández :: Luz María Rivas Montoya

Table 1. Research on multi-divisional structure: countries, universities and theoretical approaches

Countries of affiliatio Universities Theoretical approximations

United States (9 authors) University of Sydney Resource Based View of the Firm (RBVF) (8 papers) (4) University of Uppsala Knowledge Based View of the Firm (KBVF) (6) Australia (4) Universidad de Salamanca Theory of the Firm (1) Spain (3) Mergers and Acquisitions (M&A) (1) Sweden (3) Singapore (2) China United Arab Emirates Source: Author’s own elaboration.

vic, and Zhang, 2009; Chung, Gibbons and ty of access to information (or the willingness Schoch, 2006; Lupton and Beamish, 2014; Pi- of the interviewees to share information). telis, 2007). In this same vein, the role of the The seven semi-structured interviews were Knowledge Based View of the Firm (KBVF) is conducted with executives and former exe- also evident, with six papers based upon it cutives of both Leonisa and the parent com- (Birkinshaw and Lingblad, 2005; Connell and pany, as well as from its enterprises or subsi- Voola, 2007; Egelhoff, 2010; Galán and Sán- diaries (business units), which were selected chez-Bueno, 2009; Vahlne, Schweizer, and from different hierarchical positions within Johanson, 2012). Finally, both the Theory of the structure of each company for their ro- the Firm (Zhou, 2011) and the theoretical re- les as heads, directors or managers. Each of ferences on Mergers and Acquisitions (MyA, them was interviewed for one hour in August Mergers and Acquisitions) (Tallman and Koza, and September 2016. 2010), were present in only one paper respec- tively. Table 1 shows the countries of affilia- The documentary review was conducted tion for the universities where the authors of on websites, annual reports of the organiza- the 15 papers studied work, the universities tion, and public domain documents written that stand out for their research on multi-di- about Leonisa. The analysis of the data was visional structure and the theoretical approa- carried out through a process of categoriza- ches from which such research has been ca- tion or codification, open at first and then se- rried out. lective thereafter, based on the transcription of interviews and revised documents. There- The reviewed papers proved insufficient fore, the theoretical categories defined in the to conceptualize on the multidivisional struc- conceptual framework were complemented ture that characterizes multi-business enter- by those emerging from the fieldwork. prises, since they focused on very specific issues without referring to the assumptions whereon the different forms adopted by the 4. General aspects of the origin multi-business companies’ structures are typified. On this account, it was decided to and development of Leonisa complement this information with other au- Leonisa is currently headquartered in Me- thors recognized within the topic of multidi- dellin, Colombia, where it produces and mar- visional structure. kets underwear through various companies described in Table 2. Secondly, two techniques were used to co- llect the data: semi-structured interview and Leonisa has shaped its business portfolio documentary review. There were two criteria over the years based on a growth strategy for selecting the interviewees: the manage- that seeks to minimize risk and increase the 86 ment level of the different businesses (mana- speed of its operation. This has been possi- gers and former managers) and the possibili- ble through vertical forward and backward Cuadernos de Administración :: Universidad del Valle :: Vol. 34 N° 60 :: January - April 2018

Table 2. Companies belonging to Leonisa

Company Creation Purposes Structure

Votre Passion 1991 To establish a commercial network of saleswomen CEO and a group of seven managers: to reach a larger number of customers located an- CFO, Marketing, Sales, Logistics, Pro- ywhere in the country. 2. To diversify the portfolio in curement, IT and Human Resources. complementary products: women’s outerwear, men’s outerwear, youthwear, cosmetics, and accessories. Prym LeSensuel 1984 To manufacture products for Leonisa’s companies General Management accompanied by from surplus inputs, generating turnover of the ma- a production and administrative team. terials not used by the headquarters, to turn them into first-class products and to commercialize them in the different channels of the group. Prym 1984 To produce swimwear as an independent company. General Management and a primary team for the areas of Production, Mar- keting and Finance. Dissen 1989 To commercialize the products manufactured in the Administrative director in charge of original business in the Colombian retail sector. It is accounting, portfolio, credit and co- segmented into two major groups (wholly-owned and llections; and three commercial mana- not-wholly-owned) and reports on the achievement of gers. goals to the organization’s headquarters directly. Source: Author’s own elaboration integrations. Each company has strengthe- In 1966, Leonisa began its process of in- ned the group’s growth process in different ternationalization to the Caribbean Islands strategic aspects. For instance, the forward and Venezuela, through the sale of its flags- vertical integration can be seen when Votre hip product, the reference 1000 brassiere. La- Passion was created as Leonisa’s catalogue ter on, it continued its expansion to fourteen sales subsidiary; and Prym Le Sensuel, in or- other Latin American and three European der to optimize idle time and surplus mate- countries from product distribution subsidia- rials, made it possible to have first-class pro- ries, and from a garment plant in ducts marketed in different sales channels, to serve the Central American market (Sana- which has allowed Leonisa to control more bria, 2005). than 80% of its sales through catalogue, on- line and retail sales. In the case of vertical In 1990, the Leonisa Distribution Center backward integration, the production of fa- (CDL) was born with the objective of cen- brics, the dyeing and finishing processes and tralizing, in Medellín, the operation of the the manufacturing of its products through different sales channels and optimizing the cooperatives that work exclusively for Leoni- flow of the company’s inventory in accordan- sa stand out. ce with market needs. From there, national and international orders began to be met and negotiations with freight forwarders be- gan in order to achieve economies of scale in 4.1. Creation, industrial develop­ the distribution of products. The entire ex- ment, logistics development and port and import operation is managed from internationalization the headquarters or central office, and none of the subsidiaries is allowed perform opera- On November 20, 1956, in the city of Ar- tions outside the Leonisa foreign trade team. menia, Colombia, the Urrea brothers - Mar- co Aurelio, Joaquín, Luis Enrique and Julio - Figure 1 presents a timeline with Leoni- founded the company. At the time, there was sa’s most representative facts from its crea- no company dedicated to the production of tion in 1956 to 2014. women’s underwear in this country, and the Urrea brothers saw this as a business oppor- tunity. Afterwards, they moved to Medellín, 4.2. Leonisa’s strategy where they set up a workshop, got a filleting machine, a sewing machine, and began im- As a multi-business company, Leonisa porting fabrics and supplies (Ramírez, 2006). counts with strategies at the corporate, com- 87 Felipe Alzate Fernández :: Luz María Rivas Montoya

Figure 1. Leonisa’s Timeline

Source: Author’s own elaboration.

petitive and operational levels. Its corporate strengthened its competitive strategy to con- strategy is characterized as related diversi- tinue to grow sales in the four channels and fication, with vertical backward and forward promote the positioning of the brand world- integration. Integrations are strategies to di- wide. versify the core business into adjacent activi- ties in the network or value chain. Backwards As for Leonisa’s operational strategy, it integration has been accomplished through should be noted that it focuses on producing the creation of companies that supply the between 30% and 40% in its own plants, while inputs for underwear and swimwear produc- the remaining amount is produced in coope- tion, where each specializes in the produc- ratives located in Antioquia (Sanabría, 2005). tion of specific parts that were previously The corporate, as well as the competitive and purchased from third parties. These internal operational strategies are managed from the ventures are directly supplied by companies headquarters or head office (Leonisa), where of the Leonisa group. The forward integration strategic decisions are made to promote the created companies wherein direct contact growth of the company and achieve the long- with the end customer is held through its re- term objectives set. tail, direct and online distribution channels, thereby achieving more than 90% of Leoni- sa’s sales through companies belonging to 4.3. Functioning and structure of the group itself. The corporate strategy has Leonisa become a multi-business company managed The management of the whole business is through a multi-divisional structure. Leoni- carried out, partly, from Leonisa’s headquar- sa’s headquarters are the central body from ters as the parent company; this is evidenced which corporate guidelines are provided to by the different corporate functions carried each of the group’s companies. In addition to out therein. For example, regarding internal the general guidelines, the competitive stra- management, all subsidiaries are supported tegy for each company is also defined. from the areas of Treasury, Audit and IT. The The competitive strategy developed in re- Treasury area manages the company’s in- cent years has been based on two main pi- vestments centrally, in accordance with the llars: differentiation and total look. The for- group’s total profitability. The Audit area mer seeks to develop new products, different oversees the execution of the processes in from those offered in the market. And the la- each company, according to the policies esta- tter, with a concept that integrates the diffe- blished by the headquarters. In turn, the IT rent product lines, seeks to create an identity area is responsible for developments for all for the Leonisa woman through the use of un- subsidiaries, based on the needs of both pro- 88 derwear. In line with the above, Leonisa has duction and distribution companies. Cuadernos de Administración :: Universidad del Valle :: Vol. 34 N° 60 :: January - April 2018

In relation to commercial management, 5. Analysis and results support is provided to all subsidiaries from the Foreign Trade and Distribution Channels As can be inferred from the description area. The Foreign Trade team is in charge of presented in the previous section, the Leoni- managing the import operations of raw mate- sa group does not have a corporate center as rials and finished products, and exports from defined by the literature. Namely, there is no Colombia to their different destinations. In hierarchy of corporate executives dedicated distribution channels, the company has its exclusively to the management of the busi- own stores in the retail market, large de- ness as a whole. In other words, there is no partment stores in major chains, online sa- fixed structure, with identifiable staffing and les through the virtual store at www.leonisa. physical headquarters. Notwithstanding, sin- com, and the direct sales channel, which re- ce Leonisa as a producer and marketer of un- presents nearly 70% of the company’s sales. derwear evolved into a multi-business com- The four main distribution channels are na- pany, it was necessary to exercise corporate tional and international in scope. For instan- functions that led it to adopt a multi-divisio- ce, in a country like , the brand has a nal structure, but not an autonomous corpo- presence with its own stores (retail), Falabe- rate center. In this respect, some similarities lla (large department stores), direct sales (a are drawn between it and the Grupo Empre- subsidiary of Leonisa) and the online store. sarial Antioqueño, mentioned above, since its headquarters make decisions associated The subsidiaries report periodically to the with the management of the business port- headquarters, where portfolio and structure folio and its structure. But it differs because decisions are made for each company belon- Leonisa’s ownership relationship (family-ow- ging to the group, according to the perfor- ned) enables it to have any decision, such as mance achieved by each of them. The cor- including new product lines, new marketing porate center controls the compliance with strategies, and new locations, among others, the competitive and operational strategy, ca- monitored and approved by Leonisa’s execu- rrying out frequent audits to guarantee the tives and board members, who exercise con- execution of the guidelines transmitted from trol over each business unit or subsidiary: the headquarters. Votre Passion, Prym Le Sensuel, Prym, Dis- sen and each foreign distributor. Leonisa counts with channels for the com- mercialization of products in more than four- If the corporate center is understood not teen countries, through catalog sales, online as a corporate hierarchy that meets in iden- stores, wholly-owned stores, large and small tifiable physical headquarters, but as the set department stores and authorized distribu- of corporate functions exercised to manage tors. In the , for instance, it has the business as a whole, then the Leonisa all the alternatives. It also has a presence in group can be said to have a corporate center , Peru, , and which forms at specific times, according to Spain; it also serves markets in Canada, Ger- the needs of the organization. Nevertheless, many, Portugal, Bolivia, and Costa in relation to the management of subsidiaries Rica. The subsidiary in Spain handles orders abroad, each company has a basic payroll from all over Europe, and has currently at- that functions as a copy of the administrative tained significant sales in countries such as structure in Colombia, but on a smaller sca- the United Kingdom, , Italy, Sweden, le. For instance, there is a small distribution Norway and Finland. center in each country, which operates under the same technology as Colombia’s distri- The main office coordinates each coun- bution center. Likewise, there is a treasury try’s product portfolio, monitors compliance team and an administrative-financial team; with established business goals and authori- both lend support to the General Manager, zes operational and administrative reforms. who is also the legal representative. In addi- The opening of new distribution channels tion, each process has a counterpart in Co- must also be consulted and approved by the lombia from which it receives the headquar- headquarters, in order to meet the commit- ters’ guidelines. All this allows to infer that ments established from the centralized ma- the Leonisa group remains under the mul- nufacturing plant in Colombia. ti-divisional structure (M-form) as Figure 2 89 Felipe Alzate Fernández :: Luz María Rivas Montoya

Figure 2. Leonisa’s structure

Source: Author’s own elaboration.

will show as exhibited by Galán, Sánchez and [...] the vice presidents are very smart when Zúñiga-Vicente, (2005) where the company they create these companies, because they has divisions for its operation; however, the are creating them thinking about business company differentiates itself inasmuch as the speed and tax optimization [...] (Interview with the Administrative Director on Sep- responsibilities of the business are not expli- tember 12, 2016). citly separated from strategic decision-ma- king into a specific corporate center. In addition to the foregoing, the company has promoted the creation of production Leonisa was formed as a group from the cooperatives to increase operational speed, creation of its different companies, with the strengthen social work in municipalities of purpose of minimizing risks in its growth Antioquia and, finally, to increase production strategy and, at the same time, streamli- flexibility. ning both productive and commercial opera- tions. By doing so, they are deemed capable The structure of the Leonisa Group re- of creating synergy, i.e. greater value can be sults from its corporate strategy of vertical created by jointly managing the companies integration, both forward and backward. In formed. As one of the company’s senior ma- this structure, two fronts are identified: in- nagers says: dustrial and commercial. The first is served through its production subsidiaries, which [...] to the extent that synergies have ari- sen, to the extent that tariff tax benefits are responsible for supplying the inputs for have been identified, companies have been the manufacturing of underwear. This pro- either separated or grouped together again cess occurs as a backward vertical integra- or again; this is the purpose for which each tion. For example, one company is responsi- of them has been created [...] (Interview ble for the purchase and processing of the with Chief Financial Officer September fabric, another for the thermal processes, 7, 2016). another for the garment, and so on until it is 90 shielded, thus favoring specialization in pro- And another executive raises: duction. On the commercial front (forward Cuadernos de Administración :: Universidad del Valle :: Vol. 34 N° 60 :: January - April 2018 vertical integration), all products are recei- [....] what is intended is, like any multinatio- ved and sold across multiple platforms to nal or brand present anywhere in the world, reach a larger number of customers. As one that when consumers arrive at that point of of the interviewees states: sale, they will not be able to really identify in which country they are because layout of [...] this organization has been going on in the store or the arrangement of everything the sense of not being seen as a mere ma- is exactly the same[...] (Interview with for- nufacturing company, but more as a trading mer supply manager September 13, 2016). company, with the brand, that knows who makes the product and has the knowledge All this leads to the conclusion that, althou- of how to distribute it and reach an end con- gh there are several centralized processes in sumer, so these are the three levers that the the Leonisa group, the subsidiaries are free organization has: the brand, the industrial to put changes and improvements forward to continuation and the distribution chan- the headquarters. These proposals have been nels[...] (Interview with the director of trea- evaluated and implemented in both produc- sury on September 23, 2016). tion and commercial processes. For instance, Corporate functions, business (or new re- if a subsidiary sees an opportunity to open venue generation) and administrative (or cost a new sales channel, the proposal is presen- and expense reduction), are performed from ted to the headquarters. On the other hand, the headquarters. Following this line of thin- Leonisa’s central office promotes the forma- king, the existence of a corporate center is tion of corporate committees, where spaces asserted, which manages the group of com- for strategy discussion are generated. These panies through the centralization of deci- spaces have as their objective alignment the sion-making, corporate guidelines, and the different processes from a single corporate consolidation of information from each of the guideline. By way of illustration, the corpo- subsidiaries. rate procurement committee is made up of people from the headquarters and Votre; The following processes were identified as from there, synergies are promoted with the centralized: controllership, audit, compen- aim of improving bargaining power with su- sation, legal, risk and insurance and brand ppliers. management. In the Controllership area, the accounts of all the companies are cross-re- In addition to the corporate functions, ferenced; this cross-referencing enables an processes and committees mentioned above, integral view of the group’s final income. In there is the role of each company’s boards of Audit, all processes are validated and the directors, as they make the final decisions. need for implementation of new projects is This implies that, while there is a certain identified. In the Compensation area, the no- level of autonomy for companies and subsi- velties regarding the payroll of each subsi- diaries, centralized control is maintained, diary are centralized, as well as the settle- not only by the boards of each company, but ments and payments to parafiscal entities. also by the board of Leonisa as the parent The Legal process consists on carrying out company. Control is exercised through these all the group’s legal processes and reviewing periodic meetings, at which each subsidiary, contracts for the provision of services and whether it is a producer or trader, internatio- the purchase of goods. While the Risk Ma- nal or local, presents its results, follow-ups, nagement and Insurance department is in projections, authorization requests and im- charge of insuring the different companies, provement plans to the board in a monthly managing the policies negotiated as a group basis. This is how all companies periodically for each company, in order to achieve massi- connect to headquarters through a unified ve negotiations and obtain greater economic meeting format. And, from the board of di- benefits. And finally, the Brand Management rectors of Leonisa, the global aspect of the process provides the necessary guidelines corporate strategy is defined and maintai- to maintain the group’s coherence, i.e., that ned. Along the same lines, Leonisa can be each company and subsidiary has the appro- said to promote the concept of socialization ved brand in all the countries where it has a put forward by Chung et al. (2006). This con- presence. In relation to the brand, one of Leo- cept suggests that there is an informal and nisa’s former directors posits: subtle mechanism that, in addition to the 91 Felipe Alzate Fernández :: Luz María Rivas Montoya

structural and formal mechanisms, integra- and manage the entire swimwear business, tes the different business units. and is fed by the knowledge and experience of Leonisa, who is the backer of the brand With regards to the allocation of resour- [...] (Interview with the Supply Manager on ces from headquarters to the different sub- September 9, 2016). sidiaries, there are guidelines for developing All of the above illustrates the structu- the budget of each country or company. For re of the companies belonging to the Leoni- this purpose, the Manager of each one makes sa group in Figure 2, from the commercial an initial proposal that he presents to the and administrative (including the productive) Board of Directors and justifies the expen- fronts. ses or investments. Nonetheless, there is no clear direction to encourage the interaction This figure shows the multidivisional of subsidiaries or the creation of synergies structure of the Leonisa Group, where a between them. In other words, the synergies corporate center made up of executives de- achieved thus far have generated sponta- dicated exclusively to defining the business neously in response to the needs of a specific portfolio and managing it is nowhere to be company. What was possible to notice is the seen. Nevertheless, the exercise of corporate existence of more frequent collaborations be- functions and centralized processes, as well tween some companies. For example, Dissen as the role played by boards of directors and collaborates with Votre in the evacuation of corporate committees, provide for a corpo- non-portfolio products and, additionally, su- rate center immersed in Leonisa’s headquar- pports the saleswomen’s collection throu- ters, wherefrom local and foreign companies gh the stores, which facilitates constant and subsidiaries are coordinated. communication between both companies. The following testimony accounts for these not-directed-from-the-headquarters collabo- 6. Conclusions rations: Leonisa exercises centralized functions [...] there is no constant structure or commi- and processes through a multi-divisional ttee or periodic meetings where companies structure, characteristic of a multi-business are dealt with, but as the needs arise, we go one way or another[...] (Interview with Chief company. However, it does not have an au- Financial Officer September 7, 2016). tonomous corporate center, i.e., an exclusive corporate hierarchy, with easily identifiable One synergy resulting from spontaneous staffing and fixed headquarters. This corpo- collaborations between companies, lies in the rate center is formed only when making deci- usage of the surplus from underwear manu- sions that impact the corporate strategy and facturing inputs, which occurs between Votre the functioning of each subsidiary in relation and Prym Le Sensuel. This type of synergy to the whole becomes necessary. that comes from collaboration between units is recognized in the literature as cross-busi- The centralized corporate functions ex- ness synergies (Eisenhardt and Galunic, 2000; ercised by Leonisa to manage the whole, Knoll, 2007). have generated benefits for all companies. An example of the above is the control of the The transfer of best practices is also one subsidiaries’ expenses, as well as the stra- of the synergies that this group has achieved tegic management of resources, capacities through joint management. An example the and investments. In addition, the gains from foregoing is the creation of the direct-sales joint negotiation with suppliers, especially channel in Colombia in 1991, which was repli- abroad, are clear and materialize in econo- cated in eight countries without using fran- mies of scale. chises or management thereof through third parties, and a centralized management of the The two main purposes for the formation of brand image. One of the interviewees com- the Leonisa group identified by this research, ments on this: associated with economic objectives, were: risk minimization and operational efficiency. [...] Prym is a company specialized in swi- The first purpose arises from concerns re- 92 mwear with the autonomy to know, direct lated to the political or economic situation Cuadernos de Administración :: Universidad del Valle :: Vol. 34 N° 60 :: January - April 2018 in the countries where the group has a pres- view the possibility of consolidating a single ence. For instance, should Colombia become logistics team, integrating Votre’s and the an unliveable country or Costa Rica become corporate team, with the aim of making the an unviable country at some point, products group more customer-oriented rather than could be supplied through polyfunctional company-specific. It would also be advisable plants, which would not be specialized in a to research other companies in the textile single product line. This, of course, grants sector given the crisis that this sector has greater versatility and efficiency in meeting been experiencing in recent years; a crisis market demands. With respect to the second that invites us to rethink not only the strat- purpose, it arises from the search for great- egy but also the structure of the companies er speed and flexibility in production from its in the textile sector; as well as to research corporate backward-and-forward integration on the coexistence of formal multi-divisional strategy. structures with other types of informal orga- nizational forms. In addition, a contribution From the point of view of the multi-divi- to the teaching of corporate-level strategy, sional structure of the Leonisa group, the if a multi-case study were carried out that centralization of processes has allowed it to would at least allow conceptual generaliza- dilute the labor costs in connection to the tion of the different strategies and structures shared use areas from the main headquar- adopted by Colombian multi-business compa- ters. In addition, the multidivisional nature nies. of the commercial and production fronts has allowed the company greater control over its Finally, it should be noted that this re- processes and to align its competitive strate- search does not enable generalizations since gy in each of its subsidiaries. Furthermore, it its interest was focused on characterizing was possible to identify the spontaneous way Leonisa’s corporate center based on the iden- in which synergies are achieved between dif- tification of purposes, and on the structure it ferent subsidiaries, whether producers or has adopted to manage its business set, func- marketers, according to the need at hand. It tions and corporate processes. 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¿How to quote this article? Alzate Fernández, F., & Rivas Montoya, L. M. (2018). Multi-business companies: The Leonisa case. Cuadernos de Administración, 34(60), 81-95. DOI: 10.25100/cdea.v34i60.6219.

Cuadernos de Administración journal by Universidad del Valle is under licence Creative Commons Reconoci- miento-NoComercial-SinObrasDerivadas 4.0. Based in http://cuadernosdeadministracion.univalle.edu.co/ 95