Growth Options: Where to Play, How to Win - Corporate Portfolio Strategy

Achieving value-creating growth is about choices. Some are about where to play. Which growth investments—maximizing the core by driving higher demand or share; expanding into adjacencies via new categories, channels or geography; or exploring new frontiers—offer the best return?

Others are about how to win. These involve choosing among the seven important growth levers:

1. Corporate Portfolio Strategy: Rebalancing the portfolio to focus on growth

2. Portfolio Strategy and Capital Allocation

   One of the best ways for companies to create superior value is by excelling in portfolio strategy—that is, investing capital across its businesses, products, and initiatives to maximize returns. Companies that don’t systematically allocate capital to their most attractive opportunities risk falling off a “valuation cliff.”
3. In this video, Hansell explains the challenges companies face in managing their portfolios and shares how they can avoid making costly missteps.
4. A good value creation strategy depends on a clear portfolio strategy and active portfolio management. These require the company to:
   ·         Define the value creation roles of the different businesses in the corporate portfolio. Each business in a portfolio has a unique role to play. Do you know which businesses will be your future growth engines? Which will mainly supply cash for other businesses to invest? Which will you need to turn around or consider selling?
   ·         Allocate capital differentially across the corporate portfolio. A clear portfolio strategy has an investment thesis for each business unit. Capital allocation depends on the unit’s current performance, future potential, and role in the portfolio. Try viewing it from the perspective of a long-term investor: Will this business be worth more in the future, and what can we do to maximize our return on investment?
   ·         Shape and reshape the business portfolio over time through M&A and divestiture. M&A and divestiture are critical parts of active portfolio management. Acquisitions are an important way to strengthen existing businesses or expand into new ones. Meanwhile, selling businesses that no longer fit in the portfolio can improve the value creation potential of the entire portfolio.
   
   
   
   
   The role of corporate strategy is to ensure that the value of the enterprise as a whole is more than the sum of its parts.
   Developing a winning corporate strategy requires a relentless focus on value creation—and thoughtful attention in three important areas.
   First set a clear, shared, long-term vision that motivates the team and engages investors. Where do we want to be in five or ten years? Then define a portfolio strategy to realize the vision. Which businesses should we be in? Where should we expand and where is it best to divest? And finally, establish the corporate policies and processes that reflect the corporation's parenting approach. How do we link strategy to value creation?
   Corporate strategy is an ongoing process—particularly given today’s volatile competitive environments. Consistently delivering value creation that outpaces peers demands that organizations enhance their capabilities and regularly revisit their strategies.
   Successful Corporate Strategy
   Eric Wick, a BCG partner and managing director, discusses the critical elements companies need for a successful corporate strategy—and pitfalls they should avoid.
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