The Essential Advantage by Paul Leinwand Cesare Mainardi & Cesare Mainardi

Author:Paul Leinwand, Cesare Mainardi & Cesare Mainardi [LEINWAND, PAUL]
Language: eng
Format: epub
ISBN: 9781422136515
Publisher: Harvard Business School Publishing Corp (Perseus)
Published: 2010-12-08T16:00:00+00:00

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A portfolio matrix for gaining coherence

Source: Booz & Company.

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Your businesses will fall into five groups:

A. These “lone stars,” with low coherence but high financial value, are clearly worth a great deal—but may be worth more to another company than to you. There’s an incoherence penalty for keeping them, because they require investment unrelated to the rest of your portfolio. Look for opportunities to monetize them. Build them up to sell them at the appropriate time (as Pfizer did with PCH), rethink your way to play so that you can include them, or treat them as a stand-alone small business (as Procter & Gamble does with Pringles potato chips). By moving early, you can sell at a propitious time, when there are more alternatives and when you have a prospect generally recognized as valuable, rather than after the business has begun to lose value when a stronger, disruptive competitor has emerged.

B. These businesses have relative coherence: they outperform the competition, but they are only partly aligned to your way to play and capabilities system. Hang on to these businesses and invest in them, if all three of the following conditions are true: (1) you expect them to keep outperforming competitors, because the capabilities system they deploy will continue to be relevant to customers; (2) the capabilities system that supports them overlaps with the differentiated capabilities—not the table stakes—of your primary business; and (3) when you look into monetizing them, the potential sale price is unattractive. Otherwise, divest. If you keep these businesses, you’ll have to watch them carefully; the world may shift and their relative advantage may rapidly disappear.

C. This group contains your most promising endeavors—the “flagship” businesses with high coherence and high financial value. They are already your stars—or should be. As we’ll see in chapter 7, you may create ways to accentuate their growth and flagship business status.

D. The detractors are businesses with low financial value and low coherence that drag your company down and constitute a major source of the incoherence penalty. Your first concern is to stop them from hemorrhaging cash. Next, figure out why they are doing so poorly. You may end up selling them at a reasonable price, isolating them from the rest of your enterprise while optimizing their performance for cash, or discontinuing them if necessary. Like the businesses in group A, they may be worth more to others; look for likely buyers that can create more value than your capabilities system allows.

E. With high coherence but low financial value, these businesses may well be among the “dogs” of a conventional analysis. But they also represent your most underleveraged (and underappreciated) opportunities. Will additional investment in these businesses, or greater linkage to your capabilities system, propel them to earn a right to win? If so, and if you are prepared to invest in them more heavily, move them into the C group. If not, milk them—either for cash or for the support they offer your capabilities system and other businesses—until they are ready to be sold or shut down.

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