Managing portfolio

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Part III • Strategic Choices

identifies how the main value-adding roles of corporate parents might differ in line with the discussion in sections 6.4.2-4 (though it should be noted that other value-adding roles may be performed as well). Clearly much of the above also has implications for how a multi-business corporation is organised and managed. In particular there are implicationsabout the way in which the corporate parent interacts with and seeks to exercise more or less control over the businesses. Much of this has already been intimated above. A portfolio manager is likely to exert minimal strategic control, leaving businesslevel strategy to chief executives of the businesses, and exercising control more through clear and challenging financial targets. On the other hand,the synergy manager and parental developer may be intervening a good deal in the businesses in order to achieve synergies across the business units or provide parental benefits. What would be very counterproductive is for the means of control to be inconsistent with the logic of the corporate parent. For example, if a portfolio manager were to have a diverse portfolio but try to intervene in thestrategies of the businesses, it would very likely lead to disaster. Conversely, if a synergy manager tried to make transferences between business units without having an understanding of those businesses and involving themselves in the strategy of those businesses, it could be chaos. In Chapter 8 (section 8.3.2) this issue of corporate control is discussed more fully.

II

MANAGING THECORPORATE PORTFOLIO

The discussion in section 6.4 was about the rationales that corporate parents might adopt for the management of a multi-business organisation. It should be seen that each of these rationales has implications in terms of the number and nature of the business units within such a group; or vice versa, the number and nature of business units wlll have implications for the rationale theparent might adopt. To take two examples: a parent acting as a portfolio manager might be able to manage a very diverse set of businesses with no particular similarities between them, largely by setting financial targets, whereas a synergy manager needs to understand the businesses well and can therefore probably only cope with a limited number of related-type businesses. The converse of thisargument is also important; the extent of diversity of a corporate portfolio should inform the role played by the corporate parent. For example, it would be foolish for managers of a highly diverse portfolio to try to adopt the role of a synergy manager, unless of course they chose to change the portfolio radically. This section is to do with the models managers might use to make sense of the natureand diversity of the business units within the portfolio, or businesses they might be considering adding given the different rationales described above. A number of tools have been developed to help managers choose what bUSiness units to have in a portfolio. Each tool gives more or less focus on one of three criteria: • the balance of the portfOlio, e.g. in relation to its markets and the needs ofthe
corporation;

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• the attractivelless of the business units in the portfolio in terms of how profitable they are or are likely to be and how fast they are growing; and • the degree of 'fit' that the business units have with each other in terms of potential synergies or the extent to which the corporate parent will be good atlooking after them.

6.5.1 The growth share (or BCG) matrix 41
One of the most common and long-standing ways of conceiving of the balance of a portfolio of businesses is in terms of the relationship between market share and market growth identified by the Boston Consulting Group (BCG). Exhibit 6.8 represents this approach and shows the terms typically used to refer to the types of businesses in...