This chapter introduces a new dimension to our strategy discussion – the multibusiness portfolio. The job of designing, managing and adapting the portfolio of businesses lies generally with the corporate centre. It is concerned with the issues of competitive advantage just like individual strategic business units but it is particularly concerned to (i) make sure that SBUs do what they are supposed to do (the ‘control’ question) and (ii) ensure that the patterns of competitive advantage within the portfolio are mutually reinforcing (the ‘synergy’ question). In order to fulfil these tasks the corporate centre has to pay close attention to the structure of the organization so that patterns of specialization are created and that management responsibilities can be properly defined. Issues of organization structure and process are discussed in more detail in Part 4 and in this chapter we have gone so far as to argue that the strategy–structure fit and balance is a key task for the corporate centre.

Although the corporate centre has a distinct role to play compared with the SBUs, it still deals with the same economic issues. In particular the centre is concerned with synergy, introduced in Chapter 3 as economies of scope. This is reflected in the many practical frameworks and strategy tools that have been marketed over time. The BCG growth-share matrix is the grandfather of all these and has been succeeded by many other portfolio management frameworks. In noting these it is sensible to remember that all strategy tools and frameworks are highly contextual. They depend critically on the situation of the particular organization. Frameworks, in and of themselves, do not convey truth or ‘good’ theory; they are merely ways of presenting data and alternatives. The trick with tools is to note the exclusions or, rather, to be clever with choosing a focus on just a few elements of the strategic context.

The role of the centre is to find a way of managing the whole organization that fits its overall context. This is reflected in the range of strategies available. We discuss restructuring, activity sharing and skills transfer. These capture different ways of creating value. We also discuss how companies have different styles that also reflect the same point – how to actually create extra value.

We also note the academic debate. This has focused on the defensibility of the conglomerate where, in general, academics are unconvinced that this is a sustainable approach. Also, we note that this is an area where many big mistakes can be made. Experience suggests that these mistakes are all too common. The next chapter goes on to look at the area in which there is a high degree of controversy – mergers and acquisitions.

This chapter concludes with an extended discussion of Percy Barnevik’s creation of ABB. This has been both highly celebrated and controversial. It ranks as one of the most radical and significant corporate experiments ever undertaken in Europe. It put together a wide range of businesses under a distinctive management style with a wholly new concept of a matrix structure. This exemplifies the significant role of corporate-level decisions and the high risks attached to them.

Click on the menu to the left of this page to view the resources available to you.
Chapter-by-chapter resources may be viewed by clicking on the drop-down list.

Click on the link at the base of this page to return to the Information Centre.