Title: Why Multibusiness Strategies Fail and How to Make Them Succeed
Introduction:
Multibusiness strategies, often employed by corporations to diversify their operations, can sometimes fail to deliver the intended value. This article by Bharat N. Anand and David J. Collis explores the reasons behind these failures and provides a framework for corporations to enhance the value of their businesses effectively.
Key Points:
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Focus on Portfolio Composition: Many corporations tend to concentrate excessively on the makeup of their business portfolios, often neglecting the enhancement of individual businesses within the portfolio.
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Continuum of Value Addition: Strategies for adding value to a corporation’s businesses fall on a continuum, ranging from businesses that are completely unrelated at one end to those with many similarities at the other. Each position on this continuum requires a different organizational structure and management processes to support the value addition.
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Aligning Structure and Processes: Success in multibusiness strategies is not just about the choice of businesses within the portfolio but also about aligning the corporate structure and management processes with the sources of value creation across the portfolio.
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Trade-offs and Decisions: Successful multibusiness firms understand that each strategic choice involves trade-offs and that there is no one-size-fits-all solution. They align their structure and management processes with their vision of how to add value.
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Strategic Potential vs. Execution Success: The strategic potential of a corporation is determined by its scope, while the success of its execution is determined by how effectively its structure and management processes are aligned with the sources of value creation within the portfolio.
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Practical Application: Corporations should determine where they fall on the spectrum of the continuum and then align their portfolio selection, structure, and processes accordingly. This alignment ensures that the corporation can leverage its diverse businesses to maximize value.
Conclusion:
Multibusiness strategies, when executed thoughtfully and aligned with a clear vision of value creation, can be highly effective. However, a flawed approach that focuses too much on portfolio composition and not enough on enhancing the businesses within it often leads to underperformance. By understanding the continuum of value addition and aligning strategies accordingly, corporations can significantly improve the success of their multibusiness strategies.
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