Corporate Portfolio Management: Theory and Practice

Abstract

Forty years after the introduction of the BCG growth‐share matrix, some version of corporate portfolio management (CPM) is employed by most large multibusiness companies. But little is known about the current practices of CPM. Which processes have companies adopted, and which executives in a company tend to be the main participants? What are the major corporate uses of CPM? And how satisfied are today's companies with their approaches? To answer these questions, The Boston Consulting Group, in collaboration with Freiberg University in Germany, conducted a comprehensive global survey on the practices of corporate portfolio management that involved more than 200 senior executives at the largest companies worldwide. These survey responses were supplemented by interviews with 50 senior executives of global multibusiness companies as well as a systematic review of more than 100 major client projects that BCG conducted between 2004 and 2009. One major focus of the survey was the concept of “parenting advantage.” Defined in terms of a particular company being the best possible owner of a particular business, the concept offers a clear framework for identifying the four most important ways in which management can use the principles and methods of CPM to create value for its businesses: Influencing strategy and improving performance through its distinctive capabilities and resources, including periodic evaluations of performance. Identifying and increasing synergies. Providing centralized functional leadership and cost‐efficient services. Monitoring and, when necessary, changing the composition of the portfolio of businesses. While fostering synergies and realizing advantage through centralization of functions and services were considered relevant by about half of the companies responding to the survey, the most important drivers of corporate value added by CPM were said to be the direct influence of the parents expertise and active portfolio monitoring. But even so, only 40% of recent divestiture decisions and 23% of recent acquisitions were said to be triggered by portfolio considerations, suggesting a significant gap between the effort put into CPM processes and their role in corporate‐level decision‐making.

Not dead yet: the rise, fall and persistence of the BCG Matrix

“…In a recent study, Jarzabkowski and Kaplan (2015, p. 546) find that the use of the BCG Matrix persists at a moderate level. Pidun et al (2011) argues that corporate portfolio planning techniques such as the BCG Matrix are still popular among practitioners. Table 6 sums up the overall trends in the adoption and use of the BCG Matrix over time.…”

“…management gurus offering newer techniques and solutions, the BCG Matrix has showed remarkable staying power and longevity. Although it is evident that the popularity of the BCG Matrix has declined since its heydays during the 1970s, it is still widely used as a corporate portfolio planning technique by practitioners (Pidun, Rubner, Krühler, Untiedt & Nippa, 2011).…”

Asset Allocation: Analysis of Theory and Practice in the Australian Investment Management Industry

“…However, some aspects of the methodologies that they employed will be adopted in the present research. (Lintner 1956) Investment decision under uncertainty: theory and practice (Mao & Helliwell 1969) Survey of capital budgeting theory and practice (Mao 1970a) The theory and practice of corporate finance: evidence from the field (Graham & Harvey 2001) Initial public offerings: an analysis of theory and practice (Brau & Fawcett 2006) Capital structure policies in Europe: survey evidence (Brounen, de Jong & Koedijk 2006) Corporate portfolio management: theory and practice (Pidun et al 2011) A survey study on the use of general investment theory by fund managers on four continents found low usage in practice. The reasons cited were lack of availability of data, theory does not work in practice, preference for a qualitative approach, external constraints and mechanical use of theory undermining managers' mystique (Coleman 2013).…”

Corporate Portfolio Management: Appraising Four Decades of Academic Research

“…While practitioners perceive CPM matrices as useful and intelligible tools for corporate planning and particularly resource allocation (Day, 1977;Hax & Majluf, 1983a;Hedley, 1977;Pidun et al, 2011;Seeger, 1984), reception and assessment by academia have been overwhelmingly negative. However, a closer look reveals some interesting patterns over time (see Figure 1).…”

“…CPM should thus be highly relevant for executives and investors as well as for strategic management scholars. A recent study of leading multi-business firms worldwide proves that top management perceives CPM to be highly relevant and important (Pidun, Rubner, Kruehler, Untiedt, & Nippa, 2011). However, in academia, a comprehensive review reveals only a few, often outdated, studies that focus predominantly on CPM and the process of analyzing, reviewing, and actively managing the corporate portfolio.…”