To build the kind of agile, resilient company needed in today’s dynamic, open markets, leaders must think in terms of an evolving portfolio of businesses that can be categorized into three primary groups, each reflecting the stage of a market life cycle: emerging, growth and maturity. Each of these stages has different goals and requires different resources, and therefore should be managed differently. Companies should not have just one management approach and set of metrics for all of their businesses. Rather, they need to manage each according to its stage of the lifecycle.
An important goal for the company is to build a portfolio that is balanced between the businesses generating cash and those consuming cash – this is simply the balance between today and tomorrow. The long life cycles of the industrial economy allowed companies to focus on the growth and maturity phases of the business lifecycle. In today’s open markets, however, getting wrapped up in today’s businesses while ignoring those of tomorrow results in rapid and severe penalties. This is exemplified by the many companies in recent years that have been disrupted by new markets and business models they never saw coming.
In the 21st century, the primary focus is shifting toward innovation, and the objective is to continually create and grow new businesses. It is critical to continually monitor your portfolio to ensure a balance of businesses at each stage of the lifecycle, and to be ready to enter or exit businesses in order to maximize overall portfolio value.
These points are discussed in three recommended sources:
Baghai, Mehrdad, Stephen Coley and David White. The Alchemy of Growth: Practical Insights for Building the Enduring Enterprise. New York: Perseus Books, 1999. Based on extensive research, the authors (consultants with McKinsey) provide a comprehensive overview of evolving a portfolio of businesses.
Drucker, Peter F. Managing for Results. New York: Harper & Row, 1986. One of the management master’s lesser known classics, this work made an important contribution to the strategy field. Though Drucker focuses his portfolio discussion on products rather than businesses, the principles are the same.
Moore, Geoffrey A. To Succeed in the Long Term, Focus on the Middle Term. Harvard Business Review, July-August 2007. In this article, Moore provides a highly readable summary of these principles, building on Baghai, Coley and White’s book.