Valuation, 7th Edition

28Corporate Portfolio Strategy

A company’s value depends greatly, though not entirely, on the actions of its managers. In 2018, colleagues of ours published the results of their global research on 2,393 companies, in which they identified the core drivers that helped some ascend to the top quintile of value creators.¹ These drivers of value included the industry and geography in which the company participated plus five strategic management actions: changing the business portfolio (through programmatic acquisitions and divestitures), allocating resources, spending capital, improving productivity, and innovating to differentiate products and services better.

Applying a management perspective to the science and art of value creation is the focus of the seven chapters that make up Part Four of this book. Specifically, we examine two critical top management decisions: What should executives decide to hold in the company’s portfolio of businesses? And how should they allocate resources in support of decisions on capital expenditures, research and development (R&D), talent management, and more? We also explore managing the performance of the company’s businesses through target setting, monitoring performance, and taking corrective action where necessary.

We begin in this chapter with the question of what businesses a company should be in, along with two related questions: What constitutes being the best owner of a company, and how might the best owner change over time? The chapter ...