What
is the Corporate Portfolio Management Project?
In a collaboration between the University of Freiberg, Germany,
and The Boston Consulting Group, the Corporate Portfolio
Management Project has been initiated as an academic
initiative to reinforce the research in the context of
Corporate Portfolio Management (CPM).
While CPM was the
primary management technique for large, diversified
enterprises as a consequence of tremendous diversification
trends in the 1960s and 1970s, it has largely disappeared
from the academic agenda since the early 1980s, with a trend
towards focusing on core competences. Although the corporate
reality gives evidence that CPM is still highly relevant,
academic literature has largely neglected this topic to the
present day. In order to close the apparent gap between
corporate practices, challenges, and requirements on the one
hand and academic appraisal of existing processes and
theoretical frameworks on the other hand, our project
intends to conduct
in-depth empirical research on the current practices of CPM.
The CPM team
consists of University Professors, senior BCG consultants
and a number of Phd-candidates.
What
is Corporate Portfolio Management?
Corporate
Portfolio Management (CPM) is at the heart of corporate
strategy. And it is currently high on the corporate agenda:
Changing industry structures, ongoing pressure to focus the
activities of the firm, increasingly efficient M&A markets,
and the constant pursuit of value-creating growth
opportunities have all put the corporate portfolio in the
focus of top management. Also, the current crisis presents
specific challenges to CPM because external financing has
become more difficult, and once-in-a-lifetime opportunities
for acquisitions may arise. At the same time, many companies
realize that their established portfolio management concepts
do not provide answers to some of their most pressing
strategic questions.
The Corporate
Portfolio is to be understood as the aggregation of all
individual businesses or operative activities of a company
that are managed and administrated at the corporate level (e.g.
by the central holding or Corporate Center). Corporate
Portfolio Management (CPM) is to be understood as the
analysis, review and active management of such a Corporate
Portfolio. This may include strategy assignment, resource
allocation, mergers & acquisitions, divestitures.
In essence,
Corporate Portfolio Management is an attempt to address
three rather different questions simultaneously, through the
vehicle of a single theory.
The question of
the boundaries of the corporation is one of the three issues
that portfolio theory endeavours to answer. What are the
legitimate boundaries of the corporation? In particular,
what is the logic by which corporations should be in more
than one business? And how and by what criterion does a
corporation decide what combination of businesses or
activities should be within the company as opposed to
outside the company?
The second
question is how resources, and in particular capital, should
be allocated within the corporation, particularly if you
have multiple divisions, multiple operations. How do you
decide where it is or is not appropriate to put
discretionary investable funds?
The third is an
organizational or motivational question. If you have
multiple divisions, how do you align the goals and the
actions of divisional management with the interests of the
corporation as a whole or the interests of the shareholders?
