The purpose of a holistic corporate strategy is to establish a basic strategic framework at the company level. This strategic framework functions as a multidimensional funnel in which strategic options are filtered out via a number of different criteria, leaving only those options that are genuinely relevant to the company portfolio. As can be seen from Figure 1, this process involves the following five main “filter levels”:
Figure 1: Positioning of strategic portfolio units according to market attitudes and implementation competence
- LEVEL 1 – WHAT: In defining the areas of application that are strategically relevant to the company (such as security or health), the first level of filtering takes place
- LEVEL 2 – WHERE: The definition of strategically pursed geographical “footprints” (e.g. EUROPE) serves as a second rough step for ascertaining relevant options
- LEVEL 3 – WHO: The spectrum of options is further systematically whittled down through the identification of customer groups (for example B2B vs. B2C, age groups, etc.)
- LEVEL 4 – RISK: Following rough filtering via steps 1-3, screening on the fourth filter level is carried out in accordance with the (to-be-determined) company-specific risk tolerance. Different metrics (e.g. classification of medical products, probabilities of default, etc.) can be used for different industries.
- LEVEL 5 – RETURN: As a counterpart to the preceding risk-based filter, filter level 5 focuses on specifying the minimum expected financial targets (e.g. EBIT margins) . Together, filter levels 4 and 5 give rise to the desired risk-return profile.
Detailed work on the filter levels – for example, the identification of relevant geographical regions – must always occur in a customer-specific fashion. Fundamentally, this determination of relevant options and exclusion of irrelevant ones corresponds to the strategy philosophy espoused by Michael Porter:
“The essence of strategy is choosing what not to do.“
As a result of this filtering/screening process, we are left with only those options that are actually relevant for the strategic company portfolio. As a next step, the filtered portfolio options are further analysed and evaluated in regards to both market attractiveness and internal implementation expertise. For both these aspects, additional customer-specific evaluation criteria are taken into account: market volatility, growth, competitive intensity, profitability, etc. for market attractiveness and brand strength, product superiority, distribution strength, purchasing power, etc. for internal implementation expertise. In terms of portfolio planning, this evaluation is used to define focus units that can then be prioritised for further elaboration using available resources. Depending on the extent of market attractiveness and internal implementation competence, different portfolio units may be eligible for yet more detailed elaboration on top of that. Nevertheless, the initial filtering means that all strategic activities are automatically linked to the nucleus of the overall company strategy
Figure 2: Positioning of strategic portfolio units according to market attractiveness and implementation expertise
When it comes the positioning of strategic portfolio units in terms of market attractiveness (external) and implementation expertise (internal), a total of four areas result from the process shown in Figure 1:
- I.) High market attractiveness, low implementation expertise, for example in the case of a new market and/or a new business model which promises attractive market potential, but for which the internal implementation expertise competence currently does not exist. Accordingly, it is necessary to evaluate, within the framework of a business case, whether the systematic development of expertise is worthwhile and how this can be realised.
- II.) High market attractiveness, high implementation expertise, the obvious “sweet spot”. In such cases, the favourable positioning is to be maintained and the potential maximised (i.e. through expansion of the strategic portfolio unit). The high level of internal implementation expertise must also be maintained during the targeted growth, and market attractiveness monitored continuously.
- III.) Low market attractiveness, high implementation expertise, typically the end of the life cycle of a (strategic) portfolio unit. The options for action here form a two-pronged approach: the retirement of the portfolio unit with low market attractiveness and a new and innovative way of channelling the high implementation expertise. The latter can occur, for example, through business model innovation.
- IV) Low market attractiveness, high implementation expertise; in view of this positioning, the decision not to pursue portfolio units in this area is an easy one.
This two-stage selection process (initial filtering plus assessment with regard to market attractiveness and implementation expertise) result in a prioritised, strategic list of portfolio options. These portfolio options might serve as input for the development of business strategies or country strategies; they might also be used in the development of new (disruptive) business models and implemented as part of a new venture strategy.
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Markus Fost, MBA, is an expert in e-commerce, online business models and digital transformation, with broad experience in the fields of strategy, organisation, corporate finance and operational restructuring.Learn more