Long-term plan designed to gain competitive advantage over market participants
Allocation of Resources focus mostly on two resources to maximize the value of the entire firm, we help determine how to allocate these resources to the various businesses or business units to make the whole greater than the sum of the parts.
People
- Identifying core competencies and ensuring they are well distributed across the firm.
- Ensuring an appropriate supply of talent is available to all businesses.
Capital
- Allocating capital across businesses so it earns the highest risk-adjusted return.
- Analyzing external opportunities (mergers and acquisitions) and allocating capital between internal (projects) and external opportunities.
Organization Design involves ensuring the client has the necessary corporate structure and related systems in place to create the maximum amount of value. Factors that leaders must consider are the role of the corporate head office (centralized vs decentralized approach) and the reporting structure of individuals and business units – vertical hierarchy, matrix reporting, etc.
Head Office ( Centralized & Decentralized)
- Determining how much autonomy to give business units.
- Deciding whether decisions are made top-down or bottom-up.
- Influence on the strategy of business units.
Organizational Structure
- Integrating business units and business functions such that there are no redundancies.
- Setting governance structures (defining Kpis and processes).
- Setting reporting structures (military / top-down, matrix reporting).
Strategy Tradeoff is important to have a holistic view of all the businesses combined and ensure that the desired levels of risk management and return generation are being pursued.
It consists of tradeoffs between risk and return across the firm
Managing risks
- Firm-wide risk is largely depending on the strategies it chooses to pursue.
- It’s important to be fully aware of strategies and associated risks across the firm.
Generating returns
- Higher risk strategies create the possibility of higher rates of return.
- Swinging for the fences will lead to more home runs and more strikeouts, so it’s important to have the appropriate number of options in the portfolio.
Portfolio Management looks at the way business units complement each other, their correlations, and decides where the firm will “play” (i.e. what businesses it will or won’t enter).
Corporate Strategy related to portfolio management includes:
- Deciding what business to be in or to be out of.
- Determining the extent of vertical integration, the firm should have.
- Managing risk through diversification and reducing the correlation of results across businesses.
- Creating strategic options by seeding new opportunities that could be heavily invested in if appropriate.
- Monitoring the competitive landscape and ensuring the portfolio is well balanced relative to trends in the market.