In 2014 Monitor Deloitte defined the concept of an “Advantaged Portfolio” (source: Armstrong, Goodman, McTavish – The Crux of Corporate Strategy. Building an Advantaged Portfolio). The central thesis was that one of the central objectives of corporate strategy is for executive management to think holistically about a company’s portfolio of businesses—conceiving and spearheading ways to make the aggregate value of a company’s holdings durable over time, and greater than the sum of its parts. This vital mission comprises two central questions: In which businesses should we participate? And, how do we create value within and across our businesses? In other words, where will we play and how will we win, at the portfolio level? Monitor Deloitte found that the most successful portfolios exhibit three broad characteristics: They are strategically sound, value-creating and resilient.
Executives, academics and consultants have devised numerous frameworks for building and sustaining the optimal corporate portfolio. Our experience suggests that any successful portfolio design framework (as distinct from the portfolio itself) has to have three important features. To begin with, the portfolio framework must be multi-dimensional in its criteria, because portfolio evaluation and construction cannot solely be reduced to a simple 2 x 2 matrix; it must focus on the performance of the portfolio as a system, i.e., how the parts interact, and not just on the individual components; and it must be tailorable to the company in question, since each company has different goals and aspirations. Advantaged Portfolios is a framework designed to meet these criteria.
In the last few years, ESG has risen to the fore. The world has realised that business does have a role in society, beyond simply delivering profit to shareholders. Society now expects that business should play a positive role in meeting their social, economic and environmental requirements. Investors, customers and civil society are demanding this – to the extent that shareholder returns are now also compromised by unsustainable business models. Sustainability is now a core business issue. It belongs in the C-suite and is core to the strategic choices that businesses make. In this article we suggest that a Sustainably Advantaged Portfolio should not only be strategically sound, value creating and resilient, but that it should also be sustainable.
A Sustainably Advantaged Portfolio of businesses—one that is strategically sound, value-generating, resilient and sustainable—is at the heart of every successful company. The twelve attributes we discussed illustrate what a Sustainably Advantaged Portfolio looks like, at least at the most basic level for a typical company. They can serve as a valuable guide for executives in their ongoing work to define the businesses in which they should participate and the ways in which they create value within and across their businesses.
Of course, building a “Sustainably Advantaged” portfolio is not easy. It is not a matter of assessing things on just two or three dimensions. It is not simply a matter of evaluating the strength of individual businesses. Nor is it an arithmetic or algorithmic exercise or a matter of applying a rigid set of criteria to all companies.
Developing a Sustainably Advantaged Portfolio is more about creativity and optimization than linear calculation. It requires viewing portfolio options through a wide array of lenses, as well as evaluating both individual and system effects. And it requires using criteria tailored to the company at hand and the societal context at hand. Most of all, however, designing Sustainably Advantaged Portfolios requires hard work: the hard work of wrestling with data, making trade-offs, and making tough choices. In fact, in our view, management must be prepared to hold challenging, data-rich, iterative discussions about what to do (as well as what not to do) when creating a Sustainably Advantaged Portfolio. Because at the end of the day, good strategy is all about choices. And making the right choices is fundamental to sustaining growth and competitive advantage in turbulent times.