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Transforming the business portfolio: how multinationals reinvent themselves

Sebastian Schönhaar (Faculty of Business Administration, Technical University Bergakademie Freiberg, Freiberg, Germany)
Ulrich Pidun (Associate Director at The Boston Consulting Group, Frankfurt, Germany)
Michael Nippa (Head of the Chair of Management, Leadership, and Human Resources at the Faculty of Business Administration, Technical University Bergakademie Freiberg, Freiberg, Germany)

Journal of Business Strategy

ISSN: 0275-6668

Article publication date: 13 May 2014

1797

Abstract

Purpose

The major purpose of this paper is to investigate antecedents, outcomes and processes of business portfolio transformations, including diversifying, refocusing and repositioning portfolio restructurings.

Design/methodology/approach

The paper conducts a longitudinal study on the process of business portfolio transformations among the largest 100 European and 100 North American firms during the period of 1998-2010. A newly developed metric is applied that allows a business portfolio transformation to be identified and quantified and process-related research to be conducted.

Findings

The study confirms and expands prior literature that postulates that poor performance and over-diversification are key motivations for portfolio restructuring. However, the majority of transformations were not successful, with firm performance further deteriorating in the course of the transformation. The analysis of the transformation process itself reveals that the average transformation took 2.6 years and changed the portfolio composition by 42 per cent. Most transformations are conducted rather continuously over the transformation period and rely heavily on divestitures and acquisitions.

Practical implications

Managers should not to be too optimistic when they consider a major business portfolio restructuring. In particular, diversifying or repositioning transformations have a low success rate, while refocusing transformations are most successful on average. The study of the process of portfolio transformations offers some advice to increase the odds of a successful restructuring.

Originality/value

This longitudinal analysis represents the first study of the process of portfolio transformation by applying a newly developed transformation metric. By uncovering the process characteristics of portfolio transformations among the largest European and North American firms, it provides insights on the occurrence, typical magnitude, duration and order of acquisitions and divestitures of large portfolio transformations.

Keywords

Citation

Schönhaar, S., Pidun, U. and Nippa, M. (2014), "Transforming the business portfolio: how multinationals reinvent themselves", Journal of Business Strategy, Vol. 35 No. 3, pp. 4-17. https://doi.org/10.1108/JBS-06-2013-0041

Publisher

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Emerald Group Publishing Limited

Copyright © 2014, Emerald Group Publishing Limited

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