A Conglomerate Charts a New Global Strategy

A highly diversified Asian conglomerate that manufactured everything from nuclear power plant equipment to kitchen appliances realized that it needed to restructure. Digitalization, sustainability, and many other challenges were hampering performance—its total shareholder return (TSR) across various time periods ranked well below its peers.

MegaCorp* initially focused on its operating model, but without a top-down portfolio strategy review, any changes to its operating model would lack context and fail to achieve the company’s goals.

As is often the case with conglomerates, each business was asked to achieve essentially the same earnings target as a percentage of revenue. This created a very internal focus, often blinding each business to its true full potential. We analyzed industry profit pools and growth trends, which revealed large gaps between MegaCorp’s entrants and the leaders in each line of business. That portfolio view enabled us to recommend areas in which MegaCorp should double down and create sustainable winning positions. We divided the company’s business into three categories:

• Global champion: Double down and invest in key businesses where the company sees a path to achieving global competitiveness and sustainable, profitable growth.
• Local champion: In certain markets, build a local champion protected from global players who are unable to compete due to the nuances of, or requirements for success within, that market. Invest in building a strong contender in these sustainable niches. 
• Tradable assets: All other businesses that don’t fall into the two categories above should be sold and the proceeds used to bolster the new portfolio of global and local champions.

This approach greatly simplified MegaCorp’s portfolio, which in turn made it possible to build the right operating model. Global functions were streamlined and simplified, and the number of people reporting to the CEO went from 72 to fewer than 20. The new operating model also ushered in more agility and faster decision making, and it drove out significant costs because it was differentiated for globally vs. locally run businesses.

On the heels of this success, we then worked with one specific global champion within MegaCorp’s new portfolio, conducting a full-potential transformation that entailed divesting several tradeable assets and acquiring and integrating four into the core. In the short term, this company’s revenue dropped by 20% but then more than doubled, despite several perfect storms hitting this industry at once.

The overall impact has been enormous: Where previously (2011-2016) MegaCorp ranked tenth, or worse, on TSR vs. its peers, it ranked first for the 5- and 10-year periods ending in 2024. Its stock-based value leapt from 23^rd to 3^rd in its home country. The successful implementation of the initial portfolio strategy and operating model positions MegaCorp to proactively respond to and capitalize on the challenges and opportunities the next round of megatrends will usher in, with a potent corporate portfolio strategy 2.0.