This model will guide you firstly that which company you should acquire or do merger or have as a subsidiary under you. Why should we choose through model like this?? We have money we can invest in the company if the company is going to give us the good return.
You can manage your portfolio like this but if you do it by only just appraising the returns then it will be just an investment.
But when we are adding any company in our portfolio, there should be an synergy benefit among our companies either directly or indirectly.
As a parent company we should be able to create synergy or should be able to give some benefit to subsidiary.
How we can create synergy or give benefit to subsidiary?
– Through our expertise
– Through our Unique resources (Patent/copyright)
– Through other subsidiaries
– Management support
– Through resources (Capital)
As a parent company we should be able to add value to our subsidiary’s CSF.
Below in the table you can see there are two things have been considered
Opportunity to add value = which means is there any kind of need or support is required by Subsidiary?
Ability to add value = Do we have anything which can add value to Subsidiary’s CSF?
Heartland business units:
These are where there is a high degree of match and the parent company has the capabilities and experience to add value by providing the support required by the business unit.
These businesses should be central to future strategy.
Ballast businesses:
These are those where the parent understands the business well but there are limited opportunities to offer help, sometimes because the business has been owned for a long time and has no further support needs.
These businesses would do better if left alone or indeed divested
Value trap businesses:
These are those where there appear to be many parenting opportunities but there is a poor fit with the critical success factors of the business.
There appears to be good potential but in practice because of the lack of fit with the strategy there is a high possibility of destruction of value.
Alien businesses:
These are those where there is a complete mismatch.
These should not remain part of the corporate portfolio.
Using the Ashridge portfolio display indicates which types of companies should be divested and why. Businesses that may be candidates for disinvestment are:
Alien businesses – the parent cannot do well to these organisations and they would achieve more in another group
Value trap businesses – despite potential, a lack of fit leads to a high possibility of a loss of value
Ballast businesses – may do better as the parent has little to offer.