Multi-business companies account for a major share of the global economy. Although 90% of firms are considered micro-, small- and medium-sized enterprises, about 40 to 50% of business sector value added is created by a relatively small number of large firms, many of which are multi-business companies. However, for decades, CEOs and boards have grappled with a fundamental question: How can they create more value from a portfolio of businesses than those businesses could generate on their own?
The challenge is reflected in the persistent conglomerate or diversification discount. Industrial giants like ABB, General Electric, and Siemens, as well as global consumer goods firms like Nestlé and P&G, have all faced, at some point, investor pressure to focus their portfolios by divesting some of their businesses. While the size and prevalence of this discount remain debated, the underlying issue is that many multi-business companies fail to create value beyond the sum of their parts – and, in quite a few cases, diversifying even harms businesses and destroys value.
Much of the debate around corporate strategy today is on choosing the optimal way to diversify – related versus unrelated, narrow versus broad. But the key question that senior corporate leaders should be asking is: How can they build corporate advantage – a clear, defensible reason why their businesses are worth more together than apart. When that advantage is real, it translates into a corporate premium, rather than the discount that plagues so many diversified firms.
Based on two decades of research, teaching and advisory work, I propose that building a corporate advantage requires a holistic approach that centers on achieving unique corporate coherence, instead of relying on standard models of portfolio–structure fit, such as focused–centralized versus diversified–decentralized. This coherence is particularly warranted in an age of digital technologies and AI, which have resulted in an increasing variety of corporate business models, the rise of platforms and the blurring of organizational boundaries.
These are fundamental questions senior executives and board members should ask when developing, executing, and evaluating their company’s corporate strategy in order to help realize a corporate advantage.
In my work with corporate leaders and organizations, I use several frameworks to foster a holistic, corporate-level perspective on strategy. In this article, I introduce one of these frameworks, the Corporate Advantage Triangle (CAT), which builds on earlier work by David Collis and Cynthia Montgomery, but adds insights I have gained through my own work. It starts with three simple questions: why does the company exist and what is its corporate concept, what is its business portfolio, and how will these businesses fit together?
These are fundamental questions senior executives and board members should ask when developing, executing, and evaluating their company’s corporate strategy in order to help realize a corporate advantage. While there is no one-size-fits-all model, the goal remains to create more value than the sum of the parts, and ultimately more value in each business than an alternative corporate owner could.
The corporate concept specifies the scope of the company, ranging from narrow to broad. This should be explicitly articulated as part of the mission or strategy statement. For example, the Swiss bank UBS highlights its focus as the largest global wealth manager and the leading bank in Switzerland, whereas the US company Berkshire Hathaway sees itself broadly as a unique conglomerate, with insurance as its core, with substantial investments in businesses across many other sectors.
A corporate concept should clarify the company’s positioning, detailing which businesses the company attempts to be in. It should determine the scale, scope, and boundaries of the company, which is foundational for making choices concerning the business portfolio and operating model. Importantly, it should specify the corporate-level business model – the underlying economic reason the overall company exists.
How each business benefits from being part of the company depends on the characteristics of the overall portfolio.
How each business benefits from being part of the company depends on the characteristics of the overall portfolio. Belonging to a portfolio can result in higher quality or lower-cost products and services, thereby enhancing the businesses’ competitive advantages. A thorough understanding of the business portfolio should provide the basis for its future configuration – well beyond analyzing businesses on a standalone basis.
The corporate value creation logic and potential synergies, such as financial, management, and cross-business synergies, depend on the degree to which businesses in the portfolio are related in terms of key business features, like products/services, customers, technology, data, functions, and capabilities.
Take as an example Swiss luxury group Richemont. It has 23 jewelry, watchmaking, and fashion and accessories brands in its portfolio. Known as Maisons, each brand benefits from a group-wide distribution network, component manufacturing, and customer service platforms, among others. It demonstrates how a parent company can create group-level value without imposing excessive centralization, preserving brand autonomy while still benefiting from shared capabilities and selective coordination.
When assessing the business portfolio, two steps are key. First, to analyze the relatedness of the businesses in the portfolio by focusing on key business features, especially their capabilities. And second, to analyze the (potential) interdependence between businesses by mapping the overall business portfolio. Back in 1957, Walt Disney famously sketched a synergy map detailing how Disney’s businesses, such as film studios, merchandise, publications, and theme parks, were interconnected. Today, such a systemic perspective on the overall portfolio is often missing.
The operating model determines how businesses are governed, coordinated, and integrated to create value for the company overall. A company’s operating model can range from more integrated to more autonomous, as specified by key organizational design aspects like centralization of decision-making, information sharing, performance control, and incentive systems.
To ensure that a company effectively executes its corporate strategy, it is necessary to first ask what kind of coordination approach is required given the specific business portfolio. How much integration is really necessary? As too much centralization often harms businesses more than it adds value, it is reasonable to question initially whether restricting autonomy of the businesses really adds value. This required (future state) operating model should then be compared with the status quo, and the possible gaps discussed.
However, in today’s world, with its advanced management approaches and technologies, the options to create corporate value have increased.
In essence, achieving a corporate advantage requires coherence between the corporate concept, the business portfolio (the configuration), and the operating model (the coordination). However, the manifestation of this coherence – also known as alignment or fit – is unique to every company, and there is no one-size-fits-all approach.
The textbook answer to the question of which operating model should be used for a specific strategy is as follows: When a company pursues a strategy of unrelated diversification, then it should grant its businesses autonomy, as the synergy potential across businesses is limited, whereas when the company pursues a strategy of related diversification, then it should integrate businesses or centralize activities to benefit from synergy. However, in today’s world, with its advanced management approaches and technologies, the options to create corporate value have increased.
Take, for example, the Swiss global electrification and automation company ABB. Since 2020, it has substantially focused its portfolio but at the same time has introduced a highly decentralized operating model, known as The ABB Way. Rather than focusing on fostering cross-business synergy, ABB’s approach builds on ownership and accountability of the divisions, with strict performance management overseen by the corporate headquarters with a clear mandate for each division. Each division is assigned an annual mandate – stability, profitability, or growth – with clear goals and incentives for leaders: underperforming units must restructure before expanding, while stronger units can pursue targeted acquisitions. The results of this organizational restructuring are striking, particularly given the unusual combination of greater focus and deeper decentralization. Over the past five years, ABB has doubled its operating EBITDA multiple from 12 to 24, while increasing shareholder returns by 455%, outperforming peers.
The ABB example illustrates how a corporate advantage can be created by moving beyond the generic corporate strategy that conventional wisdom would suggest – that a highly focused portfolio should centralize activities to benefit from synergy. What matters much more is understanding where and how value can be created. After all, every corporate advantage must be unique – and building one needs clarity, coherence, and continuous corporate development.
The Corporate Advantage Playbook includes six steps that senior executives and boards should follow to achieve unique coherence and to build a corporate advantage. Building on tools like the Corporate Advantage Triangle, it can be used to guide strategy workshops and corporate strategy execution journeys.
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