Which business areas deserve focus and which don't?

The problem is rarely too little, it's too much

I see it in almost every company I join. Mid sized business or corporate division, the list of business areas, product lines and strategic projects is long. Each one has a sponsor in management. Each one has a story about why it will finally take off next year. And each one gets a bit of budget, a bit of sales, a bit of attention.

The outcome is predictable. Nothing gets enough to really win. The strong areas finance the weak ones, and the best people sit in five projects at once. It feels like growth. In reality it's dissipation with a clear conscience.

In Good Strategy Bad Strategy, Richard Rumelt describes exactly this mechanism: bad strategy is often a long list of goals that costs nobody anything. Good strategy starts with an honest diagnosis of the core problem and concentrates force on a few points. So focus doesn't mean taking on something new. Focus means stopping something.

Strategy doesn't show in what you start. It shows in what you end.

Five criteria that really count

For a portfolio decision I don't need a hundred metrics. I need five, collected honestly.

• Margin and contribution. Not revenue, but what's left after all directly attributable costs. Including sales, project effort and special arrangements for individual customers. Many areas only look profitable until these costs are assigned properly.
• Right to win. Is there a concrete reason why customers buy from you and not from a competitor? Roger Martin boils it down to two questions: where do we play, and how do we win there. If you can't answer the second, ask the first again.
• Market attractiveness. Is the market growing, are prices stable, are there enough customers willing to pay? A good business in a shrinking market is a phase out with a delay.
• Customer feedback. Not the opinion of sales, but that of customers. On the IWCI Klartext Tour we see it again and again: customers rarely tell sales why they don't buy. They tell a neutral institute.
• Management capacity. The scarcest resource in almost every company isn't money, it's leadership time. Every area that ties up attention without delivering costs twice.

Welch, Drucker and the BCG matrix: what still holds today

In the early eighties, Jack Welch set a simple line at GE: every unit has to be number one or two in its market. Whoever isn't gets fixed, sold or closed. For a mid sized company, "number one worldwide" is usually the wrong bar. The core still holds: decide where you want to lead, and define the segment narrowly enough for that to be realistic.

Peter Drucker phrased the sharpest question I know. In essence: if we weren't already doing this, would we start it today? He called it systematic abandonment. Most companies never ask this question because the answer is uncomfortable.

The BCG matrix with stars, cash cows, question marks and dogs is useful as a thinking aid. As a basis for decisions it's dangerous. It comes from the seventies, from the world of large conglomerates, and assumes that market share means lasting advantage. BCG itself now writes that competitive advantage is less durable and the matrix only works with enhancements. My advice: use it to sort, not to decide.

My rule: the three question portfolio test

From these ideas I work with a short test. Every business area has to answer three questions honestly:

The evaluation is deliberately simple.

Pet projects, resistance and the right data

The hardest hurdle isn't the analysis. It's the people. Almost every weak business area has an advocate, often the person who founded it. No slide helps against conviction. Only evidence helps, measured against a standard agreed on beforehand.

That's why I set the thresholds before the numbers are on the table. If you look at the data first and choose the criteria afterwards, you will always find a reason to carry on.

An example of the right way: at an international hardware group in the energy sector, we took a software business unit from idea to validated model. In 24 months, with more than 400 conversations with decision makers on four continents. Don't believe, validate. Only those conversations showed what customers really pay for. Details are in the case study.

And when a new area gets focus, it has to be real focus. At SPORT1 eSports we built a business unit with its own P&L in eight months, operationally profitable after six months. That was possible because the unit had its own accountability, its own numbers and its own team, instead of running alongside everything else in the group.

The data you need for this is manageable: contribution per business area, customer feedback from a neutral source, win and loss reasons from sales, market development and an honest estimate of how much leadership time each area ties up.

Warning signs of too many construction sites

You have too many parallel initiatives if several of these apply:

• Management meetings consist mainly of project status updates
• Your best people work on three or more strategic projects at the same time
• Budgets are spread evenly instead of concentrated on the strongest areas
• Not a single project has been deliberately ended in the past twelve months
• Nobody can name the company's top three priorities off the cuff in the same way

My rule of thumb: a leadership team can carry at most three strategic initiatives in parallel. Each one has exactly one owner with real time for it. A new one is only added when an old one is completed or stopped. One in, one out.

What to do in the first 30 days

1. One list for everythingPut all business areas and strategic projects on one list, with contribution and the leadership time they tie up.
2. Set thresholdsAgree the thresholds for the portfolio test in the leadership team before discussing the numbers.
3. Run the testRun every area through the three questions and record the result in writing.
4. End one projectEnd at least one project immediately and move the freed up people to the strongest area.
5. Ask customersGet neutral customer feedback on the areas where internal opinions differ most.

Portfolio decisions rarely fail for lack of insight, but for lack of follow through. That's exactly where an outside view often helps, as an advisor alongside management who has no pet projects to defend.

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