The Hare and the Tortoise: The race is not to speedy (XXIV). How time affects portfolio analysis.
… “The tortoise meanwhile kept going slowly but steadily”…The hare and the tortoise, a fable by Aesop
Have a stunning first week of July.
Last week, I started my article with my personal point of view in relation to vaccines. I do not want to confuse people who are not vaccinated yet. Eleonora Escalante Strategy privileges the integral wellbeing for humanity, so please, do not be mistaken about the theme of Covid19 vaccines. Of course, it is wise to get a vaccine. I took the decision to go for the Sinovac jabs. And I survived to it. If the vaccine is proven to be right and it won’t harm with secondary effects to people for the long term, we must proceed, according to our health experts. But still, even they, are hesitant to recommend the vaccine for the youngsters in several countries of the world. In El Salvador (with today´s update), the vaccination has been rolled out for a few months: 1,727,992 have been vaccinated with one shot, and more than 1,162,511 people have received the two jabs. So around 50% of the population has received at least one or two injections. Nevertheless, when it comes to the youngsters, I advised to wait until the whole scientific community is completely secure that these vaccines won´t hurt the youth neither the future babies from them. Of course, it is painful to wait for a few months, for that specific segment of the global population. But, at least until all the physician and pharma community experts are 100% convinced that no collateral damage will create worst injury to the youngsters, it is correct to wait and safeguard them. That is why, I recommended that people below 18 years old, (even those between 18 to 25 or those above that age that want to be pregnant), must wait for the tablet/capsule arrangement format. In the meantime, we all need to continue using masks, behaving as if we are not vaccinated. Ok. That was the spirit of my paragraph, we must protect and treasure our youngsters as much as we can.
Today is the turn of answering the question how does time affect portfolio analysis? Portfolio Analysis is simply the prioritization of what businesses should we be in. Please remember that Corporate Strategy big wild goals are three:
- Decisions about the growth positioning and the pace of progress of the entity
- Decisions about how to perform a portfolio analysis
- Decisions about corporate parenting
And we are trying to knit the relationship between time and these three types of decisions. Last week we spent it with examples about the first set of decisions, growth positioning and the pace of progress of the entity. Today is about unfolding how does time relates with portfolio analysis. On June 18th, I promised to you that my next saga will be about pure theoretical frameworks of portfolio analysis. At that time, we named at least 6 frameworks that have been designed as tools to perform decision making at this corporate strategic level:
- The Boston Consulting Group (BCG) Growth-share matrix
- The General Electric/McKinsey Matrix
- Shell Directional Policy Matrix
- Arthur D. Little Strategic Condition Matrix
- Abell and Hammond’s 3 × 3 investment opportunity matrix
- Volatility, Correlation and Margin (VCM) Matrix
Since we have not covered this material yet, it is quite impossible for me to unplug this topic today. So you will have to wait, until we explain the portfolio analysis theory to all of you. We need to comprehend first how we prioritize our investments and strategies when we have multiple SBUs or strategic business units.
An abstraction is possible anyway. Nevertheless, for the sake of our daily goal, we will simply provide an abstraction of what is the impact of time in the establishment of your SBU priorities, regardless of what method or framework is used to understand the mapping situation with your multiple businesses.
Time is simply an opportunity for loving creation and procreation in a continuum that is wedged beyond the preconceived time notions of physics and philosophy. And that evolving definition of time is basically given to generate a design and create to our highest potential all our talents, under the integral premises of doing business (if that is the case), and procreate with love that embraces a sense of purpose.
In corporate strategy, time matters more than anything else. When we hold multiple businesses under an umbrella of a headquarters office, time should be most relevant than profits, than performance, than resource allocation or shareholder value.. For example, a company that has several business units such as:
- Owns a main property that produces and sells tropical flowers to international wholesalers in Asia
- Owns the major production land for lettuce and peppers cultivation
- Produces and sells bananas to wholesalers
- Produces and sells coffee at international competitive markets
- Imports electro domestic appliances (fridges, washing machines, kitchens, mixers, etc.) from Asia and retails them through department stores
- Imports and sells cars from Germany and Europe through a regional dealer
- Owns a construction development firm that focuses to builds housing solutions for the middle and upper class
- Owns a restaurant chain of Italian food in Central America
- Owns a couple of banks
- Owns a major logistic business.
- Has minority investments (20% or less of shareholder value) in pharmaceutical production companies, media (TV-newspapers-magazines), malls, sugar, taxi-transportation chain as UBER, and others
- Has plans to invest in the internet businesses
What to do with time when it comes to analyze the collection portfolio map of such conglomerate with 12 SBUs, as the one listed above?
In this type of conceptual companies, which are really diversified, the executive director with the BoD (Board of Directors), have the role to analyze its collection of businesses that are under their own portfolio, not just to scrutinize the overall economic performance of the SBUs, which means to understand the degree of attractiveness for growth, or the profit opportunities to short, medium and long term. The portfolio analysis is required to measure the impact of time in each and all SBUs too.
In consequence, portfolio analysis frameworks have to change. Currently a portfolio framework does:
- Analyze the current business portfolio, and decide which SBUs should receive more or less investment.
- Develop strategies for growth (vertical, internationalization), for stability or retrenchment
- Decide when and what or how and for whom to add new products to each SBU or to add new businesses to the portfolio.
- Decide which SBUs are no longer convenient, and must be sold or closed.
But the latter is too limited and narrow. We must stop to think in terms of profits, and shift to become time keepers and time thinkers of our companies and beyond. Time for us no longer fits the corporate life-span of 5 years or a decade. Some businesses were thought by our ancestors of these conglomerates, to last at least for 400 years. And we are incoherently considering time as our financial models (usually our financing models are made under assumptions of 10 years). With events as a pandemic, or a war, or a political turmoil caused by governments, or a change of generational leadership; time has to be included and seen in a completely different set-up.
The reason why many multi-business corporations have failed with the pandemic, is because these adopted the core or the concentric-related diversification. With COVID19 pandemic, if these companies were hit badly, it is impossible to believe that corporations who only choose one way to go (in products and related by-products) can survive the horror of a pest. Just imagine how many industries have been affected by a tiny virus for a year. Now imagine, a new sickness such as Ebola that is 100 times worst than the Sars-CoV-2 and its mutations. Or imagine something as a global hacking of all our communication systems, that ruin each and all the websites and apps in the Internet, the IoT, including everything that comes out of social media.
Or imagine that we continue sending internet satellites to the near orbit space, and we disrupt the balance of the magnetic north which continues changing so fast, that climate change disasters begin to rise in a way that we are not able to subsist anymore?
Where is time in the middle of our corporate decision making? Have we included it in our portfolio analysis frameworks? I doubt it.
We will see more about this interesting theme on our next saga of the year. It will be called: “Portfolio Analysis: Igniting a Long Term Spirit in a Short Term World” . Be patient, you will get all the bits and pieces then.
Have a beautiful day, and see you next Friday with how time affects corporate parenting.
Bibliography used for today:
Disclaimer: Illustrations in Watercolor are painted by Eleonora Escalante. Other types of illustrations or videos (which are not mine) are used for educational purposes ONLY. Nevertheless, the majority of the pictures, images, or videos shown on this blog are not mine. I do not own any of the lovely photos or images posted unless otherwise stated.
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