Portfolio Management in Uncertain Times

The study at a glance

The “PwC Corporate Portfolio Management Study 2024” is based on exclusive and anonymous interviews with decision-makers from around 25 renowned German companies, conducted by the University of Bristol. This study provides an exclusive and very open insight into the minds of top management and paints a highly authentic picture of the sentiment within the German economy. The study is complemented by the latest academic research findings in the field of strategy as well as PwC Germany’s own insights. Some of the key findings include: The previous approach of exclusively centralised and very rigid portfolio management must be further developed to meet current challenges.

The challenge: The textbook strategy—comprising information gathering, analysis, and the development, evaluation, and selection of strategic options—no longer meets the demands of today’s world. The volatile, uncertain, complex, and ambiguous (VUCA) environment renders forecasts less reliable or even impossible.

The Portfolio Management Paradox

This presents decision-makers with a dilemma: the complex and dynamic market environment makes portfolio management more challenging, yet it is more crucial than ever. Operating in vastly different markets, each with its own dynamics and significant changes, requires effective and bold measures for portfolio adjustment. This is necessary to ensure economic survival, align strategy and portfolio, and optimally exploit opportunities.

Best practices: five elements of modern Portfolio Management

Interviews with decision-makers reveal that portfolio management must redefine its role to create value. Strategic guidelines are replacing granular strategic plans. Instead of strict control and oversight, maximum entrepreneurial freedom is needed for business units. Regardless of organisational design, best-practice organisations implicitly or explicitly institutionalise five elements.

Continuous monitoring of the market environment

Companies must understand changes, anticipate them as much as possible, and identify opportunities and risks. This is a challenge: firstly, change in a VUCA environment often occurs in unforeseen ways, with unknown speed and magnitude. Predicting global future scenarios is not possible due to ambiguity and interdependence.

Analysis and management of the operational footprint

The combination and interconnection of all business units determine the operational footprint of the organisation. Additionally, the knowledge and experience of employees define the organisation’s performance capabilities. In a volatile and complex market environment, it is crucial to implement changes and adjustments to the operational footprint flexibly and promptly to adapt the company to changing market conditions or strategies. This includes changes both locally within the business units and centrally within the service areas.

Developing and adapting the corporate strategy

The long-standing notion that a precise strategy can effectively steer and control all corporate areas has proven to be an illusion in the interviews. The interviewees indicated that nowadays it is more important to provide a strategic vision and clear goals in the form of strategic guidelines while giving local business units enough entrepreneurial freedom to seize business opportunities within these guidelines independently and act flexibly. It is also essential to consider the strategic planning horizon accordingly: in the long term, it is about a shared vision and strategic guidelines; in the mid-term, concrete measures for portfolio optimisation and transformation; and in the short term, the specific allocation of resources and implementation.

Portfolio management and selection of measures

The active management of the portfolio combines the previous steps and is tasked with continuously optimising the portfolio of business units through concrete measures (organic or inorganic) and ensuring that the portfolio reflects the strategy optimally. This function can only be fulfilled through portfolio management that is anchored and institutionalised at the headquarters, as typical portfolio effects and assessments are only possible at a central level. Typical questions include whether the portfolio of business units maintains a good balance between risk and resilience, or an appropriate balance between exploiting existing business (“preserve”) and developing new business areas (“adapt”). The interviewees often report an “identity crisis” in central portfolio management: on the one hand, the business is too complex to truly assess and control the operations of local business units; on the other hand, the portfolio of business units must be decisively managed to ensure both survival and transformation.

Implementation and control of strategic measures

The definition of measures to optimise the portfolio of business units represents the atomic level of portfolio management. Effective measures are diverse and can be organic (restructuring, research and development) or inorganic (carve-outs, acquisitions, joint ventures). Equally as challenging as defining suitable measures for portfolio optimisation is their implementation. This requires decisive and action-oriented leaders who can overcome organisational resistance, motivate and align the organisation behind a common vision, and effectively utilise the available resources. The overarching goal is always the optimisation of the “strategic fit,” meaning the optimal implementation of the strategy, which in turn best considers the opportunities and risks of the market environment.

The Influence of Leadership and the Type of Ownership

Our expert interviews show that corporate culture and ownership structures have a strong influence on a company’s ability to institutionalise modern portfolio management.

Publicly listed companies are under enormous pressure to achieve their economic goals in the short term. Non-listed companies typically have more flexibility and are less driven by short-term success and performance pressures. These companies often find it easier to implement modern portfolio management measures. On the other hand, owner-managed companies are often highly dependent on individual persons and, due to a distinct specific corporate culture, may sometimes be more resistant to change. This also expresses the enormous ambiguity—every coin has two sides!

The methodology

The “PwC Corporate Portfolio Management Study 2024” is based on exclusive, anonymously conducted interviews with top decision-makers from around 25 renowned companies in the German industry. These interviews form the central element of the study, providing in-depth insights into the challenges and strategies of corporate management. These insights are supplemented by academic analyses and our own intensive investigations. The openness of the interviewees allowed us to gain comprehensive insights into the various ways leaders manage their corporate portfolios under current market conditions.

This publication is intended solely for general guidance and does not constitute investment or other advice. Accordingly, it is not intended as a basis for investment decisions and does not absolve third parties from conducting their own due diligence to verify its content. Before making any decisions or taking any actions, you should consult a professional advisor.