Portfolio Management & Strategy Flashcards

A commercial manager uses a 'core competency' framework to rationalize a portfolio. The key criterion for retaining a business unit is whether it:

Answer: Leverages or strengthens the firm's core competencies

Prahalad and Hamel's core competency framework argues that the portfolio should center on businesses that exploit or develop the firm's unique strategic capabilities.

Which portfolio review cadence is generally considered best practice for large, complex commercial organizations?

Answer: Continuous monitoring with formal quarterly strategic reviews

Continuous monitoring combined with formal quarterly reviews balances agility with disciplined strategic oversight across the portfolio.

In a multi-business portfolio, transfer pricing between units is strategically significant because it affects:

Answer: Profit attribution across units, influencing resource allocation and performance evaluation

Transfer prices determine how revenues and costs are distributed among units, directly shaping reported profitability and subsequent investment decisions.

A portfolio manager applies the concept of 'related diversification' when:

Answer: Expanding into new businesses that share value-chain activities or competencies with existing units

Related diversification creates value by leveraging shared resources, capabilities, or market access across businesses with strategic linkages.

When a firm's portfolio strategy shifts from 'growth through acquisition' to 'profitable organic growth,' the primary implication for commercial managers is:

Answer: Refocusing investment on internal capability development, customer retention, and margin improvement

Organic growth strategy requires building competitive advantages from within, emphasizing innovation, customer value, and operational excellence rather than M&A.

A Balanced Scorecard applied at the portfolio level typically links financial goals to which three additional perspectives?

Answer: Customer, Internal Processes, and Learning & Growth

Kaplan and Norton's Balanced Scorecard integrates Financial, Customer, Internal Process, and Learning & Growth perspectives to give a holistic performance view.

Portfolio 'churn'—frequently buying and selling business units—can destroy value primarily because of:

Answer: Transaction costs, integration disruptions, and loss of organizational knowledge each time units change hands

Frequent portfolio changes incur direct transaction costs and indirect costs from integration disruption and loss of institutional knowledge, eroding the value of each deal.