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One of the most valuable concepts in the strategic management of multi-divisional companies was portfolio theory. It was concluded that a broad portfolio of financial assets could reduce specific risk. In the 1970s marketers extended the theory to product portfolio decisions and managerial strategists extended it to operating division portfolios. Each of a company’s operating divisions were seen as an element in the corporate portfolio. Each operating division (also called strategic business units) was treated as a semi-independent profit center with its own revenues, costs, objectives, and strategies. Several techniques were developed to analyze the relationships between elements in a portfolio. B.C.G. Analysis, for example, was developed by the Boston Consulting Group in the early 1970s. This was the theory that gave us the wonderful image of a CEO sitting on a stool milking a cash cow. Shortly after that the G.E. multi factoral model was developed by General Electric and McKinsey. Companies continued to diversify until the 1980s when it was realized that in many cases a portfolio of operating divisions was worth more as separate completely independent companies.

Here the management defines the Value Gap which defines the difference between an organization`s aspiration and its reality. Example: Reduce Cost of Service by 30%, Sell more to each customers. Get more Customers.

How to close the value gap is the essence of the strategy development process.

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