A Value-Oriented Quantitative Model for Strategy Formulation Regarding Strategic Business Units

Since dozens of years multi-business companies have constituted the dominant form of business organization. Years of research on their management led to the creation of Corporate Portfolio Management (CPM) concept, in which science have taken and lost interest alternately. Regardless of emerging and overturned concepts, contemporary research studies confirm that 2/3 of companies regularly use CPM tools and perceive CPM as the best way to build value. Unfortunately, despite years of scientific attention, recent studies also indicate that the CPM application is hampered by the lack of appropriate metrics and instruments. Managers express their dissatisfaction with the results they obtain using CPM in comparison to the effort they make.

The aim of the article is to propose a model supporting strategy formulation for strategic business units. The basis of the algorithm is a developed Rappaport’s model of threshold margin. This article presents an application based on the mathematical model, previously developed by authors. The authors describe, step by step, quantitative measurement tools, on the basis of which development strategies for business units focused on maximizing enterprise value may be formulated. The proposed tools indicate, in which situations is it possible to maximize value through development, sale or divestment of strategic business units. The application includes financial constraints limiting the ability to increase enterprise value. The article presents the results of simulation for exemplary strategic business units.