Ranking the Business Units on the Basis of Performance and Priority for Resource Allocation

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1.   Once a diversified company’s strategy has been evaluated from the perspectives of industry attractiveness, competitive strength, strategic fit, and resource fit, the next step is to rank the performance prospects of the businesses from best to worst and determine which businesses merit top priority for new investments by the corporate parent.

2.   The most important considerations in judging business-unit performance are sales growth, profit growth, contribution to company’s earnings, and the return on capital.

3.   The industry attractiveness/business strength evaluations provide a basis for judging a business’s prospects. It is a short step from ranking the prospects of business units to draw­ing conclusions about whether the company as a whole is capable of strong, mediocre, or weak performance.

4.   The rankings of future performance generally determine what priority the corporate parent should give to each business in terms of resource allocation.

5.   Business subsidiaries with the brightest profit and growth prospects and solid strategic and resource fits generally should head the list for corporate resource support.

6.   For a company’s diversification strategy to generate ever-higher levels of performance, corporate managers have to do an effective job of steering resources out of low opportunity areas into high opportunity areas.

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