Diversification and Advantage
Martin's rule for corporate portfolios: you cannot use a competitive advantage twice. An advantage is specific to a Where to Play / How to Win pair.
An advantage is specific to a Where to Play / How to Win pair. Carrying a brand, capability or asset into an adjacent business does not carry the advantage, the new arena has its own customers, rivals and economics, and demands its own cascade. Most diversification quietly assumes the advantage transfers; most write-downs prove it didn't.
His portfolio discipline:
- Each business must have its own defensible cascade, audited with The Opposite Test and The Cant-Wont Test
- Sell businesses you don't love: an owner who doesn't love a business under-invests in its capabilities and systems; the business is worth more to someone who does
- Corporate centres add value only where they genuinely strengthen a business's Must-Have Capabilities, otherwise they are cost plus interference
Related: Functional Strategy, the same "earn your place" logic applied to shared functions.
Our synthesis of Roger Martin’s published work, sources credited. Read the originals: they’re excellent.
Reading about method is not the same as running it. We install this system and build the capability that stays.
Turn strategy into executed strategy →