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What makes sense to own? Rethinking portfolio management in a world of fast-evolving ecosystems

By Mike Armstrong, Will Engelbrecht, and Eamonn Kelly of Deloitte Consulting LLP
Published Last updated This article is more than 2 years old.

The use of mergers, acquisitions, and divestitures to assemble the right set of assets for future success has been a strategic priority since the dawn of the modern corporation. But today, the rise of business ecosystems is allowing—and compelling—strategists to think about their asset portfolios in new ways.

Traditional industries, with their linear supply chains and clear lines of competition, are giving way to complex business ecosystems—dynamic and diversely populated communities where firms are increasingly able to deploy and activate assets they neither own nor control. These days, it’s possible to design a solution for customers and then cobble it together with elements procured from specialist firms, with very little capital investment required on one’s own firm’s part. But by the same token, management teams are finding themselves in a newly defensive posture—having to defend why they have invested capital in the particular assets they do own.

The right answers no longer hinge on the importance of scale and synergy. Increasingly, firms use strategic transactions to assert a point of view about how the ecosystems in which they participate will evolve, and to signal their future role and focus within those ecosystems.

Take Facebook’s 2014 acquisition of virtual reality company Oculus. The purchase was “a long-term bet on the future of computing” and is focused on “building the first set of devices and building the audience and the ecosystem around that, until it eventually becomes a business.” Recent divestitures speak just as loudly about firms’ expectations of their ecosystems. Consider Hewlett-Packard’s decision to separate into two companies, HP Inc. and Hewlett Packard Enterprise, or media giant Gannett’s move to spin off the business that was its genesis—publishing regional daily newspapers. GE has broadly moved away from owning assets in clearly defined industries. By divesting NBC, GE Capital, and GE Appliances, it has reset its focus on the emergence of what it calls “the Industrial Internet.”

Doing M&A and divestitures based on an ecosystem strategy will undoubtedly mean revisiting the portfolio on a more continuous basis. The frequency of strategic transactions might increase, too. Many firms may find this stepped-up pace and volume tough to manage. Mergers, acquisitions, and divestitures are expensive and complicated propositions—not least because they generally require some melding together of different corporate cultures and infrastructures.

At the same time, business leaders may find their work more exhilarating as it calls more constantly on their best strategic thinking. Leadership will likely demand a point of view on what comes next and the agility to stake out new ground in a changed world. Alan Kay famously said: “The best way to predict the future is to invent it.” For businesses, ecosystems will shape their futures, and be theirs to shape.

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This article was produced by Deloitte and not by the Quartz editorial staff.

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