Fit for the future!

Portfolio-based strategy review in the oil and gas industry

CONTATTO LN Ricerca
Stern Stewart & CO. GmbH
Salvatorplatz 4
80333 Monaco

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Starting situation – strategic complexity affects the ability to seize growth opportunities  

At a leading global company in the oil and gas industry, it is not unusual for typical investment decisions on individual investment projects to involve billions of dollars. This means that a single investment can account for a large portion of the investment total. Accordingly, a single investment project can determine future company strategy and its competitive position on a lasting and long-term level.

At our client, the portfolio had grown over time to include over 80 intersections in the product-market matrix. This trend, which was the result of growth, increased the strategic complexity, which, to an increasing extent, could be managed only to a limited degree using the existing resources. As a consequence, it was becoming a growing challenge to distribute investments systematically across the portfolio without neglecting profitable growth opportunities in some markets, while at the same time it was weakening the company’s competitive position in other markets.

Project approach – strategic portfolio analysis to determine the most profitable market and product segments  

Starting out with a conventional portfolio analysis, the specific opportunity/risk profile for each product-market combination was analyzed and assessed. A strategy map was the outcome from this, which was rounded off with strategic options, assessed according to the market attractiveness and competitive position in each case. On this basis, management developed a shared mission, as the starting point for subsequent strategic investment decisions.

The strategy map highlighted the fact that the company had parallel operations that were spread very widely over too many segments. The investment funds and resources available were insufficient to operate effectively in all markets at the same time. In light of this, the strategic portfolio was consistently realigned. Strategic gaps and potential in the focus segments were systematically identified and prioritized.

Finding – the more long-term the investment horizon, the higher the demands for transparency and acceptance of strategic options

In the end, the creeping occupation of more and more product-market segments led to an increase in strategic complexity. The transparency of the actual value creation potential for the strategic options increasingly declined, to the point where it provided management with only an inadequate degree of orientation.

In markets characterized by a long-term investment horizon in combination with very high single investments, this inevitably results in an erosion of the optimum return-risk profile. At best, profitable investment opportunities are then ignored, or, in the worst-case scenario, the wrong investment decisions are made. Both these situations mean a restriction in entrepreneurial freedom of action, which can generally be regained only over the long term and at a considerable cost.

The company created transparency about its feasible, strategic options for action in good time and in a systematic way. This finding was also anchored with the decision makers. It thus succeeded in increasing confidence in optimum return-risk strategy decisions, renewing the basis for sustainable, profitable growth.

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