548  Strategic Management: Analytics directors, the press, and even internal reporting processes all contribute to this short-term bias. Overcoming such obstacles in order to manage strategically requires flu- ency in two distinct yet interrelated disciplines. The first of these—and the subject of this chapter—is to apply an emphasis on strong analytics to fer- ret out sources of value and make the right decisions for value creation. The second is to establish and maintain effective strategic-management processes that orient the entire management team toward common goals. We take up the second discipline in Chapter 30. The analytical discipline of strategic management should combine three processes. First, managers should adopt a fine-grained approach to setting targets and allocating resources, drilling down to the level of 20 to 50 or even more units or projects. Next, applying this granular approach, executives should rank investment opportunities and set priorities for them across the entire enterprise, using the lens of how each unit or project contributes to the company’s overall success. Finally, in planning and monitoring performance, management should use not only financial performance metrics but also, and more importantly, approaches pegged to value drivers that combine long-term and short-term perspectives on value creation. These drivers can also include strategic, organizational, environmental, and social indicators. Adopting a Granular Perspective The larger the company and the more diversified its portfolio, the more likely executives are to allocate resources and manage performance using high-level metrics, such as corporate or divisional top-line growth, profit, and return on invested capital (ROIC).1 Such metrics are understandable shorthand for com- paring performance among multiple divisions and myriad business units. But like all averages, they tend to hide the outliers—the strongest and weakest per- formers, which are the ones most in need of promotion or correction. Exhibit 29.1 shows one example where the four divisions of a diversified industrial company each fell between 5 and 10 percent short of overall economic-profit goals, sug- gesting only modest underperformance. Yet a closer look found that two-thirds of the company’s 150 business segments were underperforming on its economic- profit goals by as much as 40 percent, while the rest were outperforming enough to skew the averages. As a result, the opportunity for improvement turned out to be much larger than the executives had anticipated. It’s clear from this example that strategic management should take place at the level of business segments, so that senior management clearly sees where value is created, not at the corporate center. However, the management 1 This section draws on M. Goedhart, S. Smit, and A. Veldhuijzen, “Unearthing the Sources of Value Hiding in Your Corporate Portfolio,” McKinsey on Finance, no. 48 (Autumn 2013): 2–9. Adopting a Granular Perspective  549 structure of division heads overseeing business units, business unit leaders supervising segment managers, and so on typically gets in the way of value- oriented decision making. Divisional managers like the “averaging” of busi- ness unit results, which enables them to achieve short-term targets for their division, possibly at the expense of long-term value creation. In our experience, for a company earning $10 billion in revenue, strategic management by corporate executives should typically take place at the level of at least 20 to 50 or sometimes more units or projects.2 One rule of thumb is to further dissect businesses as long as underlying subsegments show significant differences in terms of growth and return on capital and are material in value relative to the company as a whole. Wherever managers find that their compa- nies lack the necessary financial data, such as revenue, operating earnings, and capital expenditures, they will probably also find that they rely too heavily on averages when setting strategic priorities, financial targets, and resource budgets. The finer-grained perspective we recommend offers several important ben- efits. First, it reveals more value-creation opportunities, as it dissects average per- formance and growth across the portfolio. For example, executives at one global company considered a consumer goods business in Asia to be the most successful in the company’s portfolio, because it consistently delivered double-digit top-line growth. But a more detailed analysis revealed that this business was losing mar- ket share because the relevant local markets were growing even faster—which would almost inevitably lead to lower value creation in the long term. Second, taking a finer-grained perspective helps managers understand per- formance trends for business units that consist of several distinct product or market segments. While a higher number of segments might appear to com- plicate matters for executives and the corporate center, the reverse is often the case. For example, the aggregated growth rate and return on invested capital 2 These segments are similar to what we have elsewhere called “value cells.” See, e.g., M. Giordano and F. Wenger, “Organizing for Value,” McKinsey on Finance, no. 28 (Summer 2008): 20–25. Exhibit 29.1  Improvement Opportunity at Different Levels of Review € million By business segment, 150 units Total improvement opportunity By business unit, 26 units By division, 4 units Company overall, 1 unit 900 300 –200 –200 –500 –1,100 Review level Economic profit vs. target,1 1 Economic-profit target: €2,650 million