Imagine dropping by your neighborhood Baskin-Robbins for ice cream with your kids in tow. After 15 minutes of frantic finger pointing, negotiating, and weighing options, you decide on the Espresso 'N Cream Lowfat Ice Cream, Pink Bubblegum, Wild 'N Reckless and Very Berry Strawberry. Hopefully, you'll feel the visit --and the drawn-out decision process -- was worth it. Clearly, it was also worthwhile for Baskin-Robbins and its 1,000-plus flavors of ice cream, sherbet, sorbets and ices, because you paid a premium over plain vanilla for your impulses.
Others are equally interested in scrutinizing those flavors, to see which of them ring up not just revenue, but also profits. In mid-December, U.S. private equity firms Thomas H. Lee Partners, The Carlyle Group and Bain Capital bought Dunkin Brands (which owns Baskin-Robbins and Dunkin Donuts) for $2.4 billion from wine and spirits major Pernod Ricard, four months after Pernod Ricard paid $14.2 billion for Dunkin Brands' former owner, Allied Domecq, of Randolph, Mass. Pernod Ricard owns top liquor brands such as Chivas Regal, Malibu, Stolichnaya and Glenlivet, and didn't want donuts and ice cream to distract it from its focus on spirits.
The company's decision might be wise: As businesses rapidly increase their portfolios of products and services -- either in response to consumer demand or through mergers and acquisitions -- they run the risk of adding too much complexity, which can eat away at scarce resources and ultimately harm returns. While Pernod Ricard divested itself of needless complexity, hundreds of other companies are grappling with their portfolios of businesses, products, services and delivery channels to see which of them need to stay, be restructured, or be dropped. Knowledge@Wharton and George Group Consulting, an operations and strategy consultancy, examined this issue in an online survey of Knowledge@Wharton readers completed last fall. The survey covered 424 executives drawn from more than 30 industry groups including financial services, business services, information technology, foods, industrial manufacturing and healthcare.
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