Putting an end to projects or cutting loose from historical activities is always difficult. And yet it is a practice that distinguishes companies that are lastingly over-performing. The logic is rather intuitive: perpetuating dead-end projects only disperses resources and undermines the company's ability to invest in more solid avenues. Nonetheless, in practice, many biases make this process difficult. Consulting firm PwC has identified four practices that can help make the divestment exercise more natural and more effective:

- Implementing standardized and regular portfolio evaluations. The cadence is important to making this a habit.

- Carrying out an in-depth review of each project in the portfolio, including the analyses of historical financial data, but also of extra-financial information and of the current and future competitive environment. Many companies stop with the first of these analyses.

- Involving the board of directors in these assessments. The study shows a significant positive impact of this involvement on the likelihood of companies considering divestments. The involvement of the board also speeds up the implementation process.

- Working on reinvestment plans in parallel. Identifying other avenues to be pursued once existing projects are closed helps to counter the status quo bias, by making the opportunity cost visible.

Source:  The power of portfolio renewal and the value in divestitures, PwC US, March 2023.