The Portfolio Test

What Deserves More—and What Deserves Less?

Healthcare organizations often evaluate their businesses one at a time.

Is this clinic profitable?

Is this service line growing?

Is this physician productive?

Is this location performing?

Those questions matter.

But they can produce a surprisingly narrow view of strategy.

Because a healthcare organization is not simply a collection of successful individual businesses.

It is a portfolio.

And the strategic question is different:

What role does each component play in the future portfolio?

A business can be profitable but strategically declining.

Another can be currently modest but strategically important.

Another can consume significant resources without strengthening the enterprise.

And another may be performing adequately today while creating capabilities that become disproportionately valuable tomorrow.

That is where the Portfolio Test™ begins.

Profitability Is Not The Whole Story

One of the most persistent assumptions in healthcare management is that a strong-performing business should naturally receive more investment.

It sounds logical.

But profitability answers one question:

What value is this business creating now?

It does not necessarily answer:

What value could this business create for the enterprise in the future?

Consider four hypothetical businesses.

A mature specialty line generates excellent margins but operates in a market with limited future expansion.

A newer service has modest revenue but gives the organization access to a rapidly expanding patient segment.

A clinic is currently underperforming but provides a strategically important geographic footprint.

A technology-enabled service produces little direct profit but substantially improves the economics of several other businesses.

Looking only at each unit's P&L could lead to very different decisions than looking at the enterprise as a portfolio.

Harvard Business Review's work on multibusiness strategy makes a similar distinction:

organizations can become overly focused on the composition of their portfolios rather than on how the enterprise creates value across the businesses it owns.

The provocative question is therefore:

Should every profitable part of the organization receive more investment?

Not necessarily.

The Profitable Business That Should Receive Less

This is where the conversation becomes uncomfortable.

Imagine a service line that has delivered strong returns for five consecutive years.

It is familiar.

It has influential advocates.

Its economics are understood.

Its leaders know how to operate it.

And it consistently receives additional resources.

Now imagine that the market around it is changing.

Patient preferences are shifting.

Technology is changing the care model.

Competitors are entering adjacent spaces.

New value pools are emerging elsewhere.

The service line remains profitable.

But its strategic trajectory may be weakening.

If leadership evaluates it only by current performance, the organization can continue increasing investment in something that is gradually becoming less important to its future.

That does not mean the business should automatically be divested.

It means leadership should distinguish:

Current contribution

from

Future strategic contribution.

McKinsey's portfolio research emphasizes the importance of continuously reallocating resources rather than allowing portfolios to be managed passively through periodic financial reviews. Its healthcare outlook similarly points to portfolio shifts toward segments with stronger structural growth and strategic fit.

The question becomes:

If this business continues performing exactly as it does today, will it still deserve the same level of resources three years from now?

Can An Underperformer Deserve More?

The opposite question is equally provocative.

Can an underperforming business still deserve investment?

Sometimes, yes.

But not because leadership hopes it will eventually become profitable.

The reason may be that the business creates strategic value beyond its standalone financial performance.

It may provide:

• access to a new market

• a critical capability

• a referral pathway

• geographic positioning

• a technology platform

• a talent base

• a strategic relationship

• an entry point into an emerging value pool

This is where portfolio thinking differs from simply ranking business units by profitability.

The question is not:

“Is this business good?”

It is:

“What role does this business play in making the enterprise stronger?”

That distinction matters particularly for healthcare groups expanding across multiple specialties, locations and business models.

A modest business can sometimes function as a strategic bridge to a much larger opportunity.

But there is an equally important warning:

Strategic importance should not become an excuse for indefinite underperformance.

Leadership must be able to articulate what strategic value the business is expected to create, by when, and through what mechanism.

Otherwise, “strategic” can become another word for “we don't want to make the difficult decision.”

The Portfolio Paradox

There is a deeper problem with evaluating every business independently.

Individual optimization can produce enterprise-level suboptimization.

A clinic may maximize its own margin while reducing referrals to another part of the organization.

A service line may maximize volume while consuming scarce specialists needed elsewhere.

A business unit may protect its own technology investment while creating duplication across the enterprise.

A high-performing location may attract disproportionate talent while another location becomes strategically constrained.

Every unit can appear rational.

The portfolio can still become weaker.

This is why portfolio strategy cannot simply be the sum of business-unit strategies.

The enterprise has to ask:

Does this business become more valuable because it is part of our organization—or would it create similar value somewhere else?

That question gets directly to the role of the parent organization.

Harvard Business Review's research on multibusiness strategies emphasizes that corporate strategy should be concerned with how the enterprise adds value to the businesses within its portfolio—not merely which businesses it owns.

Introducing The Portfolio Test™

At Phoenix MedStrategy, the Portfolio Test™ evaluates businesses, locations, service lines and strategic initiatives across five dimensions:

1. CURRENT VALUE

What economic and strategic value does it create today?

2. FUTURE VALUE

What could its value become as markets, technology and patient needs change?

3. STRATEGIC FIT

Does it strengthen the organization's intended future position?

4. RESOURCE INTENSITY

How much capital, talent, technology and leadership capacity does it consume?

5. ENTERPRISE CONTRIBUTION

Does it strengthen other parts of the organization—or operate largely as a standalone asset?

The result is not a simplistic “keep or close” exercise.

It creates a more sophisticated conversation:

Invest.

Maintain.

Transform.

Partner.

Harvest.

Exit.

The appropriate decision depends on the role the asset is expected to play in the future portfolio.

The Questions Leaders Rarely Ask

A conventional portfolio review might ask:

“How did this business perform?”

A strategic portfolio review asks:

“What role should this business play next?”

Then go further.

Should every profitable part of the organization receive more investment?

Can an underperforming business still deserve investment?

What would our portfolio look like if we allocated resources based on future strategic value rather than historical performance?

Which business is consuming resources without strengthening the enterprise?

Which modest business could become strategically important if we invested ahead of the market?

Which successful business would we invest less in if we were starting the portfolio from zero today?

And perhaps the most revealing:

If we could only significantly increase investment in three parts of the organization, which three would deserve it—and why?

That question forces leaders to confront scarcity.

Because when everything deserves investment, nothing has actually been prioritized.

The Portfolio Is A Strategic Choice

Healthcare organizations do not simply inherit portfolios.

They continuously shape them through decisions about capital, acquisitions, partnerships, talent, technology, locations and service lines.

Every allocation decision therefore changes what the organization can become.

McKinsey's current healthcare research identifies portfolio shifts, acquisitions and partnerships as mechanisms organizations can use to position themselves toward emerging growth areas.

The strategic challenge is knowing which opportunities deserve disproportionate commitment before their future value becomes obvious.

That requires leadership systems capable of periodically challenging the portfolio itself—not simply reviewing whether each component hit its budget.

The Executive Test

The question is not:

“Which parts of our organization are performing?”

It is:

“Which parts deserve more of our future?”

A strong portfolio does not necessarily contain only high-performing businesses.

It contains the right combination of current performance, future potential, strategic fit and enterprise value.

And sometimes strengthening the portfolio means investing more.

Sometimes it means investing differently.

And sometimes it means deliberately investing less.

At Phoenix MedStrategy, we help healthcare leaders examine the strategic role of their businesses, locations, service lines and initiatives—so resource allocation reflects where the organization is going, not simply where it has been.

Because the goal of portfolio strategy is not to make every part of the organization successful.

It is to make the organization stronger because of the parts it chooses to invest in.

Sources

Anand, Bharat N. & David J. Collis. “Why Multi-business Strategies Fail and How to Make Them Succeed.” Harvard Business Review, September–October 2024.

McKinsey & Company. “Portfolio Strategy.”

McKinsey & Company. “What to Expect in US Healthcare in 2026 and Beyond.”

McKinsey & Company. “Private Capital: Healthcare.”

Wind, Yoram & Vijay Mahajan. “Designing Product and Business Portfolios.” Harvard Business Review, 1981.