A Mathematical Model for Determining Business Portfolio; Value Chain Synergies Approach

Designing the business portfolio is a key decision in corporate-level strategy and is bonded with strategic concepts such as vertical integration and diversification. Nevertheless, most of the previous researches have proposed general conceptual models, or investment portfolio optimization models based on financial approach. In this paper, a mathematical model is proposed, firstly to utilize quantitative methods in strategic decision makings and secondly, to considers non-financial, strategic variables in modeling process. To address this need, a mathematical framework for formulating synergies between businesses in a value chain is developed. Although the conceptual structure is applicable for different industries, the model is developed for a multi-business company in petroleum industry of Iran.