The answer is yes, absolutely. A company must set differentiated performance objectives according to its areas of activity, mainly because each activity has its own risk profile and financial structure.

The detailed rationales are as follows:

1. The difference in risk profile and the cost of capital (WACC)
2. Financial performance is measured by the ability to generate a return that is higher than the cost of the resources mobilized (the Weighted Average Cost of Capital or WACC). However, this cost depends directly on the risk.

• Heterogeneous risks: If a group is involved in different business lines (Strategic Business Areas or SBUs), they do not react in the same way to macroeconomic conditions (different systematic risk). It is therefore necessary to calculate a WACC per SBU.
• Stand-alone logic: To set a relevant goal, you need to think of each unit as if it were a separate entity. The unit’s WACC should be calculated based on its own systematic risk (Beta) and debt capacity, and not using the Group’s average parameters.

2. Avoid resource allocation errors

Applying a single rate (the Group’s WACC) to all activities, regardless of their risk, leads to management errors:

• Penalize safe activities: A low-risk activity (such as real estate within an industrial group) has a low cost of capital. If the Group’s high profitability objective is imposed, there is a risk of rejecting projects that create value.
• Favor activities that are too risky: Conversely, using an average rate can lead to accepting high-risk projects that do not cover their true cost of risk.

3. Sectoral examples

This need for differentiation is found in concrete examples:

• Petroleum sector: “Upstream” activities (exploration/production) have a very different risk than “downstream” activities (refining/distribution). An individualized WACC is therefore needed to avoid poor investment decisions.
• Construction: If a company is involved in both construction activities, but also real estate development and concessions, it is fundamental to calculate a WACC per activity

Conclusion

The company must calculate an overall WACC to assess its own overall performance, but it must set specific profitability requirements (WACC per SBU) to properly manage its various areas of activity. The difference between the Group’s cost of financing (which is often lower thanks to diversification) and the average costs of the entities is one of the valuable contributions attributable to the Group’s headquarters.