Jack of all trades, master of none. Is less actually more when it comes to Portfolio?
“We had to decide what the fundamental directions we are going in are and what makes sense and what doesn’t… focusing is about saying no. You’ve got to say no, no, no. It’s hard…”
In an era where consumer needs are fragmented, marketers are under more pressure than ever to produce growth. Beefed up product portfolios, with launches of sub-brands and line extensions are an attempt to capture new revenue sources. For many, offering a diverse portfolio is essential for growth. But how many companies have considered the impact of a new launch by measuring the value it adds to customers? At some point, product proliferation causes costs to rise, quality to decline and creates confusion. Is there really a need to offer so much choice?
Companies with the least complex portfolios have a better understanding of customers and their needs. From a commercial point of view, they typically grow almost three times in size and are more profitable.
Most companies are aware of the benefits of a simple portfolio, yet removing a product is much harder than introducing one. We took a closer look at those companies who had streamlined their portfolios to see what we could learn from them:
Don’t be scared to say no to new projects – it gives you the resource and time to design excellent products
When Steve Jobs returned to Apple in 1995, he launched a simple Portfolio structure, telling his team to focus on just four computer models – a desktop and laptop for professional use and consumer use. He believed this would give his engineers time and resource to design killer products without any risk of overlap within the portfolio.
“We had to decide what the fundamental directions we are going in are and what makes sense and what doesn’t… focusing is about saying no. You’ve got to say no, no, no. It’s hard…” Steve Jobs
Two decades later it seems Apple has forgotten how to say no. They currently have a portfolio of over 46 products. Under new leadership Apple may have lost its focus. Saying no is not easy and involves a change in culture and mind-set driven from the top. Perhaps it’s time for Apple to stop and refocus before moving onto to more projects.
Assess your portfolio against your core competencies – it’s not a one off decision
In 2014, P&G announced plans to consolidate its portfolio to ensure they were focusing on brands which aligned to their core competencies. In just over two years, P&G divested, discontinued and consolidated 105 brands. Shockingly, these brands contributed just 6% of P&G’s profit despite making up over 60% of their portfolio. As a result, P&G have a stronger, more focused portfolio that is better positioned to win.
To avoid future product proliferation, P&G actively manage their portfolio to ensure true alignment to their core strengths in consumer understanding, branding, product and packaging and go-to-market capabilities. It’s important to remember that these core strengths and assessment criteria are not based on emotional judgement, but on competitive advantage and, once in place, they are used continually to test the portfolio “At a company like ours which is multi industry, multi geography, multi-channel, multi business model, you have to continually work the portfolio question… It is not the shrinking that will help us grow, it is the focus and the few assets brands, products, technologies that we believe elicit the strongest consumer response” A.G. Lafley (P&G CEO)
Do not neglect the core – the portfolio rationalisation process should engender creativity
Portfolio rationalisation should go hand in hand with innovation and measured risk taking. Companies only reap the benefits of the rationalisation process if they are reinvesting funds and management time into the core brands.
That is why Unilever called their rationalisation programme “Path to Growth”. Budgets were reallocated from the 1200 noncore brands to 400 core brands. For each core brand key growth opportunities were identified by reviewing brand positioning, gathering competitive intelligence and seeking insight from consumers. They even explored how each brand could reach new customers, penetrate new markets and generate new industry concepts. Results have been positive, in the year after the strategy’s launch Unilever’s revenues increased by 4.2%, and the core 400 brands grew by 5.4%—smack in the middle of the 5%-to-6% target.
Portfolio rationalisation – an opportunity to open new doors
Portfolio rationalisation has its clear advantages. The process of removing brands from a portfolio is sensitive, emotional and cannot be completed without clear strategic direction and buy in from the leadership team. But those are not the only pit falls which lead to the failure of a portfolio rationalisation strategy:
1) Doing a half-hearted job: A rationalisation strategy is a long term commitment which does not come without some risk. Once a strategic priority, Leadership needs to be fully committed to drive the business and its people, make difficult key decisions to ensure everything is in the right places to help the risk pay off
2) Not reallocating resources from non-core brands back into priority growth initiatives: Once noncore brands are cut, resource must be reallocated and reinvested into growth initiatives. From a financial standpoint, a great opportunity to explore and innovate in a space where it might have not been possible before. And from a people perspective, a way to motivate employees by providing them with new and exciting opportunities
3) Allocating newly released resources to flagging brands which cannot be turned around: Be smart in where you are reallocating resource to. Opportunities to invest in new initiatives do not come around often and they are easily wasted. Rigorous strategic planning should help identify key hot spots which could benefit from additional resource
4) Not aligning and engaging the rest of the business model and sales engine: Ensure people and teams are enabled to drive change. Operating Model, processes and systems should be ready and able to support the change in the rest of the business - this too will require investment and resource
Portfolio rationalisation offers the opportunity of transformational strategy which has driven great success for many global companies, but has also been a cause of many a downfall. There are key factors in ensuring it is a success and also some risks to avoid, but the critical crunch point will be how you put your own spin on it to make it work for your brand portfolio, driven by your own core competencies.
Keep it simple
If you're taking anything away from this read, hopefully it is that the world has become busier. Simply offering more choice may not be the answer.
Instead, companies should focus on the core of what they're good at. Make fewer, better products and the rest should follow...