Five questions can help you discover a more strategic approach to portfolio optimization
Most large consumer products companies sell dozens or even hundreds of brands, often spanning multiple categories. Separating those with momentum and potential from those that are dragging down performance can feel like an impossible challenge.
But in a sector that’s struggling to find profitable growth, it’s a challenge executives cannot ignore.
By focusing scarce resources on the select group of brands that are the growth engines of tomorrow, companies could transform their commercial performance. To better direct your focus, consider the following questions:
Most portfolio reviews are policy-driven, retrospective and mechanical. Often done annually, they might identify whether an individual brand needs to be sold or if there is a gap in the portfolio.
Instead, consider a more strategic approach. Assess categories and brands in a holistic manner and communicate proactively with investors about the rationale for portfolio management decisions.
Look at the consumer opportunity and the competitive landscape across the entire portfolio. Balance short-term and long-term objectives. Develop a clear rationale for capital allocation across brands. Think how broader macro trends, such as emerging consumer needs, might affect long-term performance.
Are you carrying legacy brands that feel like a core part of the portfolio but are no longer performing? Could you strip them out and focus instead on the ones with higher growth potential?
A strong emotional attachment can stop management from selling brands that are losing their relevance. Companies can be reluctant to lose household names or to walk away from products that still generate some revenue and cash flow, even if they are low margin or non-core.
A top-down, data-driven approach can help management see each brand in a more rational light.
Effective portfolio optimization demands good data. Many companies do not have it at the level needed to make strategic decisions.
Companies need to move beyond purely historical data. And they need the tools and technologies to consider future scenarios for individual brands and the portfolio as a whole. A scenario-based approach can identify potential opportunities, so management can start planning for them today.
A robust conversation around the full range of decisions will help companies challenge internal assumptions and explore fundamental questions about the portfolio.
A good portfolio-optimization process looks at every brand and ascribes one of four actions to each one:
Many companies spend a lot of effort analyzing the portfolio. But few move decisively to convert this analysis into action. There are many reasons for this, including:
- They lack the resources needed to execute their plans.
- They spend so long on analysis that they lose confidence in their decisions.
- They lack confidence in their execution capabilities.
Strong leadership is essential to confirm that the analysis moves into concrete action.
For more information about how companies can take a more strategic approach to portfolio optimization, read Can your portfolio of brands provide the answers you need?