Monday, July 10, 2017

Determining the best strategy for each product or line of business

[Editor's Note: Several of you have asked me to discuss the Portfolio Management Matrix approach to product lines or businesses. Hope you find it useful.             -DPM]

As organizations grow, and markets, businesses, and products become mature, new products are launched, new lines of business are introduced. The complexion of the competitive landscape changes.
Consider a few questions before you embark on strategic planning:
1. Should you treat all of your business lines or product lines the same?
2. Should you have the same expectations for growth of revenue, profit, and cash flow?
3. Should investment be the same? Staffing? Marketing?
4. Should measurements and objectives be the same?
Manage your business units and product lines like a portfolio - they are all at different stages of maturity, different competitive positions in the market, have different needs, and require different approaches. We advocate a "portfolio management matrix" approach to planning.  
After completing an evaluation of each product or business line's position in the market, position it on the matrix In Figure 1 (Below). The matrix denotes economic attractiveness on one axis and competitive strength on the other. How attractive economically is the market to the Company relative to its strategic objectives. What is the strength of the Company's position relative to the market and the performance of competitors. Be honest. We have encountered some management teams that resist the recognition that a product line or division is mature or aging and or that it no longer has competitive superiority.

Business A (in red on the below matrix) - this business is in a very strong competitive position (able to take some actions without fear of competitive response) with high economic attractiveness. In this position, the company should maximize its investment, protect and enhance its competitive position, grow with the market, maintain technology, and seek to dominate the market, but be careful to not cash in too soon.
Business B, on the other hand has a weak competitive position with weak economics. This business should be harvested rapidly (exit or divest) with an emphasis on maximizing cash flow by reducing costs and assets.
Each position of the matrix has its own strategic implications with specific options.

Figure 1. Portfolio Management Matrix

  
High Economic Attractiveness 

Selective Growth 


& Profits
     ___________          
Selective Investment


Growth & Market Position                       
_____________

Selective Investment in Advance of Market


Growth
 
 
 __________         
                                          


Invest at  market rates


Business A
Medium Economic Attractiveness 
 
Profits & Cash Flow
  ___________
Selective Harvest
Profits

_____________ 

Maintain Investment
 

Growth & Profits 

____________  
Selective Investment
Low Economic Attractiveness 
 

Cash Flow
___________
Fast Harvest


Business B
 
Cash Flow
___________
Slow Harvest
Profits & Cash Flow    
 ___________
Invest at Maintenance Levels

Low Strength


Medium Strength
 

High Strength
                                              Competitive Strength
 

Some rules of the road for using the Portfolio Management Matrix
 
  • Keep positions on the matrix generic. Some organizations and models have names for the various positions on the matrix. Keep them generic. Don't label them with "cute" or descriptive phrases such as "high flyer", "dog" or "loser." Your management team will treat them accordingly. After all, who wants to be associated with a "loser."
  • Be Disciplined - Don't over or under invest with businesses or products. Companies in mature industries tend to smother "newbies" and demand profitability too soon. Likewise, growth companies can be impatient with slow-growth businesses or products.
  • Develop Role players
    Cash generators fund growth opportunities. Embryonic and growth businesses or products are the future of the overall company. Every business/product has a role to play in the healthy ecosystem of the portfolio.
Many of our clients are starting now on the strategic planning process for 2018 and beyond. The key to success today is develop flexible approaches to strategic planning and update quarterly with market events as the year progresses. If you would like to discuss how Mead Consulting might help your company begin the process of adding value and moving your company to the next level of performance, please contact us.   
Best regards,
Dave Mead

Monday, June 12, 2017

Who is responsible for profit in your company?


 Who is responsible for profit in your company?

They say it’s lonely at the top. For many CEO’s it can be very lonely when it comes to responsibility for profit. At a recent presentation for a group of CEOs, I asked the question, “Who is responsible for profit in your company?” The answers were not surprising. While several said it was the CEO, CFO, or the senior leadership team, the overwhelming majority responded that everyone in their company is responsible for profit. While the CEOs believed this, when we begin working with companies this is one of the questions we ask a cross-section of employees. We rarely get a consistent answer.

“Everyone is responsible for making a profit.” Is that really true? We all like for our co-workers to be thinking about profit, but are the pieces in place to support this grand idea?

  • Profit Must Be Clearly Defined, Visible, and Understood

Can employees clearly see how profit is generated? In many organizations, profit is the “mysterious” remainder of the monthly aggregation of revenues less the aggregation of costs and is not known until after the month is over…too late for co-workers to do anything about it. How can we expect them to affect something that seems too complex for any mere mortal to understand?

  •           Is the Company Organized for Profit Management?
Decisions need to be made close enough to the customer to impact profit on a daily basis.

  •           Metrics
Are you measuring and reporting against profit at an individual customer or individual product level on a relatively frequent basis? These metrics need to be visible to the entire company? At least the pieces they can affect!

  •           Are Compensation and Rewards Aligned with Net Profit?
There’s an old expression: “You get what you pay for!” In the world of compensation it is very true. If you are compensating the sales and marketing departments for revenue generation and operations for achieving AVERAGE product cost, the expected outcomes may surprise you. Even though revenues may increase, being on the incorrect extreme of those average costs can cause you to have very poor results. Compensation plans need to directly reflect the achievement of NET PROFIT PER CUSTOMER.

THE RESULTS CAN BE COMPELLING
One client company that now has a clear view of customer profitability and an employee group reorganized around responsibility for profit has seen dramatic change. In the first full quarter of implementation, this wholesale distributor saw customer net profit margins grow by FIVE PERCENTAGE POINTS in the targeted customer groups.
On an annual base business of $10 million, that’s a $500,000 increase in net profit; at $70 million in annual revenue, that could be a $3.5 million increase in net profit.

The Mead Consulting Group has a proven process that helps clients to develop customer profitability analysis to focus on the customers that drive increased revenue growth while reducing the impact of unprofitable customers. You can see an overview on our website. Contact us for a free consultation.

Monday, May 22, 2017

WHAT KEEPS CEOs and CFOs AWAKE AT NIGHT?



WHAT KEEPS CEOs and CFOs AWAKE AT NIGHT? 
[Editor''s Note: At a recent presentation to a group of CEOs and CFOs of mid-size companies, we had an open discussion about what keeps them awake at night- what most concerns them about the present... and the future. After the issues of national security, terrorism, and football, the focus turned to their businesses.   -dpm]
 1. Is my company too passive? Have I spent too much time being internally focused? Is it time to take control and chart a new strategic direction for the business? If so, what is it? Are we missing opportunities?
 2. How do I grow? Where do I find new growth...new profitable growth?
 3. How do I maintain a focus on profit and cash flow, not just sales growth?
 4. How can I gain a real sustainable competitive advantage?
 5. Winning the talent war: How do I put and keep the "right people in the right seats on my bus?"
 6. Where will I find the time to develop new ideas, new products, new sources of revenue?
 7. What are my exit alternatives? How do I maintain my lifestyle if I choose to exit the business? What do I need to do to be prepared to sell? What will I do after I sell?
 8. We've made great progress...How we do take this business to the next level?
9. What are the issues that are keeping you awake at night? Let me know your thoughts? Email me or comment here

Clients of The Mead Consulting Group are finding answers to these exact questions. They are positioning themselves to achieve clear competitive advantages over their competition. History tells us that amazing success has been achieved by those companies that are ready. Are you ready?
 
 The Mead Consulting Group has been helping middle market companies for over 25 years to focus strategies and execute well so that they get the results they desire.
If you would like to discuss how we might help your company begin the process of adding value and moving your company to the next level of performance, please contact me.