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


Invest at  market rates

Business A
Medium Economic Attractiveness 
Profits & Cash Flow
Selective Harvest


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

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