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Keep it simple and Keep it focused

Volume 8 Letter 2

After acquiring company after company, ConAgra had grown from a few million dollars a year in revenue to over a 27 billion dollar enterprise. It was a huge food supply company with multiple autonomous business units, each having its own P&L and a firm belief that their products were the backbone of the company. Additionally, given the company’s 100 plus brands were all considered equal when it came time to allocating marketing and investment dollars, business planning meetings likely evolved into a big ‘food fight’.

In 2006, the company introduced some sanity into the portfolio planning process. Brands were sorted into three categories; “Growth Brands”, “Cash Brands” and “Divest Brands”. Growth Brands received priority for new investments while Cash Brands were maintained and managed to generate cash. Divest Brands were put up for sale.

If you’re in a company with multiple SKU’s it may be time to take a hard look at your portfolio. An over stuffed product portfolio drives up costs, crushes profit margins and hinders a company’s ability to invest in and capitalize on growth opportunities. It’s easy to sluff off market duds as harmless products since they can be disguised as revenue generators that still appear to be delivering positive contribution. However, the reality is often quite different as these duds are covertly sucking up space, profits and management time that should be spent on growth opportunities.

Most organizations are better at adding new products and services than they are at eliminating the old ones. It’s temping to think that keeping the old products around is harmless but here’s what can happen. Say a company launches a significant improvement on their old product. All the product launch steps are done correctly but the sales team convinces management to keep the ‘old’ product and sell it at a discount to the “price sensitive” customers. Keeping the old product in the portfolio at a reduced price results in increased demand for the old product taking the focus off the new product as the sales people are more comfortable selling the old technology. Additionally, competitors react by cutting their prices thus putting the whole market focus on price rather than value brought by the new product.

The process of simplifying the portfolio is indeed hard work. It takes discipline yet can have profound impact on the overall performance of the company. It’s imperative that managers regularly evaluate the products and services offered and determine which ones are profitable and have the greatest potential for growth. But where does one start?

In most cases a simple portfolio matrix is a good first step. Plot your products on a Growth Share Matrix (market growth on the Y axis vs relative market share on the X axis). At the very least this will start the debate on what to do with the “Dogs” (low growth – low market share products).

Another method of plotting the product portfolio is to plot last years overall company growth rate as the centre line. Products or services that grew faster than the average company growth rate are plotted above the line while those that grew slower and pulled overall growth downward are plotted below the line. Once again examine products that fall below the line then ask “are they market leaders or followers? Generally speaking, market leaders with slow growth should be managed for cash. Market followers with slow growth? Consider trimming them from your portfolio.

Clean out the old products. Trim your company’s portfolio to products that are contributing to growth and profits. Remove the complexity and allow your people to better focus on the important stuff. Keep it simple – keep it focused – make some money.

1. Simple-Minded Management, Ron Ashkenas HBR Dec 2007 PP101 – 109

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