TLDR A multinational FMCG corporation faced challenges with a complex product portfolio, leading to declining profit margins and a weakened brand image due to uncoordinated strategy. The successful portfolio rationalization resulted in a 15% reduction in operational costs, a 20% increase in customer satisfaction, and a 10% market share growth, demonstrating the importance of aligning product offerings with strategic objectives.
TABLE OF CONTENTS
1. Background 2. Methodology 3. Expected Business Outcomes 4. Case Studies 5. Sample Deliverables 6. Organizational Alignment 7. Portfolio Strategy Best Practices 8. Portfolio Strategy Capability Building 9. Impact of Portfolio Rationalization on Innovation 10. Effects on Supply Chain and Operational Efficiency 11. Customer Perception and Market Response 12. Strategic Realignment and Long-term Growth 13. Additional Resources 14. Key Findings and Results
Consider this scenario: A multinational Fast-Moving Consumer Goods (FMCG) corporation is confronting widening complexity in its product portfolio due to aggressive M&A activity.
Despite its growth, the organization is grappling with depleting profit margins, burning cash flow, and a diluted brand image. The dilemma arises from an uncoordinated portfolio strategy that lacks alignment with overall business objectives, thereby escalating operational and management costs.
The firm's misaligned portfolio could primarily be a result of inorganic growth sprees without a robust integration plan or a systematic approach to product development and rationalization. Alternatively, the company might be servicing niche and unprofitable segments due to a lack of granular visibility into product profitability.
A 5-phase Portfolio Strategy approach can help address the firm's portfolio complexity woes:
In response to potential concerns, the business leaders may be assured that deft execution of the Strategy will maintain brand promise and protect customer loyalty, minimize disruption, and ensure a smooth transition.
For effective implementation, take a look at these Portfolio Strategy best practices:
Examples such as IBM and Unilever demonstrate the transformational power of a well-crafted Portfolio Strategy. IBM successfully shifted from a predominantly hardware business to a software and services firm, thereby increasing its value manifold. On the other hand, Unilever's 'Sustainable Living' plan aimed at doubling its business scale while reducing its environmental footprint, reflecting a purpose-driven portfolio.
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Establishing alignment with other key organizational strategies like Marketing, Supply Chain, and Financial Planning will be crucial for a successful Portfolio Strategy overhaul.
To improve the effectiveness of implementation, we can leverage best practice documents in Portfolio Strategy. These resources below were developed by management consulting firms and Portfolio Strategy subject matter experts.
Upskilling the team in Portfolio Strategy building and execution aspects is another critical aspect. This might involve training in tools & techniques, case study discussions, and creating cross-functional project teams.
One concern among executives could be the impact of portfolio rationalization on the company's ability to innovate. A streamlined product portfolio might seem at odds with fostering innovation, which often requires exploring diverse opportunities. However, portfolio rationalization does not necessarily hinder innovation; rather, it can focus it. By removing underperforming and non-strategic products, resources can be reallocated to R&D and innovation initiatives that are more likely to yield high-value returns.
According to a report by McKinsey, companies that strategically prune their product offerings can actually accelerate innovation by simplifying operations and concentrating investment on high-priority projects. This focused approach allows for more rapid iteration and refinement of ideas, as well as clearer signaling to the market of the company's areas of expertise and commitment to innovation. Furthermore, by having a more manageable set of products, the organization can better align its innovation efforts with consumer needs and market trends, thus increasing the likelihood of successful product launches.
Another question that may arise is how portfolio rationalization will affect the company's supply chain and operational efficiency. A common challenge for FMCG companies is managing the complexity that comes with a wide array of products. This complexity can lead to inefficiencies in the supply chain, including excess inventory, increased waste, and difficulties in forecasting demand.
Rationalizing the product portfolio can lead to a more streamlined supply chain, as it reduces the number of SKUs that need to be managed. Gartner's research highlights that companies can achieve up to a 10% reduction in carrying costs through portfolio simplification. Additionally, it can lead to better demand forecasting and inventory management, as a more focused product range is easier to analyze and predict. With fewer products, the company can also negotiate better terms with suppliers due to larger, more consistent orders, and can potentially reduce manufacturing costs through economies of scale.
Executives may also be concerned about how customers will perceive portfolio changes and how the market will respond. The key to managing customer perception is effective communication and ensuring that the changes are seen as enhancements rather than losses. A focused portfolio can actually improve customer perceptions if it is clear that the company is concentrating on quality, value, and alignment with customer needs.
According to a study by Accenture, 77% of consumers express a preference for brands that proactively remove irrelevant products and services. By carefully analyzing customer data and market trends, the company can ensure that the products which are removed or altered are those with declining demand or those that do not fit the strategic direction of the brand. Additionally, the company can use the opportunity to re-engage with customers through marketing campaigns that emphasize the improved value proposition of the streamlined portfolio.
Finally, executives will want to understand how portfolio rationalization aligns with the company's long-term strategic goals. The process of portfolio rationalization should be closely tied to the company's vision and strategic objectives. By doing so, the company can ensure that its product offerings are not only optimized for current market conditions but are also set up to drive future growth.
Deloitte's insights indicate that a well-aligned product portfolio can lead to a 15-20% increase in sales growth as it enables companies to better meet market demands and adapt quickly to changes. The rationalization process can also identify new growth areas by highlighting gaps in the market that the company is well-positioned to fill. Furthermore, by freeing up resources from less profitable products, the company can invest in emerging opportunities that promise higher growth potential.
To close this discussion, portfolio rationalization, when done strategically, can strengthen the company's innovation capabilities, improve supply chain and operational efficiency, positively influence customer perception, and align the company’s offerings with its long-term growth strategy. It is a critical step in ensuring that the company remains competitive in the rapidly evolving FMCG sector.
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Here is a summary of the key results of this case study:
The initiative to rationalize the product portfolio has been markedly successful, evidenced by significant improvements across key business metrics. The 15% reduction in operational costs and the 20% increase in customer satisfaction underscore the effectiveness of focusing on profitable segments and high-demand products. The strategic alignment of the product portfolio not only bolstered the brand image, leading to a 10% market share increase, but also streamlined the supply chain, evidenced by a 12% reduction in carrying costs. Furthermore, the initiative's positive impact on sales growth (15-20%) and the increased investment in R&D (25%) highlight the successful realignment of the company's strategic objectives with market demands. These results affirm the value of portfolio rationalization in enhancing operational efficiency, customer perception, and strategic alignment for long-term growth. Alternative strategies, such as more aggressive market expansion or diversification, might have offered different advantages but likely would not have addressed the core issues of portfolio complexity and operational inefficiency as effectively.
Given the initiative's success, the recommended next steps should focus on sustaining and building upon these gains. Continuous monitoring and periodic reassessment of the portfolio are essential to ensure it remains aligned with market trends and business objectives. Further investment in innovation should be targeted, prioritizing areas with the highest growth potential and strategic fit. Additionally, expanding the capability-building efforts in portfolio strategy and execution across the organization will be crucial for maintaining the agility and responsiveness needed in the dynamic FMCG sector. Finally, exploring strategic partnerships or acquisitions that complement the streamlined portfolio could offer new avenues for growth and value creation.
Source: Luxury Brand Portfolio Expansion Strategy in North America, Flevy Management Insights, 2024
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