As we have discussed in the first two blogs in our series, a solutions portfolio is the embodiment of a company’s where to play and how to act strategies that involves cross-business initiatives and investments. Because a portfolio is dynamic and multifaceted, companies often overlook key indicators that tell them to focus their attention on the portfolio. In this blog, we share some of the common situations that should trigger organizations to immediately refocus their efforts on a portfolio analysis.
- The organization is embarking on a strategic effort to become more outcomes-oriented.
Being outcomes-focused is a strategic repositioning of an organization with the guiding light being ‘how do we maximize the value we drive to our customers & how do we make sure our market knows it?’. This leads to product/service enhancements, marketing and sales changes, and often to restructuring to more closely align the customer-facing aspects of the business. However, oftentimes, organizations do all of this to achieve the overarching strategy, without first going through the formal exercise of evaluating their portfolio from a high-level in its ability to achieve outcomes that their key markets truly care about. Building an ideal state outcomes-focused portfolio requires a distinct sequence of decisions.
- The first step is to develop a robust and coherent segment definition.
- With where to play and act clearly understood, companies must then define the segment-specific portfolio strategy to answer what the portfolio will address and solve for that segment.
- Finally, companies should determine how their current solutions fit the market segment strategy. This will unveil portfolio gaps and encourage the prioritization of new solution design to complete the puzzle required to solve customers’ key challenges or opportunities. This may result in some high-value PS on the front end that is designed to pull-through much larger purchases.
By identifying the unique challenges and opportunities that key markets are facing and aligning them with solutions, companies will drive the outcomes that their customers care about. At that point, the other ‘transformational’ activities can then begin with a much clearer end goal in mind.
- Margins are continuing to erode on a core set of products across the entire business.
For organizations that find themselves in a situation where they are facing competition and commoditization, it is time to evaluate the product lifecycle and rethink the portfolio through the lens of ‘how has my market evolved?’. Eroding margins may indicate that a product is nearing the end of its lifecycle, and rather than pouring resources into attempts to make the product more profitable, less costly, or more relevant, organizations may need to move on from the particular product segment entirely. Though the notion of retiring a cornerstone solution may cause initial fear, organizations that hope to differentiate themselves in highly competitive markets must make decisions for the good of the whole portfolio and long-term organizational strategy. Doing so is always a difficult decision, and must not be done without the appropriate historic analysis and future modeling of where the portfolio has been, what that product’s role was in the portfolio, and what the role of that solution is in the future state.
- There is a disconnect between what is being sold and the organization’s strategy.
Strategic impact should be a key criteria that dictates portfolio investment decisions and when organizations find themselves faced with the above scenario, even if they are currently very successful, the constant challenge of living at an organizational cross-road leads to disjointed investments and a declining outlook. Strategic portfolio management is about making tradeoffs that align with and drive the strategic objectives. For example, if a primary goal of an organization’s strategy is to grow share of wallet at existing accounts, but the organization’s solutions revolve around legacy products, there will likely be a constant struggle to achieve the desired strategic outcomes. Growing wallet share will require the addition of value-added solutions focused on generating customer intimacy. While the solution itself may not point to an explicit issue, aligning the portfolio and strategy at a high-level will reveal the strategic disconnect that may ultimately limit the organization from achieving its objectives and will inform the key actions required to align the portfolio with the strategic goals, without abandoning what is working well today.
These common symptoms, among others, emphasize the need for effective portfolio management. Understanding and identifying the key indicators of portfolio problems is the first step to fixing these issues and building a more strategic, outcomes-oriented portfolio.
Written by: Anthony Paluska
About the Author: Anthony Paluska is a Partner at McMann & Ransford with experience helping organizations overcome commoditization by developing stronger, more intimate, relationships with their customers. He has leveraged his management consulting, problem-solving, and change management skills to support 15+ Fortune 1000 organizations, across a multitude of industries.