analyze your product portfolio and find growth opportunities

Analyze Your Product Portfolio&

Find Growth Opportunities

Prepared by Kevin HuangSeptember 10, 2015

Why Analyze Your Product Portfolio?

The markets/competitions/technologies/consumers are changing rapidly.

Encourage management to evaluate each of the organization's businesses individually and to set objectives and allocate resources for each.

Stimulate the use of externally oriented data to supplement management's intuitive judgment.

Raise the issue of cash flow availability for use in expansion and growth.

Evaluate the market risks, growth opportunities or find ways to improve the profitability.

Key Tools to Analyze Your Product Portfolio

BCG Matrix

Developed by Bruce Henderson of the Boston Consulting Group in the early 1970's.

Based on the product life cycle theory that can be used to determine what priorities should be given in the product portfolio of a business unit.

A company's business units can be classified into four categories based on combinations of market growth and market share relative to the largest competitor.

Market growth serves as a proxy for industry attractivenessindustry attractiveness, and relative market share serves as a proxy for competitive advantagecompetitive advantage.

The Four Categories Are:

DOGS - Dogs have low market share and a low growth rate and thus neither generate nor consume a large amount of cash. However, dogs are cash traps because of the money tied up in a business that has little potential. Such businesses are candidates for divestiture.

Managing DogsGet rid of them (poor dogs!)Differentiate for a niche market

QUESTION MARKS - Question marks are growing rapidly and thus consume certain amounts of cash, but because they have low market shares they do not generate much cash. The result is a large net cash consumption. A question mark (also known as a "problem child") has the potential to gain market share and become a star, and eventually a cash cow when the market growth slows. If the question mark does not succeed in becoming the market leader, then after perhaps years of cash consumption it will degenerate into a dog when the market growth declines. Question marks must be analyzed carefully in order to determine whether they are worth the investment required to grow market share.

Managing Question MarksDivest

Invest more resources in winning market share

STARS - Stars generate large amounts of cash because of their strong relative market share, but also consume large amounts of cash because of their high growth rate; therefore the cash in each direction approximately nets out. If a star can maintain its large market share, it will become a cash cow when the market growth rate declines. The portfolio of a diversified company always should have stars that will become the next cash cows and ensure future cash generation.

Managing StarsInvest substantially to sustain growth

Increase salesNew marketsNew channels of distribution

CASH COWS - As leaders in a mature market, cash cows exhibit a return on assets that is greater than the market growth rate, and thus generate more cash than they consume. Such business units should be "milked", extracting the profits and investing as little cash as possible. Cash cows provide the cash required to turn question marks into market leaders, to cover the administrative costs of the company, to fund research and development, to service the corporate debt, and to pay dividends to shareholders. Because the cash cow generates a relatively stable cash flow, its value can be determined with reasonable accuracy by calculating the present value of its cash stream using a discounted cash flow analysis.

Managing Cash CowsMaintain market shareInvest in qualityCustomer loyaltyMaximize cash flowIncrease usage rateReplacement rateRaise Prices

The BCG matrix once was used widely, but has since faded from popularity as more comprehensive models have been developed. Some of its weaknesses are:

The framework assumes that each business unit is independent of the others. In some cases, a business unit that is a "dog" may be helping other business units gain a competitive advantage.

The matrix depends heavily upon the breadth of the definition of the market. A business unit may dominate its small niche, but have very low market share in the overall industry. In such a case, the definition of the market can make the difference between a dog and a cash cow.

While its importance has diminished, the BCG matrix still can serve as a simple tool for viewing a corporation's business portfolio at a glance, and may serve as a starting point for discussing resource allocation among strategic business units.

BCG Matrix Limitations

The BCG matrix overlooks many other factors in these two important determinants of profitability. Market growth rate is only one factor in industry attractiveness, and relative market share is only one factor in competitive advantage.

Another Portfolio Mapping/Planning Tool (Better Too!)

McKinsey/General Electric Matrix uses market attractiveness rather than market growth as the y axis and competitive strength rather than market share as the x axis.

The size of the pie represents the total market size and the slice size indicates the market share captured by the SBU. Arrows are added to indicate the projected direction of movement of the SBU's over time.

Multiple indicators are used to assess market attractiveness, including

Multiple factors are used to assess competitive strength, such as

The process for locating the SBU's within the matrix involves identifying drivers for each dimension, scoring the SBU's against the drivers, weighting the drivers, and multiplying weights times the scores.

Current market share Brand image Production capacity Profit margins relative to

competitors R&D performance Promotional effectiveness

Annual market growth rate Overall market size Historical profit margin Current size of market Market structure Market rivalry Demand variability Global opportunities

McKinsey-GE 9-Box Matrix

HighMedium

Low

Mar

ket

Attr

activ

enes

s

Competitive Strength of Business Unit

Amazon Devices Business Unit

70%

2.3% 1%

8%

HighMedium

Low

Mar

ket

Attr

activ

enes

s

Competitive Strength of Business Unit

McKinsey-GE 9-Box Matrix

Identify the Priority for Investment /Attractiveness

Questions to Ask Yourself

Are the markets and market segments you serve conducive to continued profitable growth for your business?

Are your current customers the right ones to drive new sales and profitable growth?

Have you identified and focused on current unmet customer “want and need” opportunities that could help you grow your business?

Are your competitors reacting to your approach to the market?

So how well are your products and services positioned?

A “No” answer to just one of the following questions indicates it’s time to leverage current market knowledge in your favor and enhance your product portfolio management:

Be Effective in Your Product Portfolio Management

Using a simple 4 Step Market Analysis Process can help you make your product portfolio management more effective.

Step 1 — Are You Where You Need To Be? What changes/adjustments are needed?

Step 2 — In-depth 3-C Analysis• Your customers• Your competition• Your company

Step 3 — Develop Positioning/Differentiation Strategies That Win Business

Step 4 — Implementation. Writing a Strategic Product Plan That Wins Business

Product Portfolio Management tools are good to evaluate your “CURRENT”

products/projects, but they don’t really help to generate “INNOVATIVE” product ideas!

Case Study: Apple

Apple has already radically altered a few different markets in its time. The company changed the way music is sold and distributed, for instance, and few could argue that Apple was not the driving force behind the tablet (Apple completely changed the netbook market by completely killing it off with the iPad) and smartphone markets as they are today.

Apple’s Revenue Mix by Region & Product

Apple Revenue Growth

What Market Could Apple Revolutionize Next?

Change how people pay

Change people’s driving experience?

Apple Continues to Disrupt Industries

Apple’s WWDC 2015 Announcements

New Apple Products Announced on Sept 9, 2015

They don't like disruptive innovation, don't like huge changes, they like minor improvements. At Apple, Innovation Has Finally Left The Building?

iPad Pro: A big iPad with more sensitive touch. Concept of Microsoft Surface Pro?

Apple Watch is simply a smaller iPhone?

What are they adding to Apple TV to make it so innovative? Games.

Let’s pump up the processor a bit, add the force 3D tech and one more color, and roll out a new set of phones.

Apple has seldom been a company keen on being ‘first’. Rather, the company remains

laser focused on being the best.

Their breakthrough innovation came with the iPhone. Everything else is simply an extension or an expansion (or in the case of the Apple Watch, a reduction).

So, can you still call Apple

the most innovative company in the world?

or the “best incremental improvement company” in the world?

or the "best marketing company" in the world, but innovative?

What Could Be Apple’s Next Disruptive Innovation?

For WORKFor LIFE

For PLAY

Travel?

Shopping?

Health &Wellness?

Wirelesscharging?

Virtual-Reality?

Drone?Robot? IOT

Platform/Appliances?

Change how people work “together”?

analyze your product portfolio and find growth opportunities

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