Essential Ingredients for Product Portfolio Optimization - EY India

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This report by EY highlights the areas consumer product companies need to address to better optimize their portfolios and, ultimately, drive improved growth and total shareholder returns. Download to read more.

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Get the most from your consumer products portfolio Five steps to drive better results

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Contents 3 Executive summary 4 You are not optimizing your portfolio as effectively as you think 6 Evidence-based decisions need evidence you can trust 8 The right people will drive growth 10 Effective resource allocation will allow the Grow stars to shine and Exit brands to retain value 12 Decisive action will create sustainable growth especially when it comes to divesting Exit brands 14 Long-term scenario planning means you’ll see the iceberg coming 16 C onclusion: fv e s t ep s t o be t t er por t f olio op timiz ation

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Get the most from your portfolio 1

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2 Get the most from your portfolio Foreword C onsumer pr oduct s CP c omp anie s ar ound the w orld ar e fgh ting f or gr o wth and the b at tle the yr e w aging is incr e asingly dif fc ult . T he lat e s t E Y C onsumer Pr oduct s and R e t ail S urv e y published e arlier in 2016 f ound that 75 o f CP e x ec utiv e s w er e fnding it mor e dif fc ult t o sus t ain pr o ft able gr o wth no w than the y did a dec ade ago as mar gins w er e s quee z ed. Nearly half agreed that much of the heritage that once made them successful now prevented them from changing such as over-dependence on a category that has become c ommoditiz ed. And only 21 o f CP c omp anie s w er e c on fden t in their abilit y t o op timiz e and r ationaliz e their port f olio on which s o much o f their gr o wth depended. Why werent their portfolios living up to their expectations The vast majority of our CP clients have an annual portfolio review including sophisticated pr oc e s s e s de signed t o yield actionable out c ome s . And y e t ne arly all o f tho s e clien t s ar e dis s atis fed with their t op-line gr o wth and t o t al shar eholder r e t urns . Despite the lack of results most senior CP executives believe their portfolio optimization pr oc e s s e s ar e w orking w ell. B ut b y digging a bit deeper w e ha v e dis c o v er ed that the actions the y t ak e ar e o ft en lacking and that ther e ar e a number o f ar e as that c ould be impr o v ed. T o cite two examples CP leaders are not directing enough resources towards growth businesses in their port f olio and the y ar en t acting decisiv ely enough t o fx or e xit lagging busine s s e s . This highlights the areas CP companies need to address to better optimize their portfolios and ultimat ely driv e impr o v ed gr o wth and t o t al shar eholder r e t urns . About the study In 2016 FT Remark surveyed 50 senior-level executives at global consumer companies with revenues of at least US3b. All the executives surveyed had responsibility for portfolio management decisions. The survey included a combination of qualitative and quantitative questions and all interviews were conducted over the telephone by appointment. The results were analyzed and collated by FT Remark and EY and in this report all responses are anonymized and presented in aggregate. Jim Doucette E Y Americ as Corporate and Growth S tr at egy L e ader Ernst Young LLP Jim Prevost Executive Director of Transaction Advis ory S ervic e s Ernst Young LLP

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Portfolio brand categories For portfolio optimization to succeed companies need to classify their brands or businesses as one of the following: Grow Br ands and busine s s e s that ar e accretive to earnings and enjoy competitive advantage and/or a leading position in a category with s tr ong gr o wth pr o spect s . Sustain Br ands and busine s s e s c onsis t en tly contributing to free cash flow and profits but without significant growth pr o spect s . Fix Br ands and busine s s e s that do no t hit their targets but are material to the busine s s or sit in at tr activ e c at egorie s . Competitive disadvantages — for example an uncompetitive cost s truct ur e or w e ak ening br and equit y — mus t be addr e s s ed. Exit Br ands and busine s s e s that ha v e no t responded to “fix” plans and/or are not meeting performance metrics and should be div e s t ed. Als o applie s to businesses that are no longer suited t o the c omp an y’ s s tr at egic dir ection. These categories set the stage for active portfolio management with all decisions driven by an accurate and c omple t e pict ur e . Get the most from your portfolio 3 Executive summary The majority of global CP businesses and executives believe their current strategic portfolio optimization process is doing the job and generating improved growth but the r e alit y doe s no t nec e s s arily liv e up t o that per c ep tion. Mo s t CP c omp anie s are not delivering on top-line growth and total shareholder return targets indicating their por t f olio op timiz ation pr oc e s s e s ar e lacking. W e c onduct ed a surv e y o f le ading CP c omp anie s in the US and W e s t ern E ur ope and it c on frms our vie w that CP c omp anie s ar e no t op timizing their por t f olio as e f f ectiv ely as the y think. Man y lack the e s s en tial ingr edien t s f or por t f olio op timiz ation and need to address the following: Managed suc c e s s fully the port f olio op timiz ation pr oc e s s c an tr ans f orm a CP busine s s . Our r e s e ar ch c on frms that e x ec utiv e s in the indus try under s t and it s v alue and c an s ee the bene ft s but the y need t o be bold iden tif ying po t en tial gr o wth engine s and w e ak link s in the busine s s . T he y need t o fr ee up and alloc at e r e s our c e s wher e the y c an achie v e the be s t r e sult s . And the y need t o fx their pr oblems or prune them — ruthle s sly if nec e s s ary — in or der t o op timiz e their port f olio f or truly sus t ainable gr o wth. Get the right set of facts. Making op timal port f olio decisions r equir e s analyzing a number of consumer market and competitive factors from a variety of sources but few CP companies trust those sources or can convert the ac c umulat ed dat a in t o us e ful insigh t s . Dedicate the best people. Unless businesses ask their best and brightest talent to lead and manage their optimization strategy and give them the authorit y t o implemen t change s the pr oc e s s will be undermined fr om the s t art . Act decisively on resource allocation. There is little point in identifying growth engines or failing brands or businesses if you are not then prepared t o alloc at e y our r e s our c e s ac c or dingly . Be bold when deciding whether to Fix or Exit. Divesting a business is often a dif fc ult decision ho w e v er dela ying the ine vit able er ode s port f olio v alue . L e ading CP c omp anie s le t the f act s le ad them and mo v e quickly . Incorporate predictive modeling and long-term scenario planning to stay ahead. Too many CP companies cite unexpected changes in market dynamic s as the k e y f act or driving their decision t o e xit a busine s s . F orw ar d- looking analyses with sophisticated data and analytic tools coupled with insights produced by employees in the business will establish a complete picture of the port f olio and allo w f or unbias ed s tr at egic planning.

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4 Get the most from your portfolio Is your portfolio optimization process driving sustainable growth You are not optimizing your portfolio as effectively as you think The vast majority of global senior CP executives think their optimization process is strategically important effective consistent handled formally and conducted with the righ t fr equenc y . In o ther w or ds it ’ s doing jus t fne . And mo s t ar e r elying on it t o deliv er impr o v ed gr o wth. Is this c on fdenc e misplac ed A f e w percentage points of growth can make all the difference when it comes to delivering on results expectations and any uncertainty or delay in action c an hur t r e sult s . L ooking in de t ail at companies’ portfolio optimization processes it’s clear that companies that excel at portfolio optimization ar e winning in the mark e tplac e . For example in our survey those who label themselves “very effective” at classifying their busine s s e s or br ands as Gr o w S us t ain or Fix deliv er ed 2.2 per c en t age poin t higher shareholder returns on average over a fv e- y e ar period than tho s e who c onsider themselves moderately or not p artic ularly e f f ectiv e . T his perf ormanc e gap is highest for those that are “very e f f ectiv e ” iden tifer s o f Exit busine s s e s or br ands e arning 3.2 per c en t age poin t higher r e t urns on a v er age . B ut a thir d o f r e sponden t s de s cribe their Gr o w - S us t ain-Fix clas sifc ation pr oc e s s as only moder at ely e f f ectiv e . Mor e signifc an tly only 46 think their process is very effective at identifying Exit businesses or brands which could be a po t en tial dr ag on gr o wth. T his me ans man y frms ar e le a ving mone y on the t able . That tells the whole story: a rigorous portfolio optimization process feeds your growth engines and prunes weaker brands including those that were once stars but ar en ’t an ymor e . If handled pr operly a busine s s will s ee impr o v ed gr o wth. B ut man y ar e s till s truggling t o unlock it s full po t en tial.

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In our surv e y 76 o f r e sponden t s poin t t o impr o v ed gr o wth as one o f the main bene ft s o f their por t f olio op timiz ation pr oc e s s . B ut gr o wth isn ’t the only bene ft . Other s include be t t er c ash fo w and fnancial managemen t — optimization has helped 50 of respondents to allocate resources more effectively to the brands within their busine s s e s while 42 s a y the pr oc e s s boo s t ed c ollabor ation be t w een dif f er en t busine s s unit s . “Portfolio optimization has promoted business growth” says the group director of strategy at a UK-based home and per s onal c ar e busine s s . “It has helped us signifc an tly sharpen our f oc us on the core business and deliver long-term value to the c omp an y’ s s t ak eholder s . ” That focus is vital when identifying potential growth engines and 62 o f r e sponden t s c on frm that enhanc ed c omp an y f oc us is one o f the main bene ft s o f an op timiz ation s tr at egy . Portfolio optimization brings benefts beyond growth An enhanced one firm culture Improved shareholder returns Improved company alignment around initiatives or activities More collaboration across business units or lines of business Better allocation of resources across brands/lines of business Enhanced company focus Improved growth 18 14 10 2 4 12 14 4 6 6 20 22 4 16 10 22 24 16 30 34 12 First choice S ec ond choic e Third choice What are the key benefts of your portfolio optimization process . of businesses believe their portfolio optimization process is effective strategically important conducted often enough and consistently across the company. 0 percentage point higher total shareholder returns were delivered over five years by those who are very effective at identifying Exit businesses/brands 3.2 But they aren’t as confident that the process is effective at classifying the businesses and brands in their portfolio. Why does this matter think their processes are very effective at identifying Exit businesses or brands only 46 Because companies with more effective portfolio optimization processes have achieved superior shareholder returns over five years. Get the most from your portfolio 5 .

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6 Get the most from your portfolio Understand your brands Portfolio optimization demands in f ormation. W ithout objectiv e dat a and a clear picture it’s impossible to identify the handful of brands and busine s s e s that ar e going t o gr o w quickly and should be fueled by investment those that jus tif y fxing r ather than e xiting and those that will remain stable and provide “b allas t ” t o the por t f olio . CP companies have access to a mountain of data from both internal and external s our c e s that dat a should be driving the por t f olio op timiz ation pr oc e s s . B ut the dat a is no t s tr ong enough. Almo s t half the executives we surveyed don’t trust that dat a. Find better data B e t t er analy sis s t ar t s with be t t er dat a a view echoed by the global director of por t f olio s tr at egy and insigh t s at a US f ood and be v er age busine s s . “It ’ s dif fc ult t o as sume fut ur e c onsumer demand patterns through mere statistical dat a. W e need a thor ough and holis tic understanding for more accurate decision- making. W e need a s tr onger f act b as e t o under s t and the mark e t w ell. ” Over half of the respondents 58 agree the y w ould bene ft fr om a s tr onger f act b as e this is highligh t ed b y 38 o f the executives in the survey as the single most important way to improve the current op timiz ation pr oc e s s . S ophis tic at ed dat a and analytic s t ools can help by structuring data in a way that allo w s CP le ader s t o gle an v aluable insigh t . B ut fr s t busine s s e s need t o c ollect be t t er more accurate data — if they don’t have that they won’t have the right market s ensing c ap abilitie s in plac e . “The data collected from the reviewing pr oc e s s o ft en lack s qualit y as the s our c e s are diverse and the amount of data collected is very large” says the head of strategy at a UK-based food and beverage busine s s . “T hat mak e s it dif fc ult t o r ely on our dat a or t o b as e s tr at egie s on it . ” Evidence-based decisions need evidence you can trust 46 of respondents do not trust information presented or supplied by others cite lack of resources as a pain point What data do you need to gain reliable insights

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Get the most from your portfolio 7 De spit e their c on fdenc e in the por t f olio op timiz ation process almost a third 28 of the respondents in our survey describe their optimization process as burdensome arguing that it doesn’t produce useful results given the cost and doe sn ’t driv e action. They also point to a lack of resources whether people or technology to improve their optimization process — 57 cite this as a p ain poin t with 22 s a ying it ’ s their bigge s t he adache . As a r e sult f or 34 o f r e sponden t s their pr oc e s s doe sn ’t do enough t o challenge the s t at us quo in an y signifc an t w a y . And without that challenge their por t f olio ma y s t agnat e . In all c as e s it ’ s cle ar that the analy sis is no t suf fcien tly de t ailed and robust enough to implement real change in their portfolio op timiz ation pr oc e s s . Portfolio optimization: too much of a burden not enough payoff What’s preventing your optimization process from being more effective 57 19 34 15 28 9 28 13 28 9 23 13 21 22 Process leaders are insufficiently influential Not seen as important in light of other priorities Doesn’t drive action Doesn’t produce useful results/ delivers low return on investment Regarded as burdensome Does not sufficiently explore options or challenge the status quo Not given enough resources Mo s t impor t an t All that apply

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8 Get the most from your portfolio Let people offer insights It ’ s critic al t o dedic at e the righ t people to the process with the right level of suppor t . T hat ’ s the challenge — ther e ’ s a t endenc y t o ha v e fnanc e or s tr at egy people prepare most of the portfolio r e vie w . B ut the be s t pr actic e is t o ge t cr o s s -functional p ar ticip ation. It r equir e s more time and planning but the results ar e usually mor e r obus t and aligned. Technology should do the heavy-lifting in terms of data gathering and analytics but your people must be able to convert that information into decisive action f as t er and with gr e at er ac c ur ac y . CP managers need to be able to make nimble fact-based strategic assessments of brands or businesses based on those insights — and they need to do so without it bec oming oner ous . The best and the brightest need to devote a block of time during any given portfolio review period to assess their brands and businesses and they need the tools to do the job . It ’ s an as s e s smen t mind-s e t and it needs to be in-depth and challenge existing assumptions rather than validate them. If it ’ s p ar t o f the c omp an y c ult ur e and the right process and tools are in plac e people will mak e it a priorit y . Agreement across the board Executives need to be onboard for the e x er cis e t o pr oduc e t angible r e sult s . Understandably many line managers may be biased looking after the interests o f their o wn br and or busine s s . A lack o f c ons ensus mak e s it dif fc ult to trust information or data coming out of the various business units or brand teams as they advocate their own corner — 46 o f r e sponden t s cit e this c onc ern. T hat c an hold e v erything b ack. “Process leaders concentrate on improving their own group functions rather than working on common ground The right people will drive results 8 deploy their highest performing talent to a great extent based on whether a business or brand is classified as Exit Grow Fix ustain 24 24 say the biggest single improvement to their optimization process would be more internal co-operation

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How is technology enabling your people to make more accurate decisions faster and more decisively f or the bene ft o f the whole c omp an y ” comments the head of marketing at a UK food and beverage business while the senior director of marketing at a B elgian c omp an y in a similar busine s s adds: “W e ha v e specifc brand preferences and our portfolio optimization is carried out with this in mind — at times these preferences look biased and some brands are f a v or ed. I f eel this should end and attention should depend on the need o f the br and or por t f olio . ” How do you think your current process might be improved Mo s t impor t an t All that apply Get the most from your portfolio 9 tronger fact base eg more granular data competitive benchmarks ore consensus around underlying fact base eg trust in information presented by others eduction in organizational biases an brand “favoritism” ore internal cooperation rather than business unit leaders figh ting own corner ncreased openness to fresh ideas ie not keep doing what has always been done ore authority for group that drives the process to make necessary changes 58 38 46 38 24 38 10 36 14 34 10 4 Portfolio optimization demands better data more cooperation and the will to change “We need to adopt a stronger fact- based approach to make our portfolio optimization more effective” says the group director of marketing strategy and c ap abilitie s in an Americ an home and per s onal c ar e c omp an y . “Pr edicting likely market outcomes eliminating or changing products in a portfolio and understanding the linkage between different brands or products is where w e c ould impr o v e . ” Well over half of the respondents 58 in our survey agree they could improve their current processes with a stronger f act b as e this is highligh t ed as the single most important improvement f or 38 o f the e x ec utiv e s in the surv e y . Jus t under a quar t er 24 s a y the biggest single improvement to their optimization process would be more in t ernal c ooper ation with 14 looking for more openness to fresh ideas and 10 focusing on a reduction in biases and br and f a v oritism. One possible solution according to 34 o f r e sponden t s is t o giv e gr e at er authority to those executives responsible f or driving op timiz ation pr oc e s s e s . Given that 21 of those surveyed feel their pr oc e s s le ader s lack suf fcien t in fuenc e t o change the sit uation it ’ s clear that decisive action needs to be t ak en t o t urn things ar ound.

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Invest resources decisively Ar e y ou in v e s ting enough time and mone y in y our Gr o w br ands Ar e y ou in v e s ting too much in businesses you’re planning to exit Or too little which could affect sale price When it comes to investing resources in their portfolio not all CP companies are choo sing wis ely . The trouble is that the split for each investment resource whether capital marketing spend or talent is typically the s ame in e ach c at egory . Gr o w br ands tend to receive half the resources while the remaining brands get the other half but CP business leaders need to be more ruthle s s . C apit al needs t o be alloc at ed more effectively and it’s not just about the marketing budget it’s also about talent: the best people and capital should be alloc at ed t o Gr o w br ands . This can be a challenge for business le ader s and br and o wner s fgh ting f or the s ame slic e o f the pie . It ’ s human nat ur e — imagine a business with 10 brands in it s por t f olio . T hr ee ar e Gr o w br ands fv e ar e S us t ain br ands and the o ther s ar e Fix or Exit . T he manager o f a S us t ain or Fix brand is going to advocate for their business and put together the best business plan to grab as many resources as possible intending to improve the chanc e s o f deliv ering. E v en if the busine s s or brand isn’t a strategic priority for the frm the manager will s till w an t the be s t people and as many resources supporting the busine s s as the y c an ge t . R e s e ar ch c on frms that Exit br ands and businesses receive less than 10 of investment resources across the bo ar d which ma y r e fect the f act that CP companies are designating r elativ ely f e w o f them as Exit s . However EY’s earlier research including the Glob al D iv e s tmen t S t udy indic at e s that many are simply failing to invest in the s e busine s s e s as a mat t er o f c our s e . These results suggest that CP companies are not basing their investments on data- driven portfolio reviews and that will not produce the results company leaders want or e xpect . Effective resource investment will allow the Grow stars to shine and Exit brands to retain value 10 Get the most from your portfolio

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Get the most from your portfolio 11 You have to be smart when investing your resources — considering long-term scenarios and focusing your resources where you have advantage in attractive markets — but that doesn’t mean you ab andon br ands . F or Exit br ands y ou still need to keep them going with tactical investments if you believe they can be s old t o a be t t er o wner . Otherwis e y ou risk de s tr o ying v alue . Highest- performing talent nnovation spending arketing spending Capital 20.1 22.5 9.0 48.4 50.5 23.8 20.5 5.2 22.1 52.5 7.5 17.9 19.3 25.4 8.1 47.2 Br ands / busine s s e s c at egoriz ed as "Gr o w" Br ands / busine s s e s c at egoriz ed as "Fix" Br ands / busine s s e s c at egoriz ed as "S us t ain" Br ands / busine s s e s c at egoriz ed as "Exit" How much are you investing in your brands/businesses Ac c or ding t o our surv e y 72 o f respondents say their capital spending will change to a great extent depending upon whether a brand or business is clas sifed as Gr o w S us t ain Fix or Exit . B ut this f alls t o 58 when it c ome s to deploying the company’s highest- perf orming t alen t . T his lack o f c onsis t enc y when it comes to resource investment c an ha v e a long-t erm imp act on gr o wth. Our survey asks to what extent organizations shift their marketing talent capital away from Exit brands and over t o Gr o w br ands . Mor e than half s a y the y handle this w ell but that should be 100. If y ou iden tif y a Gr o w br and and a S us t ain brand it doesn’t mean the former gets 60 of marketing talent and resources and the lat t er ge t s 40. If a br and is in S us t ain mode it doe sn ’t have particular advantages over key c ompe tit or s . And if ther e ’ s no poin t of differentiation why spend money on mark e ting Ins t e ad c omp anie s should spend on getting the price right t o mak e sur e it ’ s c ompe titiv e on the shelf . Under the circumstances the company would do better to bring the brand back into the shop and rework it: what is magic about this brand What is its point of differentiation What needs to be done differently On the other hand if a brand is a star in its category and given the right levels of marketing and capital support it can even take business from surrounding c at egorie s . T hat ’ s the kind o f gr o wth e v ery CP c omp an y should aspir e t o achie v e . Invest consistently How does portfolio optimization infuence your investment decisions To a moderate extent To a great extent Capital arketing spending nnovation spending Highest-performing talent 58 42 62 38 60 40 72 28 Do you have someone with the authority and infuence to drive change in your organization and the processes in place to make it happen

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12 Get the most from your portfolio Change doe s no t usually c ome quickly t o c onsumer pr oduct s . T he ec onomic landscape may shift and people’s tastes may change but if CP businesses are vigilant during the life of a brand they c an usually a v oid unple as an t surpris e s . And when a por t f olio r e vie w iden tife s a brand or business as underperforming — or likely to be so in the future — CP leaders ha v e t o act quickly be f or e it af f ect s gr o wth. And that ’ s ne v er s tr aigh t f orw ar d. “Consumers are unpredictable and divesting a single brand can have an impact on demand for the remaining product line and on our customer base” cautions the director of business de v elopmen t and s tr at egy at a US home and per s onal c ar e pr oduct s busine s s . This unpredictability extends to the company’s own attachment to the brand – heritage is an important factor in whether t o fx or e xit f or 26 o f r e sponden t s with 18 c onsidering it the mo s t signifc an t and 16 admitting a bias against exiting busine s s e s and br ands in their port f olio s . “The longer we have engaged with something especially if we have built signifc an t mark e t shar e the mor e reluctant we will be to exit” says the chie f mark e ting o f fc er o f a E ur ope an f ood and be v er age c omp an y . S ome busine s s e s s ee quick div e s tmen t s as an admission of weakness: “We feel that directly exiting a brand or a business impacts on the customer base and promotes a negative image” says the director of marketing at a French home and per s onal c ar e pr oduct s busine s s . CP company leaders need to avoid sentimentality if they want their portfolio op timiz ation s tr at egy t o suc c eed. As the dir ect or o f s tr at egy and gr o wth at a US - based home and personal care products company puts it: “We have a bit more Decisive action will create sustainable growth especially when it comes to divesting Exit brands 20 say the growth rate is the most significant factor in deciding whether to fix or exit a business/brand

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Get the most from your portfolio 13 sentiment and bond with our brands but this is a hur dle I think should be de alt with r ationally . Our s tr at egie s should be f oc us ed on gr o wth and pr o ft abilit y . ” It doe sn ’t help that 84 o f r e sponden t s do not consider the potential selling price of an underperforming brand as key f or their div e s tmen t decision. If an e xit strategy doesn’t include a business’ or brand’s potential sale value there will be less motivation to make it an attractive option for buyers and that could have an imp act on gr o wth acr o s s the por t f olio . Hesitation is understandable — this is one o f the mo s t dif fc ult decisions a busine s s le ader is going t o f ac e . Mo s t c omp anie s ar e no t good at pruning businesses but they’ve got to be tough t o mak e the mo s t o f their por t f olio . Unfortunately the decline of a non-core br and t ends t o ac c eler at e fr s t bec aus e the brand is typically not in an advantaged position in an attractive category and second because over time the lack of resources sent its way further erodes it s po sition. T he longer managemen t waits the more expensive the hesitation c an bec ome . Get the most from your portfolio 13 B usine s s e s will nat ur ally f eel mor e r eluct an t t o e xit br ands that are sitting in fast-growing segments even if they are no t achie ving their full po t en tial. One in fv e r e sponden t s 20 say the growth rate of the business or brand itself is the mo s t signifc an t f act or when c onsidering whe ther t o fx or e xit while almo s t as man y 18 cit e the degr ee o f c onsumer lo y alt y t o the br and. Half o f the r e sponden t s cite the respective category growth rate as either the fr s t 16 or s ec ond 34 mo s t signifc an t f act or in the decision-making pr oc e s s . What infuences your decision to fx or exit a brand Could you be bolder in deciding which businesses to fx and which to exit Fix or Exit: growth factors Price or value that could be realized by selling the business trength of brand euity Company bias against exiting businesses Category growth rate Connection of brand or business with parent company heritage Degree of consumer loyalty rand/business growth rate 34 16 14 18 20 20 10 8 18 4 12 10 6 10 Connec t on of brand or business with parent company heritage Company bias against exi t ng businesses Price or value that could be realized by selling the business First choice S ec ond choic e

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14 Get the most from your portfolio B usine s s e s that plan ahe ad b as ed on reliable data-driven insights and experience should be able to spot trouble c oming. Underperf orming busine s s e s that ar e doomed t o f ail should be iden tifed and sold earlier to avoid the drag on growth and t o r e aliz e the be s t pric e . CP businesses are not necessarily learning this lesson: a clear majority 80 claim unexpected changing market dynamics — that is factors beyond their control — were a major factor in their decision to exit a brand or business after at t emp t s at a fx f ailed. These tendencies — to blame unexpected market dynamics or hesitate before e x i t i n g — ar e misle ading. On the one hand respondents are suggesting that their analysis of market conditions and the state of the business or brand meant a fx w as possible and the right choic e . On the other hand they’re suggesting that market conditions change so rapidly that the y c ould no t f or e s ee what w as t o c ome . Mark e t dynamic s don ’t suddenly bec ome an is sue . T he y e v olv e o v er time . It c ould be a long term “climate-like” trend — or it c ould be an ic eber g out in fr on t o f the ship . Either way it’s important to constantly s c an the horiz on. The right integrated analytics can track the market and a brand’s performance in gr e at de t ail fr om s ale s fgur e s t o social media commentary with all the po sitiv e s and negativ e s . It ’ s import an t f or CP businesses to step back and remain objective otherwise they might overlook or dis c oun t what ’ s in fr on t o f them. 31 say their final exit decision was driven by a buyer willing to pay the price Long-term scenario planning means you’ll see the iceberg coming 80 say their final decision was driven by changing market dynamics — that is factors beyond their control Do you ruthlessly execute what your scenarios are telling you

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Get the most from your portfolio 15 When you have divested a brand or business that you had previously attempted to fx what factors drove your decision Attempts at fixing failed A buyer emerged that was willing to pay an acceptable price Other changes in the portfolio negatively affected the brand or business Market dynamics turned against the brand or business 58 80 12 35 14 31 16 29 All that apply Mo s t impor t an t 29 say failing to fix a business or brand was a factor in its subsequent sale

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16 Get the most from your portfolio The results of this survey are very much aligned with the issues we have often seen with our clien t s . T he majorit y of the respondents in our survey agree that a portfolio optimization process can driv e gr o wth. C omp anie s with a “very effective” portfolio review process have enjoyed gr e at er fv e- y e ar t o t al shareholder returns than those with less effective op timiz ation pr actic e s . W e belie v e ther e ar e specifc key actions CP companies should take to kick-start their growth engines and trim the de adw ood. Conclusion: fve steps to better portfolio optimization If y ou don ’t giv e y our t e am the time and t ools the y need to conduct a thorough evidence-based portfolio review pr oc e s s the y will ne v er challenge y our as sump tions . You risk becoming complacent and that will eventually under c ut gr o wth. Dedicate the best people. S ophis tic at ed dat a and analytic s t ools should generate continuous insight that leads to nimble and decisive action but many CP executives struggle with o v erwhelming and o ft en unr e fned dat a and pr oc e s s e s that do no t delv e deep enough. Dat a is sue s need t o be sorted to deliver information that is actionable for port f olio decision-making. Get the right set of facts. A por t f olio op timiz ation pr oc e s s begins with iden tif ying potential growth engines but it only succeeds when executives are ruthless in prioritizing resources — mark e ting in v e s tmen t c apit al t alen t — t o tho s e ar e as . Act decisively on resource allocation.

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Company heritage and other emotionally driven factors can weigh heavily when deciding whether t o fx or s ell/ e xit an underperf orming br and. Failing brands and businesses may be retained and allowed to lose value for far too long making the eventual exit more complicated and at a lower value than could have been realized with earlier mor e decisiv e action. Be bold when deciding whether to Fix or Exit. Incorporate predictive modeling and long-term scenario planning to stay ahead. When asked why they divested a brand or business most executives we surveyed mention une xpect ed changes in mark et dynamic s. But changes like these can be anticipated through effective scenario planning — by asking better questions sooner — and addr essed be f or e the y bec ome a pr oblem. Br ands and businesses c an then be fx ed or sold be f or e mark et changes aff ect a por t f olio ’ s pr o ftabilit y or gr o wth. Jim Prevost Executive Director of T r ans action Advis ory S ervic e s Ernst Young LLP Tel: +1 312 879 3229 Email: jim.pr e v o s te y . c om Jim Doucette Americ as C orpor at e and Gr o wth S tr at egy Leader Ernst Young LLP T el: +1 203 674 3372 Email: jim. douc e t t ee y . c om Contacts To learn more please speak with your EY contact or get in touch with one of us: Get the most from your portfolio 17

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EY | As sur anc e | T ax | T r ans actions | Advis ory About EY EY is a global leader in assurance tax transaction and advisory s ervic e s . T he insigh t s and qualit y s ervic e s w e deliv er help build trus t and c on f idenc e in the c apit al mark e t s and in ec onomie s the w orld o v er . W e develop outstanding leaders who team to deliver on our promises to all o f our s t ak eholder s . In s o doing w e pla y a critic al r ole in building a be t t er w orking w orld f or our people f or our clien t s and f or our c ommunitie s . EY refers to the global organization and may refer to one or more of the member firms of Ernst Y oung Global Limited each of which is a separate legal en tit y . Erns t Y oung Glob al Limit ed a UK c omp an y limit ed b y guar an t ee doe s no t pr o vide s ervic e s t o clien t s . F or mor e in f ormation about our or ganiz ation ple as e visit e y . c om. © 2017 E YGM Limit ed. All Righ t s R e s erv ed. E YG no . 00000-164Gbl ED None This material has been prepared for general informational purposes only and is no t in t ended t o be r elied upon as ac c oun ting t ax or o ther pr o f e s sional advic e . Ple as e r e f er t o y our advis or s f or specif ic advic e . The views of third parties set out in this publication are not necessarily the views o f the glob al E Y or ganiz ation or it s member f irms . Mor eo v er the y should be s een in the c on t e xt o f the time the y w er e made . ey.com/consumerproducts S trictly f or in t ernal us e only © 2017 E YGM Limit ed. All Righ t s R e s erv ed. ED None

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