When automotive entrepreneur, Henry Ford, coined the phrase ‘You can buy it in any colour as long as it’s black,’ the words reflected an approach to customisation that represented the manufacturing reality of the day. Low cost and customisation were seen to be mutually exclusive; anything tailor-made was likely to be the preserve of the wealthy. Now, with new and emerging methods and technologies, manufacturing can be automated to support customers’ unique specifications. To be competitive it is no longer sufficient to focus on either cost or differentiation–companies must consider both.
As if these pressures were not enough, with shortening product life cycles and prolonged pay off periods, the ‘window of profitability’ is shrinking. As a result, there is no margin for error, and companies must continuously strengthen their capability to efficiently bring products to the market that are closely matched to customer needs.
Innovation for growth
Over the last few years, many companies have almost forced themselves into a corner, prioritising cost cutting and time-to-market. Innovation and breakthrough product initiatives have been stifled in favour of short-term profitability. Lack of capability to strategically balance product and project portfolios has put long-term profitability at risk for many companies. Research shows that a well balanced focus on innovation and long-term development provides a significant return on investment and serves as one of the most important drivers for growth. No better time, then, to reinforce the fact that innovation is an engine to achieve growth, profitability and competitive differentiation while increasing shareholders returns.
To take full advantage of the opportunities created by innovative practices, Accenture believes companies need to secure not only a more efficient means by which to develop, but also a more structured and strategically balanced approach when deciding which products to take to market. For many companies, portfolio management is a complex and challenging situation. Customers want greater product variety, more frequently. Diverse industries are experiencing a more competitive landscape, where market segmentations become blurred as luxury and mainstream products overlap in both construction and performance. Furthermore, Asian markets are booming in comparison with western markets; recent research1 supports a growing trend for companies to invest in markets far away from home. Also impacting this picture, as a part of an ongoing growth strategy for value creation, a large number of companies are already undertaking merger and acquisition transactions or are likely to do so in the near future.2 To realise cost savings, duplication has to be eliminated; a time-hungry activity that must run in parallel with the effective management of existing product portfolios. Last but not least amongst the challenging influences, diminishing economies of scale are driving companies to turn to innovation–in collaboration with partners–for salvation.
Harnessing the complex portfolio management challenge offers many companies the means to create significant value; primarily by increasing sales, while reducing costs and squeezing better value from net assets. Indeed, as Accenture research has shown, there is a clear difference in how high-performing companies manage their product portfolio compared to low-performing companies. As a result, top performers have a larger share of revenues and profits coming from new products as well as a more well-balanced portfolio compared to average and worst performers.
Key capabilities for successful portfolio management
From our experience working with clients to achieve high performance
through supply chain mastery, Accenture has identified seven key
capabilities to successful product portfolio management (see Figure 1):
1. A clear and distinct product strategy and global research and
development operating strategy that is communicated across the
company.
2. A structured way of collecting, interpreting and applying customer
and technology insight.
3. A structured and effective approach to product and technology
portfolio planning.
4. A structured and efficient approach to portfolio development and
product management.
5. An open perspective and attractive approach to innovation in
partnership.
6. A strategic talent management capability, securing the right people
in the right place.
7. An infrastructure to enable efficient collaboration and data
management.
To be successful in future markets, organisations need to shift their focus on lead times, costs and increased sales to capitalise on the rewards from applying innovation and portfolio management to produce value added research and development. As analysts and customers alike are demanding evidence of companies’ planned product portfolios, senior supply chain executives need to ask themselves where they are headed and how they intend to create that future value.
1. Source: www.unctad.org
2. Source: Accenture Post-Merger Integration Survey, 2004.
If you would like to know more about product portfolio management, contact Jerker Funnemark who leads the Product Life Cycle Management community within the Accenture Nordic region at jerker.funnemark@accenture.com. Or visit www.accenture.com/supplychain
