Keys to Advanced Product Portfolio Segmentation
The way that companies segment their product portfolios impacts their strategic decision-making. This is especially true when they consider the social and environmental impacts of their products. What many companies do is to categorize a product as ‘sustainable’ if it meets a few criteria. They need to go further, says Jim Fava, chief sustainability strategist at thinkstep.
Instead of looking at products in isolation, Fava suggests companies take a holistic approach to the entire product portfolio. By taking a portfolio approach to sustainability, products can be grouped relative to each other. For example, products that perform well in terms of business value and sustainability fall in one category. Another category might consist of products that have some sustainability risks. A third category could include those that aren’t profitable or have a lot of sustainability risks.
“For the better products, you invest to really drive greater growth and make them a greater percentage of your portfolio,” says Fava. “The ones on the other end of the spectrum you fix to improve their sustainability performance. If it's too costly to make the necessary changes, you can spin them off or discontinue them.”
Fava will talk more about portfolio segmentation during Creating Business Value Using the Full Understanding of a Company’s Product Portfolio at Stewardship 2016. His session will include an example of how BASF segmented its portfolio after evaluating products according criteria that included environmental, health and safety concerns and more. “There's systematic approach that's used to rank order a whole series of products — ones that meet all the criteria, those that don't meet some criteria, and those that don't meet even fewer.”
Product stewards are uniquely positioned to help business leaders execute a portfolio segmentation strategy. “It's a business imperative,” says Fava. “They understand the risks and opportunities and can help to really grow the company with the more sustainable products that have greater margins and business value. “At the same time, they’re in an excellent position to help take products that have a risk and figure out a way to transition them to be more sustainable or transition them out.”