At one point or another every business leader faces this challenge. Perhaps it was just after taking over a business as new leader, after acquiring a new portfolio or when facing existential crisis. The questions take several forms but in essence is simple.
Where to invest and where to cut losses so the business can deliver sustained profitable growth?
Magazine publisher, Meredith Corporation that now owns about thirty plus magazines takes a rational approach to its portfolio of thirty plus magazines. To quote the Journal, the leadership team views their venture this way,
Business can be divided into problems and situations. Problems can’t be solved with any amount of time and money. Situations, on the other hand can.
The past year it had acquired big magazine brands like Time, Fortune and People, from Time Warner, adding to its portfolio of magazines with limited appeal like Better Home & Gardens. Applying their categorization, they quickly marked Time, Fortune and a few others as Problems while People magazine was marked Situation.
The Problem magazines delivered content that can be found in other places, perhaps for free. The Situations had core strength delivering differentiated content but faced an uphill battle from the drop in advertising and changing readership.
A clear logical framework to decide where to invest and where to fold. While this would be an improvement over decisions based on emotions and gut feel the framework can be improved upon. To that let us revisit and reframe what they called as Problems and Situations.
In essence, Problems are endogenous, core to the product and Situations are exogenous, conditions outside of the product. Careful reflection will tell you that the two are not mutually exclusive, external conditions can overlay product problems. Another problem with the Meredith’s approach is right away calling problems vs, rating the products on their core strengths.
Let us fix the two shortcomings to develop a new decision framework.
The first dimension is Product Strength, which could be weak or strong. A weak product has poor fit, wrongly prices, too richly or too poorly designed or simply a dud.
The second dimension is Market Condition, which could be favorable or unfavorable. Market conditions include new tariffs, shift in consumer preference, disruption by another marketing making technology trend or supply chain disruptions.
This gives us this simple 2X2 matrix for decision making.
Meredith’s decision, once they identified Problems and Situations, was simple. Invest in the latter and get rid of the former.
The Product-Market matrix gives us a more granular approach. It makes us revisit every category even those strong products performing well in a favorable market.
Weak Product – Unfavorable Market: There should be none here. Shut it down now.
Weak Product – Favorable Market: You should be worried. Everyone sees the same market data and the nimble ones will move to shut you out. Get your act together and understand why your weak product has any traction at all in a favorable market.
Strong Product – Unfavorable Market: You have an advantage, or moat if you will, But market conditions demand changes. Look for product version changes – maybe you need a light version at lower price, need a complement with partners, target new segments, or choose a different method of delivery. All of these are worthy of exploring and investing.
Strong Product – Favorable Market: Important thing is to not lose focus. While the simple answer here may seem keep investing, it is worth investigating if you are over-invested. Find the right level that frees up resources for your other two quadrants.