SME portfolio planning methods in FMCG industry
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Аннотация
ETHICS STATEMENT
ABBREVIATIONS
INTRODUCTION 7
1. THEORETICAL BACKGROUND OF PORTFOLIO MATRICES FOR SME IN
FMCG INDUSTRY 11
1.1 Approaches to constructing matrices 11
1.1.1 General approach to portfolio building SBU 11
1.1.2 Features of SME and FMCG industry 14
1.2 The most popular matrices 15
1.2.1 BCG matrix 16
1.2.2 GE/Mckinsey Business Screen Approach 19
1.2.3 Proctor matrix model 21
1.3 Author's approach to SME portfolio planning in FMCG industry 23
2. EMPIRICAL STUDY 28
2.1 Methodology 28
2.2 Data collection for empirical research 28
2.3 Results 29
3. DISCUSSION AND CONCLUSION 38
REFERENCES 41
APPENDEXIES:
Appendix 1
Appendix 2
Appendix 3
ETHICS STATEMENT
ABBREVIATIONS
INTRODUCTION 7
1. THEORETICAL BACKGROUND OF PORTFOLIO MATRICES FOR SME IN
FMCG INDUSTRY 11
1.1 Approaches to constructing matrices 11
1.1.1 General approach to portfolio building SBU 11
1.1.2 Features of SME and FMCG industry 14
1.2 The most popular matrices 15
1.2.1 BCG matrix 16
1.2.2 GE/Mckinsey Business Screen Approach 19
1.2.3 Proctor matrix model 21
1.3 Author's approach to SME portfolio planning in FMCG industry 23
2. EMPIRICAL STUDY 28
2.1 Methodology 28
2.2 Data collection for empirical research 28
2.3 Results 29
3. DISCUSSION AND CONCLUSION 38
REFERENCES 41
APPENDEXIES:
Appendix 1
Appendix 2
Appendix 3
Economic globalization has created many challenges for small and medium-sized enterprises (SMEs) due to the rapid increase in competition. Accordingly, SMEs need to adopt survival strategies and strategic methods in order to successfully address the various global challenges facing the SME sector.
A study by Sisira Kumar Narad Gamage (2020) identified critical global challenges for SMEs in the context of economic globalization, one of which is changing consumer preferences. According to Michael K. Kant (2014), choosing the right SBU to offer to the market is a complex and important task that requires understanding and understanding of the needs and desires of the customer. This task is even more important and crucial for SMEs, which in many cases have to rely only on the knowledge and feelings of the owner or manager in making these decisions. Therefore, it is important for SMEs to have a well thought out strategy when building their SBU portfolio. Medium-sized companies can no longer afford a wide portfolio of SBUs. They are trying to find a differentiation strategy in a focused segment.
For SMEs, portfolio management can be challenging, especially in today's market conditions with the impact of Covid-19 changing the political and economic environment. To overcome this, they must choose the path they should take, but this can be difficult when the information to be collected is not clear, leading to ad hoc processes and inconsistencies.
The goal of any business should be to satisfy the needs and desires of its customers by offering its products. Thus, the search for sustainability and competitive advantage is essential, as is the choice of strategic units and markets for doing business.
According to F.R. David (2001) Strategic management is the science of formulating, implementing and evaluating those decisions that enable organizations to achieve their long-term goals. So according to L.L. Byar (1990) Portfolio analysis decisions are closely related to corporate strategy, there is a level of corporate decision making when a company enters into multiple products and markets. However, small and medium enterprises have some peculiarities, because most of them work with one product in one market, but as they grow or as risks decrease, which is especially important in a turbulent environment, companies try to diversify their activities, so for SME it may be important to form your own methods of forming a business portfolio.
Choosing the right SBUs is important because the wrong choice can be critical to the existence of an SME. Thus, it is important for small and medium businesses to have the right strategy when building a portfolio of business units.
Consumer packaged goods companies are under intense pressure to balance their SBU portfolios, according to a PwC report (2019).
Undoubtedly, product line expansion through more SBUs is a sign of innovation, suggesting a favorable outlook for consumer products, but new products and options fall short of expectations if they are not used properly and are not subjected to careful analysis. When standard gross margin (gross sales minus standard cost) is positive, most consumer goods companies are willing to open new SBUs. Understanding the increase in net income and overall portfolio impact is critical to overall company's health and profitability, according to a 2019 PwC report.
Nowadays, according to PwC 2019 analytics, companies in the consumer goods segment are facing real problems. Thus, based on the analysis of the literature, we can conclude that there is a close relationship between modern problems of small and medium-sized businesses, the challenges of the FMCG sector and the corporate strategy of the company. In Figure 1, the place of the master's thesis is determined in accordance with the analysis of the literature....
A study by Sisira Kumar Narad Gamage (2020) identified critical global challenges for SMEs in the context of economic globalization, one of which is changing consumer preferences. According to Michael K. Kant (2014), choosing the right SBU to offer to the market is a complex and important task that requires understanding and understanding of the needs and desires of the customer. This task is even more important and crucial for SMEs, which in many cases have to rely only on the knowledge and feelings of the owner or manager in making these decisions. Therefore, it is important for SMEs to have a well thought out strategy when building their SBU portfolio. Medium-sized companies can no longer afford a wide portfolio of SBUs. They are trying to find a differentiation strategy in a focused segment.
For SMEs, portfolio management can be challenging, especially in today's market conditions with the impact of Covid-19 changing the political and economic environment. To overcome this, they must choose the path they should take, but this can be difficult when the information to be collected is not clear, leading to ad hoc processes and inconsistencies.
The goal of any business should be to satisfy the needs and desires of its customers by offering its products. Thus, the search for sustainability and competitive advantage is essential, as is the choice of strategic units and markets for doing business.
According to F.R. David (2001) Strategic management is the science of formulating, implementing and evaluating those decisions that enable organizations to achieve their long-term goals. So according to L.L. Byar (1990) Portfolio analysis decisions are closely related to corporate strategy, there is a level of corporate decision making when a company enters into multiple products and markets. However, small and medium enterprises have some peculiarities, because most of them work with one product in one market, but as they grow or as risks decrease, which is especially important in a turbulent environment, companies try to diversify their activities, so for SME it may be important to form your own methods of forming a business portfolio.
Choosing the right SBUs is important because the wrong choice can be critical to the existence of an SME. Thus, it is important for small and medium businesses to have the right strategy when building a portfolio of business units.
Consumer packaged goods companies are under intense pressure to balance their SBU portfolios, according to a PwC report (2019).
Undoubtedly, product line expansion through more SBUs is a sign of innovation, suggesting a favorable outlook for consumer products, but new products and options fall short of expectations if they are not used properly and are not subjected to careful analysis. When standard gross margin (gross sales minus standard cost) is positive, most consumer goods companies are willing to open new SBUs. Understanding the increase in net income and overall portfolio impact is critical to overall company's health and profitability, according to a 2019 PwC report.
Nowadays, according to PwC 2019 analytics, companies in the consumer goods segment are facing real problems. Thus, based on the analysis of the literature, we can conclude that there is a close relationship between modern problems of small and medium-sized businesses, the challenges of the FMCG sector and the corporate strategy of the company. In Figure 1, the place of the master's thesis is determined in accordance with the analysis of the literature....
This chapter summarizes the results for each of the research questions. In addition, the reliability of the study is discussed. The overall success and contribution of the study is also assessed, and possible topics for further research on the subject are suggested.
The main focus of this study was on the analysis of existing strategic business unit portfolio planning approaches and the selection of matrices that are most appropriate for a portfolio of SME business units in the FMCG sector. The analysis showed that such a classic tool as the BCG matrix has disadvantages that are critical for SMEs in the FMCG sector. According to N. D. Boafo (2018), only two market dimensions are used in the BCG matrix, and these are not the only indicators of success.
This approach gives unambiguous recommendations without regard to details. SBUs labeled as dogs can sometimes help a company gain a competitive edge.
The main problem with the matrix is that it does not take into account the fact that sometimes one SBU helps another to succeed. For example, one of the SBUs - a typical dog - can be the reason for the success of another. And if a company stops investing in seemingly unpromising SBUs, it could hurt its core profitable assets, which is absolutely necessary for the FMCG industry, according to N. D. Boafo (2018).
An analysis of the GE/McKinsey matrix showed that this tool, although it covers the shortcomings of the BCG matrix, recognizes that the use of one-dimensional indicators is an oversimplification. According to recent research by Mithun Sridharan (2022), the GE McKinsey matrix is best suited for businesses that have a low competitive position, are active in an unattractive industry, which means that the matrix is not suitable for SMEs in the FMCG sector, as this sector is one of the most competitive.
Similarly, there is a flaw in the GE/McKinsey matrix - it takes into account the attractiveness of the industry and the strength of the business, but pays little attention to the turbulence factor.
Therefore, when analyzing existing approaches, the Proctor method described in Chapter
1.2.3 turned out to be the most suitable, and indicators for the three-dimensional Proctor matrix presented in Chapter 1.3 were developed as the main result of the study. These indicators were developed on the basis of the Proctor matrix and take into account the characteristics of SMEs and the FMCG industry, which is the most optimal method for building a portfolio of business units for small and medium-sized businesses in the FMCG sector. This is due to the fact that decisions made at the strategic level in relation to the portfolio of business units take into account the need to use a multi-criteria approach based on more than two criteria, in contrast to the classical matrices discussed in Chapter 1. The author's methodology takes into account the important for small and medium-sized businesses in the FMCG industry criteria such as competitiveness criteria, segment attractiveness criteria, as well as external turbulence factors.
Step-by-step steps for small and medium-sized businesses in the FMCG sector were developed and tested on the companies under study. According to the results of the analysis, this method is self-sufficient and does not require additional adaptation, therefore it is recommended for use for small and medium-sized businesses in the FMCG sector, since in the conditions of instability of the global economy and the impact of Covid-19, it allows taking into account risk factors and uncertainties.
The studied companies did not have a method of managing a portfolio of business units and, as a result, introduced this method into their practice. This allowed the management of the companies to reconsider the strategy of their business portfolio. Company management now has an understanding that when turbulence is high, the life of dairy cows tends to be shorter and the amount of cash received will be relatively less than when turbulence is low.
In a highly turbulent environment, Problem Children and Stars will be much more demanding on resources and, again, will have a shorter life cycle. Therefore, the author's method helps to realize the benefits of a number of investments in business units in low turbulence conditions. For example, among these low turbulence investments were a few cash cows that could be used to fund troubled children and stars traded in high turbulence.
The study has its limitations, however, the study does not include a study of the impact on small businesses, as only 10% of the 40 companies dropped out, which are medium-sized enterprises. Therefore, it is possible to further study the author's methodology for small enterprises, as well as enterprises from another FMCG segment, such as household chemicals and tobacco products.
The main focus of this study was on the analysis of existing strategic business unit portfolio planning approaches and the selection of matrices that are most appropriate for a portfolio of SME business units in the FMCG sector. The analysis showed that such a classic tool as the BCG matrix has disadvantages that are critical for SMEs in the FMCG sector. According to N. D. Boafo (2018), only two market dimensions are used in the BCG matrix, and these are not the only indicators of success.
This approach gives unambiguous recommendations without regard to details. SBUs labeled as dogs can sometimes help a company gain a competitive edge.
The main problem with the matrix is that it does not take into account the fact that sometimes one SBU helps another to succeed. For example, one of the SBUs - a typical dog - can be the reason for the success of another. And if a company stops investing in seemingly unpromising SBUs, it could hurt its core profitable assets, which is absolutely necessary for the FMCG industry, according to N. D. Boafo (2018).
An analysis of the GE/McKinsey matrix showed that this tool, although it covers the shortcomings of the BCG matrix, recognizes that the use of one-dimensional indicators is an oversimplification. According to recent research by Mithun Sridharan (2022), the GE McKinsey matrix is best suited for businesses that have a low competitive position, are active in an unattractive industry, which means that the matrix is not suitable for SMEs in the FMCG sector, as this sector is one of the most competitive.
Similarly, there is a flaw in the GE/McKinsey matrix - it takes into account the attractiveness of the industry and the strength of the business, but pays little attention to the turbulence factor.
Therefore, when analyzing existing approaches, the Proctor method described in Chapter
1.2.3 turned out to be the most suitable, and indicators for the three-dimensional Proctor matrix presented in Chapter 1.3 were developed as the main result of the study. These indicators were developed on the basis of the Proctor matrix and take into account the characteristics of SMEs and the FMCG industry, which is the most optimal method for building a portfolio of business units for small and medium-sized businesses in the FMCG sector. This is due to the fact that decisions made at the strategic level in relation to the portfolio of business units take into account the need to use a multi-criteria approach based on more than two criteria, in contrast to the classical matrices discussed in Chapter 1. The author's methodology takes into account the important for small and medium-sized businesses in the FMCG industry criteria such as competitiveness criteria, segment attractiveness criteria, as well as external turbulence factors.
Step-by-step steps for small and medium-sized businesses in the FMCG sector were developed and tested on the companies under study. According to the results of the analysis, this method is self-sufficient and does not require additional adaptation, therefore it is recommended for use for small and medium-sized businesses in the FMCG sector, since in the conditions of instability of the global economy and the impact of Covid-19, it allows taking into account risk factors and uncertainties.
The studied companies did not have a method of managing a portfolio of business units and, as a result, introduced this method into their practice. This allowed the management of the companies to reconsider the strategy of their business portfolio. Company management now has an understanding that when turbulence is high, the life of dairy cows tends to be shorter and the amount of cash received will be relatively less than when turbulence is low.
In a highly turbulent environment, Problem Children and Stars will be much more demanding on resources and, again, will have a shorter life cycle. Therefore, the author's method helps to realize the benefits of a number of investments in business units in low turbulence conditions. For example, among these low turbulence investments were a few cash cows that could be used to fund troubled children and stars traded in high turbulence.
The study has its limitations, however, the study does not include a study of the impact on small businesses, as only 10% of the 40 companies dropped out, which are medium-sized enterprises. Therefore, it is possible to further study the author's methodology for small enterprises, as well as enterprises from another FMCG segment, such as household chemicals and tobacco products.
