Volume 134: The Accidental Portfolio.

The Accidental Portfolio.

tl;dr: Geeking out on brand architecture. Yes, I am that boring.

Sorry, there was no Off Kilter last week; things have been a little busy on the work front, which is good for me and less good for the state of this newsletter. As a result, this single-issue edition is driven by things I’ve been working on rather than something I’ve been paying attention to in the world.

I’ve had very similar conversations with different clients around brand architecture in the past couple of weeks. (Meaning how a company’s brands are organized, rather than the advertising version of this term, which is more akin to a messaging hierarchy). It’s one of the most misunderstood aspects of our work, with potentially disastrous business consequences.

I think one reason is that we tend to look at the frameworks - branded house (AKA master or monolithically-branded), sub-branded, endorsed, and house of brands (AKA portfolio), through an academic rather than a business lens. Often focusing on what looks neat on a PowerPoint slide rather than what will best enable the success of the business. In reality, different architectures impact the business differently, have differing implications vis a vis the financial and management resources required to build and manage them, and tend to align to specific business models and go-to-market approaches.

For example, a branded house/master/monolithic brand architecture, which elevates a single brand across a potentially wide range of product types, tends to suit environments where you’re cross-selling multiple products to a single customer, and require brand scale to compete, and is especially useful where you’re assembling multiple products or services to create customer-centric solutions. This is why it tends to be so prevalent in B2B environments, where the flexibility to mix and match matters.

To give a practical example, I once consulted for GE, which had made 350+ acquisitions in Europe, none of which had been integrated brand-wise. In talking to one of its business leaders, he described how they’d struggled to meet an RFP request for a continent-wide client solution because it meant cobbling together products from 20 different national-level brands to do so, which led to their losing the bid because the prospective client questioned their ability to deliver.

This is an excellent example of a portfolio architecture (albeit accidental) being the opposite of what was optimal for the business. And it’s a common error.

I genuinely believe the accidental portfolio is a singular architecture challenge and a direct reason why corporations like GE, which might have massive operational scale, often make the mistake of being sub-scale at a brand level.

P&G is often cited as the definitive example of a portfolio architecture, but the nature of why this works and the discipline of managing it is widely and wildly misunderstood. P&G isn’t individually branding products; it’s building category-level brands with significant financial and managerial resources behind them. For example, oral health is a $50bn category globally. To compete, P&G has a tiny number of brands, primarily Crest and Oral-B, that cover hundreds of product SKUs across an array of countries. This is why you have multiple variants of Crest toothpaste, mouthwash, tooth-whitener, and Oral-B toothbrushes.

This works because it’s establishing brand scale in clearly defined categories large enough and profitable enough to justify the investment in a dedicated brand, or two. So, while P&G as a corporation may technically operate as a house of brands, at a category level it’s much more akin to a branded house architecture (AKA master-branded/monolithic).

By contrast, there are three common variants of what I call the accidental portfolio:

Acquisition driven, a la the GE example above. Ego-driven, which plagues technology companies. And the deluded portfolio, which is common among so-called “legacy” brands.

The acquisition-driven portfolio is fairly self-explanatory, so I won’t focus on it here. The other two, however, are worth investigating further.

1. The Ego-Driven Portfolio.
   Most modern technology companies have highly distributed operating models oriented around product teams. These product teams like to think they’re special (don’t we all), and as such, each deserves its own brand. Without robust and centralized brand management at a business leadership level, there’s no countervailing force, so they get what they want. Each product receiving a brand name, logo, positioning, etc., and a product marketer or team of product marketers to manage it. These products then go to market primarily via activation-driven, performance marketing tactics. In B2B environments, this might be labeled “account-based marketing” or “lead gen,” but it amounts to the same thing. Notably, while each product group might think it has a brand, the outside world rarely agrees. This is because it’s easy to spin up a name and a logo, a positioning, and a set of marketing tactics, while building a brand remains difficult, expensive, and time-consuming. I refer to this as labeling rather than branding because all you’re doing is slapping labels on things.
   
   Over time, as the business grows, it rapidly adds more products, developing an increasingly complex and fragmented brand portfolio that begins to overlap and then fall all over on itself. And while the business overall might have massive operational scale, it now finds itself with a multitude of sub-scale pseudo brands, offering few of the benefits a real brand provides.
   
   Product brand proliferation then continues because individual product growth tends to stall out (very similar to what happens to startups, where you see strong growth from a small base, but then an over-reliance on activation tactics hits a wall of diminishing returns), so the organization responds by spinning up even more product level brands…which kicks the can down the road a bit, while introducing incredible levels of additional complexity to the portfolio, which in turn makes it hard to attract exactly the kind of large, high-value, multi-product relationships that scale should enable.
   
   Furthermore, in addition to a confounding wall of complexity that no customer can fathom (One of the direct reasons systems integration consulting even exists), it’s also horrendously inefficient. While each product team thinks it’s performing well relative to its measurement dashboards, at a macro level, it’s a appalling waste of resources.
   
   This matters because while the total marketing spend might be huge, it’s fragmented nature means it’s delivering none of the benefits of building a brand at a scale. One of the concepts lost in the shift to activation-focused advertising is that brand spend can be a massive competitive advantage in and of itself. All other things being equal, brands that can outspend the competition tend to suck the oxygen out of the room and dominate the narrative. This is why the fragmented approach to marketing spend we see among technology companies, far from optimal, can actually be competitive advantage destroying.
   
   All up, this is the literal poster child for the concept that what got us where we are won’t get us where we’re going.
   
   If we compare this to the P&G approach to oral health I gave above, it’s the equivalent of branding every single product SKU individually with a different brand name, logo, etc., without any investment in building these individual brands. Imagine walking into your local drugstore to find every single version, pack size, etc., of every oral health product from P&G not branded Crest or Oral B at all but instead individually labeled, each with its own name, logo, and packaging, none of which you’ve heard of before. Chances are you’re buying a Colgate product instead.
   
   The challenge of fixing this problem is one of ego and a lack of brand management as a senior level discipline. It’s exceptionally difficult to reign in brand chaos within an organization that prides itself on its distributed operating model once the architecture has already fragmented. Especially if the organization lacks an understanding of the financial and management resources necessary to build a strong brand, let alone hundreds. Equally, no product team ever willingly gave up its toys and self-identity, and often these teams have much power internally.
   
   A notable exception to this rule is Satya Nadella-era Microsoft, which while far from perfect, has spent years shifting its architecture toward a category-level model. A massive shift from the chaos factory that existed when I consulted with them years ago, forced upon it by the decline of Windows as a competitive force.

2. The Deluded Portfolio

   The other version of the accidental portfolio that is oh-so-common is what I’d refer to as the deluded portfolio. This is common in large organizations that already have brand scale yet now find themselves with concerns around innovation, new product introduction, and, often, a lack of appeal to younger customers.
   
   Here, you’ll commonly hear the refrain that they want to drive new growth by “innovating like a startup,” which usually means spitting out a smorgasbord of new and separately branded offerings, often in parallel, and all in the category the existing brand already serves.

   
   Now, this “innovate like a startup” mentality is fine if you mean to replicate the good parts of startups - speed, agility, creativity, risk-taking, flexibility, customer centricity, willingness to fail and learn, etc. But it’s much less fine when it also means replicating the bad parts of startups - namely, that nobody has ever heard of you, you have zero brand scale, few resources to play with, and no customers.
   
   Here, a common mistake is to view the existing brand that brings scale, resources, customers, salience, and trust as a “legacy brand.” Creating the conceit that it’s of the past rather than the future. In reality, relevance problems are often more likely to be product problems than a brand problem alone. The brand only lacking relevance because it doesn’t have the innovative products customers are looking for, not because there’s something intrinsically terrible about it.
   
   This means you’re rarely solving the real problem by pushing all your innovative new thinking into a portfolio of small, sub-scale, separately branded entities. Worse, besides robbing the so-called “legacy” brand of its destiny, you’re now attempting to grow a portfolio of separately branded offerings that lack any of the benefits of brand scale in a category the parent is usually already in, creating a double whammy of problems.
   
   Again, if I compare this to the P&G example, it would be the equivalent of freezing all Crest and Oral B product innovation at a single moment in time, and only releasing new oral health innovations under an array of previously unheard-of brand names. As a result, Crest and Oral-B would slowly decline as the offerings became increasingly outdated, while the constant whirlwind of new brand introductions exhaust the organization's financial capacity without establishing any comparable brand scale; heads, tails, it doesn't matter. You lose.
   
   Now, while I understand that it’s often hard to innovate within a large organization for many reasons, that doesn’t mean you can’t think through the lens of brand leverage when creating new and innovative offerings; they rarely require new brands. I’d argue that, more often than not, they shouldn’t. Once they have scale, brands are incredibly resilient, so they can almost certainly handle the introduction of a few innovative new offerings especially when these innovations might be more valuable in delivering the constant renewal that every brand needs rather than sitting off in a corner somewhere where few even notice.

Before I finish, I must say that in the wild, brand architectures tend to be complex things, require challenging trade-offs, and are never perfect nor easy to manage. And while this piece has been long, I’m only scratching the surface. Truthfully, there’s often considerable nuance at play, a delicate balancing act across internal and external demands and legacy and future concerns. Added to this, it’s not at all uncommon to find multiple architecture models at play within a single corporation. And that’s fine.

The key is to think about this through a business lens rather than a PowerPoint lens. We’re not just trying to align names and logos for the sake of it. We’re not just creating neat nomenclatures and hierarchies. Instead, we need to think of brand architecture as an enabler of the business strategy and consider the impact different architectures will have in enabling business models, the likelihood of competitive success, and the ability to meet real business challenges.

Thank you for bearing with me for this long. I promise to be more ranting and less lecturing next time.