What Is Product Portfolio Management?
A product portfolio is the collection of all items sold by a business. These items include both products and services. Product portfolio management is a business management practice that helps assess products’ current level(s) of success.
Additionally, product portfolio management helps product portfolio managers identify future opportunities for improved resource allocation, greater ROI, growth and profit opportunities, and potential risks (such as products that are negatively impacting the bottom line) in order to achieve the best outcomes. The basic premise of product portfolio management is that each product demands a different financial stake and strategy that is dependent on market trajectory. Under an effective product portfolio management strategy, a product with low volume in a diminishing market is treated differently than a product that enjoys increasing sales in a growing sector.
Product portfolio management is used in multiple industries: tech sector giants like Apple and IBM, as well as in numerous retail industries like Georgia Pacific, Procter & Gamble, and Kellogg's. When considering using a portfolio management strategy - regardless of industry - one inescapable observation remains: Most of the best-performing companies in the world employ an effective product portfolio management strategy in their management and new product development (NPD) initiatives.
However, product portfolio management is also an underutilized tool. A 2015 Pragmatic Marketing study of 400 product managers found that almost 87 percent of respondents do not utilize product portfolio management and that nearly 25 percent find it impossible to eliminate products that were a drain on resources.
What Is Product Portfolio Analysis
Product portfolio analysis is part of product portfolio management. It involves the assessment of all products within the portfolio throughout their life cycle. This analysis helps determine whether the products are meeting short and long term company goals.
The analysis typically results in using a matrix or model to categorize the products. To do this, a product portfolio manager must do the following:
- Identify the unit(s) of analysis
- The variables you will measure
- Construct a matrix
- Position products within their appropriate dimension
- Consider where new products will fit
- Evaluate gaps between current and new opportunities
Benefits of Product Portfolio Management
Product portfolio management brings plenty of benefits to companies who make it a part of their business operations. Product portfolio management provides a centralized (rather than individual) view of an entire suite of products against the prevailing marketplace for those products. Unlike individual product management, a portfolio approach eliminates competing initiatives and agendas for product development. Decisions about resource allocation to strengthen products in growing markets are balanced against decisions on offerings that need improvement or can be eliminated. Practitioners view products through the dual prism of how they are performing against the real marketplace conditions. Product portfolio management also utilizes data-driven methods to streamline R&D by identifying products or markets with the best opportunities for new development, growth, and profitability. Effective product portfolio management initiatives will help:
- Bring new, innovative products to market quickly
- Improve agility and response to market conditions
- Reduce the time it takes to bring products to market
- Improve competitive positioning
- Maximize product investments
- Improve visibility into product mix and identify strong and weak products to clarify resource allocation
- Reduce risk and ensure that product investments align with business objectives
- Prioritize product focus
- Improve communication and collaboration
- Improve overall product management efficiency
Goals of Product Portfolio Management
In order to reap the benefits of product portfolio management, it’s important to focus on individual product initiatives that allocate scarce resources with an equal hand to a holistic "top down" management that funds growth potential, but eliminate underperforming offerings. By analyzing products for both the business environment and the product's overall place within the market, companies can then appropriately allocate resources to enhance promising products and to foster new product development. This approach reduces resources for lagging products and investments in order to bolster products that have breakthrough potential. The challenge is choosing which products to nurture and which to jettison.
Some goals of product portfolio management are include the following:
- Identify products that experience high demand in a growing market
- Eliminate underperforming products in unattractive markets
- Allocate resources to promising innovative products
- Identify products that dominate a slow growth market
- Improve, change, or re-brand products in promising markets
- Focus product pipeline processes on appropriate products
- Balance long term vs. short term goals
- Develop communication and links to the overall corporate strategy
Challenges of Product Portfolio Management
Product portfolio management is challenging. The most common challenges stem from a natural resistance to change. This is especially true when that change involves eliminating a product or decreasing resources.
Another consideration is that the overall goals of product portfolio management differ within an organization. Upper management is more interested in the financial aspects and having clearly-defined goals for growth and profitability. As with all large initiatives, clear lines of communication and a well-defined strategy are also key to aligning day-to-day operations with the overall financial goals of executive management.
Disadvantages of Product Portfolio Management
Although product portfolio management may seem like a no-brainer, there are challenges that may not be advantageous for an organization. Product portfolio management can be a drain on resources. It also may require costly software.
Product Portfolio Management Techniques, Frameworks, and Models
The most popular product portfolio techniques are the Boston Consulting Group (BCG) and the GE/McKinsey Matrix. The BCG matrix is based on market growth and market share. It is renowned for distinguishing products as stars, cash-cows, dogs and question marks.
Both matrices can be found in our guide to product portfolio matrices. Both examples delineate between dominant products, legacy, yet profitable products, and low-yielding products. These product portfolio management frameworks and models help organizations classify products based on their stage within the product lifecycle: introduction (explore), growth (exploit), maturity (sustaining activities), and retirement.
Product Portfolio Variations in Mature vs. Growing Organizations
Mature organizations with diversified, profitable product lines use product portfolio management to identify expansion areas, while less mature organizations can identify cost saving and strategic product opportunities.
Examples of product portfolio management in mature vs. growing organizations can be found in our guide to product portfolio examples.
How Product Portfolio Management Impacts Profitability
Apple's iPhone is an example of a product that contributes heavily to profitability. These products receive more focus and resource allocation than those that are lagging. Dominant products in a growing market and legacy products that remain steady contribute the most profit.
However, each product will be managed differently to ensure optimal growth. It is important to continually consider the market, as it can shift and impact the performance of products (especially those that appear to be no longer profitable, but are simply experiencing regular market fluctuations). A common practice is making branding and product structure alterations when profitability appears to be taking a dive.
Profitability can be negatively impacted when a company doesn’t have a product portfolio management strategy in place. Decisions will be made without factual data, resources will be scarce for important products/services, priorities will be unclear, product delivery timelines will be delayed, and a detailed plan will be unavailable. Most critically, the company could fail.
Best Practices, Advice, and Tips for the Product Portfolio Management Team
Product portfolio management is all about making decisions. As such, an integral practice is to ensure product offerings align with the overall corporate strategy. Begin this analysis with the individual product managers, and also gather input from other stakeholders including marketing, sales, development, finance/accounting, and executive management.
Financial considerations continue to be a leading factor in product portfolio decisions, but they work best when another element is added, such as scoring or measuring market attractiveness. Product portfolio management consists of the process, financial considerations (as mentioned above), and ensuring proper governance with the right stakeholders who can make investment decisions. Most practitioners advise an incremental rollout to allow time for adjustments. However, they also caution against over-analyzing, as it can slow implementation. Remember that product portfolio management is not a “one-size-fits-all” proposition; rather, the goal is to begin the process of active, dynamic management sooner rather than later. Finally, decide where to scale down before scaling up for optimal resource reallocation.
Barry Doctor, Senior Consultant with HarborLight Partners, has launched over 300 new products in his career. When it comes to product portfolio management, he advises gaining an understanding of the big picture. “Be sure to analyze what gaps in the product portfolio competitors have, what buyers want, and what the greater market needs. A capabilities assessment will enable the organization to understand its limitations. And, strategic vision helps to create the environment where multiple interrelated projects come together to deliver business benefits and profits. Often, an independent, knowledgeable consultant can assist the company in making strong, unbiased decisions.”
The Product Portfolio Roadmap
A product roadmap is an agreed-upon route that keeps the product and resources moving in the same direction. A product portfolio roadmap contains all products within the portfolio. Stakeholders can visualize timelines and relationships between products.
The roadmap provides valuable data and goal setting properties that provide benefit to small companies with few offerings, and can be scaled up to meet the cross-functional needs of numerous product lines and divisions. There are multiple models, software solutions, and other tools that you can adapt (rather than developing in-house algorithms or cumbersome spreadsheets) to identify goals, prioritize initiatives, associate tasks with business goals, make investment decisions, manage resource allocation, ensure market entrance and exit criteria are managed, and monitor portfolio health.
Zane Bond, Director of Product Management says, “It’s very common for organizations to think of product roadmaps in terms of features, but customers don’t care about features per se. They attribute value to products that solve their problems. When building a roadmap, talk about the specific problems your customers have, why they’re important, and how your product or service will solve those problems. However, it’s not uncommon for software development teams to ask for roadmaps with lists of features and dates. The best thing to do is create a feature-oriented internal roadmap and a problem/solution-oriented external roadmap.”
To learn more about creating roadmaps, check out Free Product Roadmap Templates. Find information on what to include and customizable templates that you can download for free.
Adding New Products to Your Portfolio
Many companies conduct their product portfolio management strategies as an arm of new product development (NPD). In analyzing products and their changing markets, NPD may take advantage of a growing market by rebranding or reimagining an existing product. As part of their innovation initiative, Kellogg’s used marketing and rebranding strategies to expand their reach in the cereal market to more adult consumers. Other strategies include introducing new versions or extensions of products or building entirely new products for emerging markets.
Questions to ask before initiating an NPD strategy include the following:
- Is your business healthy and able to take on a new product?
- Are there any natural extensions or improvements to your product line that you should consider?
- Does the new product speak to your organization’s core business, will it expand the company into an adjacent market, or is this a brand new offering and market?
- Do you have the expertise to design, build, and support the new product?
- Do you require a new product portfolio manager to take a strategic view of the entire portfolio?
- Is there a growing, level, or diminishing market for your new product?
- Does the new product cannibalize your existing products?
- Are you willing to let go of products that are not performing to focus on the new product?
Product Portfolio Management and Acquisitions
Product portfolio management helps identify both acquisition and divestiture opportunities. Acquisition strategy may take on three forms: entering new or rising markets, acquiring products that fit into the corporate strategy, or adding to a market you already dominate.
For example, in 2005, Procter & Gamble, a leader in women’s hair care and cosmetics, added Gillette to its line of men’s grooming products to their offerings with the idea that they could now market to an entire household. Just 10 years later, they took another critical look at their entire suite of products to divest those in lagging or flat markets. This allowed them to improve overall profitability while maintaining their position of market dominance.
The acquisition process can be lengthy and complex, involving a search for a target opportunity, engaging and evaluating the potential organizations, performing extensive financial, operational, and historical due diligence on the chosen acquisition, and finally integrating the solution into the company’s product portfolio. In order to increase the success of acquisitions, it’s important to involve the product portfolio management team throughout the process. Their expertise is critical to do the following:
- Gain a full understanding of the potential acquisition product
- Identify product weaknesses
- Understand compatibility with current product strategy
- Realize the complexity of integrations
- Pinpoint profit opportunities
- Involve/brief appropriate marketing/product teams who will develop the value proposition, positioning, and go to market strategy
- Recognize potential impacts on the product roadmaps
- Prioritize resources and investments
Product portfolio management strategies are an integral process for resource allocation, especially for companies with multiple product offerings. It is also vital for newer companies (that are poised for growth but have limited offerings) because it can help identify the markets of high or accelerating growth. Through roadmaps, scoring, matrix, and bubble graph views, product portfolio development strategies grant teams greater flexibility, which helps them find critical breakthrough opportunities while also mitigating some of the financial risks of new product development. It also identifies the products that provide the greatest areas of fiscal health for a company, the emerging markets with the highest potential for new growth, and those products that are a drain on the bottom line.
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