NOTE: The following is a guest post by Veronica Figarella. If you want to submit your own guest post, click here for more information.
Have you ever been in a situation where a company wouldn’t kill-off old, and possibly even unprofitable products? Or maybe you keep getting “product improvement” projects that must be completed for political or emotional reasons, rather than because there was a valid business reason for them?
If you’ve been in either of these situations, you know that this can result in too many products with few resources to support them, compromising quality of execution, and lengthening time to market. It’s also a clear sign of a muddled business strategy.
Your company is suffering from poor product portfolio management. And it most likely means your company lacks proper processes to define and manage an ideal product mix.
But Product Portfolio Management (PPM) is more than simply allocating budgets and resources.
“It is a dynamic process… characterized by uncertainty and changing information, dynamic opportunities, multiple goals and strategic considerations, interdependence among projects and multiple decision-makers and locations. It includes periodical review of the total portfolio, making Go/Kill decisions and developing new product development process for the business that includes strategic resource allocation.” (Cooper, Edgett & Kleinschmidt, 1998).
PPM is a dynamic, complex process and one of its biggest challenges is having all stakeholders understand it’s purpose the same way. Unfortunately that is not always the case. For example, a financial planner typically sees PPM as an opportunity to allocate resources optimally and efficiently, while an engineer sees it as a place to pick the right projects and foster innovation. Meanwhile a Marketer’s priority are those products that enhance the brand and diminish time to market and address urgent sales demands. So it’s important to define the objectives of the PPM process upfront.
What should be the objective of Product Portfolio Management?
PPM should maximize the fit of products with customers and markets and return value to all stakeholders (customers, suppliers, employees, shareholders, society, etc) with the optimal amount of resources invested. It should address the company’s strategic objectives and align products with corporate (short term and long term) goals.
What are the approaches to Product Portfolio Management?
Regardless of the approach taken to manage a portfolio of products, companies can only choose one of the following:
- modify existing products
- remove unprofitable/old ones
- add new products
Traditional approaches like the BCG (Boston Consulting Group) and the GE/Mckinsey matrices allocate resources to business units or projects according to market attractiveness and its possibility of success in a particular market. Although these models are great choices to allocate resources to existing products, they require additional analysis when new products are added as they need to consider the time frame of the opportunity for a new product. Remember that because market conditions changes, information to ponder new initiatives is most likely a wild guess.
Other valid approaches are financially driven models where products are measured mainly by their NPV, ROI or contribution to earnings. More complete approaches where qualitative and strategic benefits are considered into portfolio balance, despite their contribution to margins, are also popular since they consider a product’s lifetime cycle and market context.
Regardless of the type of approach your company uses, PPM process needs to be clear and communicated properly to all parties involved. It needs to be linked to corporate strategy and preferably managed by a Product Portfolio Analyst so Product Managers act only as users and are not overloaded with additional administrative responsibilities.
Senior Management needs to be closely involved in it, and not only to define where the R&D budget gets spent, but to understand the complete Product Portfolio Mix and how it is serving the company’s customers.
A PPM process needs to accommodate changes in decisions while products are being developed; it should allow a bit of chaos without compromising ’ integrity. The process has to reflect the degree of risk that the company is willing to manage. In that sense, a risk adverse company should reinforce the investigation phase by implementing additional information requirements before entering a selection process or reinforcing product diversification to cope with expected market changes.
What are the key actions to design a Product Portfolio Management process?
To design a PPM process, stakeholders need to agree on:
- Where does it begin… is it a selection process? Or is it a monitoring effort?
- Is the process a way to provide information to others or a model to make decisions?
- Do projects enter at the idea stage or at a later face? One should not confuse idea screening with portfolio review as the latter can be performed before the product development process starts
- Where does the information to feed the process come from? And who is responsible for validating and gathering it?
- What resources will be committed at the early stage of product development? And how flexible are those commitments?
- What are the measurements, key indicators or must meet criteria for a Product to be part of the Portfolio Mix?
- When/How is a product “killed” or removed from the portfolio?
- How often is the Product Portfolio Mix reviewed or revised?
- Are resources truly aligned with strategy?
- What will be the percentage of New Products in the Mix? And how successful are New Products once launched?
- Does the company have the right structure to manage the Product Portfolio?
Although there is no magic solution to design an effective PPM process, it is very likely that it will change in time as organizations adapt to using it. Moreover, the bigger the organization gets, the more difficult it is to survive without one. A proper PPM process will help companies adapt their products to markets and costumer behaviour changes and translate corporate strategy into a fully realized set of product offerings.
- Cooper, Edgett &Kleinschmidt 1998, Portfolio Management For New Products
- Kapferer, 2008 The New Strategic Brand Management
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