Importance Of Product Portfolio Management
The evolution of analytics continues to change how businesses make decisions. With the continual development of advanced software, business managers are receiving more information than ever before as it relates to their company’s operations. Product portfolio management is yet another example of this growth in data accumulation.
The more data product managers or project managers obtain, the more successful decision-making becomes. Product portfolio management therefore seeks to provide a comprehensive view of all the products a company produces. This strategy allows for agile portfolio management as considerations are made for changing market conditions, the products of competitors, and even regulatory requirements.
A product portfolio analysis also helps management determine where valuable resources should be allocated. Should we invest more heavily in product improvement or in product development? Should we spend more on marketing an existing product or on the R&D needed to create a brand new one? Should we shift our focus to products in faster-growing markets? Answering these questions most effectively is necessary to maximize the return on investment.
A new company will most likely invest a much higher percentage of revenue into product development and innovation compared to a company that has been around for decades and has a recognizable brand.
Consequently, product portfolio management tools are used to provide the data needed to develop, assess, and even adjust any product strategy. In short, product portfolio management helps an organization’s decision-makers find the road map leading to continual economic success. Let’s get into it:
- Effective Product Portfolio Management Impacts Customer Experience
- Successful Product Portfolio Management Impacts Profitability
- Challenges With Product Portfolio Management
Effective Product Portfolio Management Impacts Customer Experience
It’s no secret: successful and positive customer experience breeds loyalty. Because product portfolio management analyzes the entire product life cycle, customer experience can be consistently accounted for.
The Importance Of Customer Experience
Forbes states it simply: “Customer experience is today’s business benchmark.” With the rise of social media, the customer has never had a stronger or more instantaneous voice. A positive customer experience, or more likely a negative customer experience, can be shared with hundreds, if not thousands of customers within seconds. This puts a tremendous amount of pressure on companies to do what they can to ensure the customer experience is as seamless and convenient as possible.
A study conducted by Harvard Business Review found those who reported an initial great customer experience spent 140 percent more than customers who felt they had a less-than-satisfactory experience. Consider that again: 140 percent more. Couple this with the fact that acquiring new customers is seven times more expensive than maintaining a current one, and the value of positive customer experience does indeed become “today’s business benchmark.”
How Product Portfolio Management Impacts Customers
The product portfolio strategy assesses and evaluates every product under a company’s umbrella. Each product in the portfolio—not just some or a select group—is scrutinized regardless of where it is in its product life cycle. Because of the inclusivity of all products, the product portfolio analysis determines which products to continue offering, which to develop, and which to scrap based on the products consumers want most.
By looking at products in this comprehensive manner, product rationalization occurs. Product rationalization depends on eliminating products that negatively affect a company’s goals. If customer satisfaction and retention is one of those goals—as it must be if a company strives to even just maintain its market share—then condensing the product line not only favors the organization but the customer as well. By providing customers not with more options, but with the best options, customer satisfaction increases. By eliminating products that are a drag on the portfolio, resources are freed up to be more effectively reinvested elsewhere.
How To Improve Customer Satisfaction Through Product Portfolio Planning
One way to build a consistently strong customer experience is to make the customer feel included. When patrons feel like they are a part of the team, they are more driven to help the company succeed. This manifests itself in more ways than just spending—although that certainly helps. Customers who are more emotionally connected to a brand are more willing to provide inestimable word-of-mouth recommendations to friends, neighbors, and relatives. In a sense, they become a company’s best advertisers.
While it’s not feasible to include customers in every aspect of the product life cycle, the sooner customers are included, the sooner they begin to associate themselves with a company’s brand. Product portfolio management helps determine when and where this can happen, when and where a company should spend time connecting customers to products. The road map can therefore include the customer.
If a company knows it is going to spend the next six months developing a new product, it can begin to plan when it may want to involve the customer. Whether this is in the form of feedback or even early access to a new product, the company brings the customer into the fold. This could even be months before a product hits the market. This means months of word-of-mouth advertising, months of excitement. Those lines that show up days before the newest iPhone is released do not just happen randomly. They must be planned. The product portfolio helps devise this plan.
Successful Product Portfolio Management Impacts Profitability
Aside from improving customer experience, managers use product portfolio management tools to evaluate the many possible scenarios that lay before them. Product portfolio management asks the scores of what ifs in order to predict the most profitable portfolio makeup moving forward.
Product Portfolio Management Leads To Profitability
Companies must generate revenue to succeed, and revenue must be reinvested effectively to promote a company’s growth. The product portfolio management strategy is designed to find ways to increase the top line while also investing in the products that will increase market share.
Product portfolio management works toward this goal by doing the following:
- identifying which products are currently in high demand,
- identifying which products are underperforming or situated in unattractive markets,
- identifying which products may benefit from an improvement or rebranding based on market promise,
- identifying where resources should be invested based on the promise of innovative products,
- linking communication across all departments involved in the supply chain, and
- linking the production and development of products to an overall business strategy.
Product portfolio management allows management to treat products differently based on current performance, estimated potential, or fluctuations in the market. This is crucial to a company’s agility in the marketplace because the business world has never moved more quickly than it does right now.
The more quickly companies get a new product to market, the greater chance they have to begin capturing market share. Product portfolio management gets products to market more quickly because management quickly and obviously sees which products deserve more resources. More resources result in a quicker turnaround.
The concept of product portfolio management stems from the same basic ideas that are at the heart of financial investing. Rather than look at products individually, products are evaluated collectively as part of a diversified portfolio, one that ideally contains an appropriate blend of levels of risk.
Portfolio management helps a company avoid the issue of “keeping all their eggs in one basket”.
Product Portfolio Management Helps Allocate People And Resources
Portfolio managers must make tough decisions, ones that can greatly affect the future success of an organization. Obtaining clear and precise information like that provided through product portfolio management decisions is crucial.
Clear communication is integral to company success. The product portfolio is another tool for creating transparency among all team members. It’s the company’s portfolio road map. As such, every stakeholder and decision-maker can be in the know. With everyone on the same page, the company moves forward more efficiently.
One of the more popular product portfolio techniques is the matrix established by the Boston Consulting Group (BCG). The BCG matrix is configured along two market factors: market growth and market share. The matrix identifies each product in a company’s portfolio as either a star, a cash cow, a question mark, or a dog.
By identifying each product in this way, the BCG matrix—or any product portfolio management tool—provides the transparency and visibility needed to make decisions throughout a product’s life cycle. Management can more confidently decide which products align with their strategy, contain an acceptable amount of risk, and are viable based on current available resources. Once management is confident in which products will be continued, improved, and developed, allocating resources including employee time and energy becomes less of a guessing game.
Challenges With Product Portfolio Management
Management of any sort brings about challenges. Managing a product portfolio is not excluded. Not only can product portfolio management software be quite costly, which can be a challenge in itself, but the provided data can create situations that take time to deal with as well.
Typical challenges come from our natural resistance to change. When a product has been an important part of a business portfolio for years, maybe decades, eliminating that product is not always a popular decision. Even though the evidence may be clear, the emotional attachment a product carries may cause some team members to question that decision. Managing this friction then becomes another challenge.
Friction within an organization may also arise when different priorities exist. While product portfolio management seeks to align products with a vision, the analysis does not provide the priorities. Senior management may desire immediate profitability while investors prefer product innovation for greater revenue in the future. Product portfolio management suggests both are possible, but the road map is different for obtaining each. The challenge then comes in appeasing two legitimate visions.
How To Overcome These Challenges
The first way to overcome challenges is to make sure that a well-defined corporate strategy exists. When different missions exist within an organization, no product or project manager will be able to use management software most effectively. The road map will be unnecessarily difficult to navigate.
So while challenges can arise, product portfolio management provides visual evidence for making product decisions. Factual data about current or potential profitability is immensely valuable when determining your strategic plan for maintaining and expanding market share. And because customer experience can be considered throughout, product portfolio management has its place among a company’s most effective tools. While there will always be tough decisions to make, the more information management has, the more confident everyone can be in implementing their plans.
Additionally, the product portfolio tool can point out opportunities for shorter-term projects, such as an incremental improvement to a product already in existence. Identifying these types of smaller projects is advantageous because the improved products hit the market more quickly. This means the company sees its top line affected more immediately as well.
It is also worth considering how product portfolio management determines what products are not increasing market share. Companies need to find the products that are not adding value to their portfolio so that they can eliminate them. This gives companies the flexibility to adjust resource allocation so time and money go into the products that will increase their market share.
Conclusion
From having an impact on the customer experience, identifying opportunities in the market, helping you avoid keeping your eggs in one basket, to determining where to allocate resources, and when to cut your losses, proper product portfolio management can greatly impact your business.
Proper product portfolio management can help make clear that some products need to be put to rest, even if there’s strong emotional attachment. With proper portfolio management, data can be shown on why this is the right choice to be made.
Whether you already make use of product portfolio management at your organization or are thinking about it, this article has given you plenty to think about in how to make the most of it.
To keep up to date on product portfolio management and other business trends, subscribe to The Product Manager’s newsletter.
Suggested Read: 8 Product Portfolio Management Best Practices