What Is Wrong with the Management of the Product Portfolio?
By C. Chadwick on Apr 11, 2013
James Ramsay - Master Principal Consultant
Editor's Note: This article is the first in a series entitled "The Value of Complete Product Lifecycle Portfolio Management"
This is the first in a series of articles exploring the benefit of taking a lifecycle approach to managing the product portfolio. The article discusses the importance of Product Portfolio Management and identifies some common barriers preventing companies achieving the perfect portfolio mix.
For the purposes of this article, consider the Product Portfolio as a representation of a company’s business strategy providing the plan of action of how it will meet its goals, and Product Portfolio Management as the continuous business process of refining and optimizing the product mix.
Importance of Product Portfolio Management
Companies can have the fuzziest “innovation front-ends” and the best idea-to-launch processes, but if they lack formalized decision-making processes around their product portfolios they will be continually disappointed with their return on innovation.
According to Cooper & Edgett (Product Development Institute Inc), “recent benchmarking studies have identified portfolio management as the weakest area in product innovation management.” Whilst there is no doubting the importance of generating ideas and being able to execute on them, a company is only going to achieve the desired growth from innovation if it is executing on the right mix of ideas.
Product Portfolio Management is often disconnected from Product Lifecycle Management (PLM)
The business benefits of PLM systems are well established. Many of these benefits come from creating a centralized “Product Record” and by executing projects in the development pipeline in the right way, utilizing the right resources.
But profitable innovation is not just about executing efficiently and doing things in the right way, it is also about investing in doing the right things.
Increasingly a widening gap is emerging between a company’s PLM driven execution activities and their innovation strategy. Most companies still support their strategic product portfolio planning processes with multiple Excel spreadsheets, point software solutions and PowerPoint presentations, all totally disconnected from the PLM product record.
Maintaining this fragmented “innovation record” requires significant administrative effort to gather and collate information, which only serves to lengthen already long planning cycles and results in portfolio decisions based on incomplete, inaccurate and often out of date information.
Failure to take an end-to-end lifecycle view when making portfolio investment decisions
There is not enough emphasis placed on the term “lifecycle” when discussing PLM. Often too greater focus is placed on “Design” and “Idea to launch” activities. Failing to think in terms of the entire lifecycle can result in not identifying and eliminating underperforming products, product proliferation and product cannibalization, all of which impact the performance of the overall product portfolio.
Product portfolio management is not just about new launching products; it is about identifying the product mix that will deliver the best return on innovation in the short, medium and longer term. An optimum product mix should balance higher risk and more costly breakthrough innovations with lower risk product enhancements and line extensions.
Lack of systematic process for optimizing the portfolio
Optimizing the product portfolio is like continually trying to solve a complex 3D puzzle. Think of a Rubik’s cube where each face represents a key dimension of the decision making process e.g. strategy, budget, resource capacity, demand, supply etc.
The complexity of portfolio decision making comes from the inter-dependency between the various dimensions, change one, such as reducing the budget, and this can have an immediate impact on the other dimensions – just like rotating a face of a Rubik’s cube.
Companies who lack a systematic framework for analyzing their portfolios and valuing their innovation opportunities will be over reliant on “gut feel” and struggle to make timely and accurate portfolio decisions.
In recent years, when it comes to product innovation there has been a major shift of emphasis from companies focusing on executing things the right way, to them wanting to ensure they are investing in doing the right things. As a result, Product Portfolio Management is becoming a hot topic.
Effective Product Portfolio Management must extend across the end-to-end lifecycle, from ideas through launch to eventual retirement, and provide companies with a systematic framework that by linking innovation strategy to product development to the extended value chain enables them to better realize the benefits of improved portfolio decision making, including:
- Maximize the return on innovation
- Achieve better resource utilization
- Improve value chain performance e.g. supply chain flexibility, inventory turns, order fill rates, quality
- Increase responsiveness to customer and market needs
Future articles in this series will further explore the complexity of product portfolio decision making, and how by incorporating the “innovation record” within an enterprise PLM environment companies can realize the significant benefits of complete product lifecycle portfolio management.