How can organisations effectively manage multiple products without losing focus, diluting resources or visibility, cannibalizing each other, or leaving customers bewildered? Especially in highly dynamic markets with short product life cycles and frequent updates to both products and services. Before you can answer that, though, it helps to step back and ask a more fundamental question: what is product portfolio management, and why does it suddenly become non-negotiable once a business outgrows its first product or two?
The hidden cost of managing products in isolation
Limited resources are allocated and reallocated on a monthly or quarterly basis. The products your company builds are all consuming the same limited engineering, design, data science, and product management time. Even third party contractors and freelancers must be divided among the products and the multiple codebases each product has. Feature requests pile up without limit. Promising new product ideas are shelved because there’s just no capacity. Instead, efforts are spent reacting to strategic changes and industry trends by adding complementary features to the existing spread of products, ensuring that revenue isn’t falling but also giving you nil hope of sustainable growth and health. And don’t even think about seeing previously unrecognized potential or opportunities.
When teams compete instead of collaborate
When we manage products in isolation, the job of allocating resources gets transformed into a company-wide fight for priority. The product team and the channel team — in the best cases, one and the same — go out and each gathers their evidence (user numbers, revenue, etc.) to prove their worth and power. They then compete against each other for scarce resources (engineering hours, marketing budget, senior management time). The team that is the loudest or comes with the shortest-term win gets the biggest piece of the pie, without ever attempting to speak about the size of the overall pie.
Who really decides what’s strategic?
Nobody outside the c-suite really knows what is strategic and what is not. Who controls what gets starved and what gets asked for seconds, determines the long-term financial performance of your products, and thus your company. For the product, the long-term financial performance is the cumulative effect of all the good and bad protection, leverage, life extension, revitalisation, and harvest decisions made, based on the strategic and competitive context of the product.
So, what is product portfolio management exactly?
A broad interpretation of the marketing and strategic implications of PPMs says that any company that can handle such a thing is done with the product lifecycle 1.0 and is most likely entering the product lifecycle 3.0. The first is the classic form of product management, where you develop a product and then hope for a miracle. 3.0 is where you have proliferated iterations of a product on so many markets that you can consider the sum total of the product(s) as a new product in itself. That’s what most of us would call a company that can afford to run a PPM for its products.
Think of it like a financial portfolio
Think of Portfolio Management as analogous to Financial Portfolio Management. Financial Portfolio Management aims to allocate savings and investments to balance risk and returns in line with the investor’s risk profile and timeline. It simultaneously drives to optimize the performance of the overall investment portfolio. Managing your product portfolio is similar. The differences are that you are the investor and the product is the investment. It’s also the investment that is doing the work — making it a productive asset for your company.
Products as customer assets
Product Portfolio Management has also been compared to managing customers as assets. Pfleger and Schwenker (2005), for instance, wrote a lengthy but brilliant article discussing this perspective. Customer asset management makes you take a closer look at customer relationships and revenue. To be honest, who wouldn’t like to have more profitable customers?
Why portfolio management is worth the hard work
All that said, no process, including portfolio management is ever really easy. In fact, if it is easy, you may not be doing it right. Portfolio management is hard work, often requiring tough decisions, and political capital within the organization. But the premise is simple — treat your products as investments with finite resources. Make sure they are the right investments to drive the optimal return for your company given its risk and strategic limits.
The demand for doing more with less is relentless. Portfolio management brings a disciplined approach in direct support of the enterprise strategy to ensure that investments in new products and innovations are aligned with present and future business needs. It ensures that technologies or other key components of the solutions are current, valid, and perform the functions required by the enterprise to achieve its objectives. It’s especially vital today, when it’s all too easy to be consumed with managing legacy products, handling short-term customer demands, and always feeling like you have no time to think long-term.
The intersection of strategy, capability, and cost
When people ask what is product portfolio management at a practical level, this is really the heart of it — it sits at the intersection of strategy, capability, and costs and requires the establishment of a clear process and criteria for rating, ranking, and monitoring all products to track their alignment with the company’s strategic priorities, the value they generate, their lifecycle stage and their prospects for growth. It also depends on a sensitivity analysis of disruptive change and its impact on both the organization’s products and an industry’s lifecycle curve, combined with an understanding of your capability and willingness to invest in a particular space to decide on in-market and future product investment funding.
Accounting for the true cost of each product
Many companies start by developing a single product and encountering some success. They then invest in another product and perhaps another one after that. Each time they develop a new product, they require some resources to launch it, some additional operational resources to run and maintain the product, and resources to support the selling of the new product. Eventually, the analysis reveals the fixed costs of those resources that are used across multiple product lines. Each product’s profit is calculated after accounting for the portion of these fixed costs that are caused by the existence of the product. If a product is not profitable when you allocate a portion of those costs to it, then the product loses money for the company. It can be difficult to accurately account for all of the resources that each product requires, but developing a detailed business case for each product that includes understanding those costs provides an excellent framework for deciding which products to kill.
Making the shift from informal to portfolio thinking
Many companies today are trying to do more with multiple products. A portfolio approach to developing products for your market can be a powerful way to capitalize on opportunities before less organized competitors waste resources on a few promising products. But how do you get from Tanya’s sticky notes and white boards to an ongoing, sustainable approach to managing a portfolio of products for long-term growth? This blog post outlines the critical first steps to make the transition from an informal, product-by-product approach to a portfolio approach.