Guide to Product Portfolio Management For Businesses
From product development to maintenance, businesses are responsible for continually innovating their inventory to meet current market trends and customer needs. However, this can be difficult if companies are unaware of their current performance regarding sales, income generation, competition, and expansion.
By developing a product portfolio, organizations can map out their product range to discover the
relationships between goods, profits, and operational risks. This enables management to determine how they are performing within their target market compared to competitors and their financial objectives.
Product portfolios are also excellent tools for developing new goods, as organizations can gauge the performance of their current items and cash flow to make informed decisions.
What is a Product Portfolio?
A product portfolio is a business's collection of goods and services. Depending on the company, the portfolio might be relatively straightforward with only a few similar products or multifaceted with various diversified items.
An organization's portfolio tends to get more complicated as they continue to establish themselves and extend their product lines. For example, Apple began with one computer model in 1976 and has since offered smartphones, laptops, ear pods, and more. Most of these products also have multiple additions, creating a rather complex product portfolio.
Product portfolio management is needed to organize the product categories, product lines, and physical items. With management overseeing these three levels of the company's portfolio, businesses can determine relationships between inventory for better analysis.
During the product portfolio management process, managers evaluate each product's performance to create an organized hierarchy. This makes product portfolio management critical for-
- Developing business strategies, objectives, and timelines.
- Financial planning and researching return on investments (ROIs).
- Understanding stock growth, profit margins, income generation, market shares, operational risks, and potential leadership opportunities.
- Creating an investor's pitch.
- Analyzing which product projects are aligned with the company's overall strategy.
- Future product development and market penetrations.
The primary goal of product portfolio management is to ensure that each product on the business's roster is contributing to their ultimate objective, whether it is increasing sales, profits, or customer reach.
The BCG Growth-Share Matrix
Product portfolio management and analysis can be confusing for businesses with an extensive inventory list, as each product must be evaluated along with its target market. To make this process easier, many companies use the Boston Consulting Group (BCG) Matrix to visualize the bigger market factors.
The BCG matrix consists of four quadrants that fall on the X and Y-axis. The X-axis represents cash generation relative to market share, while the Y-axis represents cash generation relative to market growth.
Along these axes are four groups-
- Stars
Star products that consistently lead in cash generation are responsible for supplementing revenue when growth and investments diminish. Eventually, star items enter the cash cow quadrant once they have met their growth potential.
- Question Marks
When cash is not provided, question mark products will either fall behind and become dogs or diminish in demand. Even when funds are offered, question mark items that hold their market share are still considered dogs when market growth ceases.
- Cash Cows
Profits made from cash cows should not be reinvested into the products, for if the return exceeds the growth, reinvestments will actually restrict the return. As a company matures and improves financially, all products should eventually become cash cows.
- Dogs
Dogs are a drain on businesses and only useful for immediate liquidation. All inventories held by a declining company will eventually transition to dogs as market share and growth diminish.
By categorizing products using the BCG matrix, businesses can understand each product's life cycle and diversify their inventory to ensure they can withstand market fluctuations.
With a well-rounded inventory, companies have-
- Stars that offer high market share and growth for stability.
- Cash cows that generate funds for investments.
- Question marks that transition into stars and continue the cycle.
How to Create a Product Portfolio Roadmap
A product portfolio roadmap sets a uniform strategy for products over an entire group of inventory, giving stakeholders a single, comprehensible plan to digest. In order to create a clear roadmap, management should-
1. Set Objectives
The first step to developing any plan is setting objectives to define the business's vision. The goal for a product portfolio roadmap can either be at the product or company level. For example, a retailer may set a sales target that can be reached collectively, while another company may want to expand profits from a specific product line.
By setting objectives first, managers can determine how to begin developing their strategies. Then as strategies morph into initiatives, management can refer back to the set goals to ensure efforts align with the company's vision.
Organizations that do not set objectives first run the risk of developing silos, where each initiative is working towards a separate goal, losing sight of the ultimate objective.
2. Prioritize Initiatives
Every business has several initiatives on their to-do list, but it can be difficult to decide where to start. By prioritizing initiatives, companies can determine which efforts will have the biggest impact and contribution to their goals.
Managers can prioritize initiatives by creating a criterion that outlines primary factors that impact the objectives to score and rank each strategy. The initiatives with the highest scores should be handled first.
While the ranking system is different between businesses, they typically consider-
- Risk
- Return on investment (ROI)
- Expenses
- Progression
- Abandonment
- Timeline
This stage is crucial as it determines how well each initiative considers the ultimate goal. Therefore, businesses with poor evaluation practices may later find that their initiatives did not actually improve their product portfolio.
3. Connect Tactics and Strategies
Once the key initiatives are found, managers need to identify features and create timelines for each strategy. The elements from each initiative should tie back to the broader goal while still focusing on its specific product.
It is also wise to incorporate features from other initiatives to ensure all plans are connected to each other.
4. Visualize the Portfolio Roadmap
A large company's product portfolio roadmap will include each product line and their respective child products, as well as their individual initiatives.
Each initiative should define product releases, benchmarks, and contribution to the overall objective. This enables stakeholders to monitor the project's performance and progress in real-time.
These features can also be applied to the product-line level, where parent products are continuously monitored.
The Importance of Product Portfolios
Although product portfolios require significant planning and continuous adaptation, they provide businesses with the tools necessary to monitor product performance. Product portfolios also help to enhance the company's-
Innovation
Businesses that carefully follow the strategies laid out in their product portfolio are able to develop innovative product lines to take advantage of their target market.
By checking product performance at set intervals, managers can determine if their strategies are impactful. It also gives management a chance to gauge customers' preferences regarding products, experiences, and competition.
This enhances future product development, as businesses can consider modern customer needs and market trends when launching a new line.
Tax Benefits
The evaluation process involved in updating the product portfolio enables businesses to monitor their investments and financial health, as well as unlock various tax benefits.
Strategy Alignment
It is essential that product development, income generations, and other strategies align with the business's long-term goals. Otherwise, the investment of time, resources, and labor into various little projects will add up and may delay progress toward the ultimate objective.
When all projects and strategies are aligned, companies can achieve increased-
- Sales
- Profits
- Competitive edge
- Market share
- Stakeholder cooperation
- Investors
With these goals in mind, managers can easily align upcoming projects with current strategies.
Visualization
With each product, organizations have to consider-
- Potential market growth
- Market share
- Target markets
- Operational requirements
- Ideal revenue generation and profit margin
- Customer preference
- Competition
- Similar products
This can be overwhelming for both project managers and stakeholders, making it challenging to develop a strategy that considers all of these elements.
A product portfolio outlines all previous, current, and future product lines, as well as their relationships with each other so that employees can visualize their product range. This map also makes it easy to locate and resolve issues throughout the product development process for quick turnover.
Resource Allocation
Having the product portfolio laid out allows management to accurately allocate resources to various projects and departments to optimize the ROI. Businesses must consider their financial, human resource, and manufacturing processes especially, as they have a direct impact on the launch's success.
Effective resource allocation enables organizations to locate their cash cows and determine how to increase the market share and growth potential of other products. Some of these items may require additional funding to kickstart growth, while others may need to be taken from the market.
Management Data
Communication is vital during the portfolio planning process as departments must collaborate and relay critical information to stakeholders. However, data exchange does not end there since managers are responsible for collecting valuable information after products are launched, including-
- Market share
- Customer preferences
- Market growth
- Sales
- Profit generation
By properly managing this data, companies can adjust their strategies along the way to improve product performance.
Cash Flow
It is important to remember that product portfolio management is happening simultaneously with daily operations and other projects. This means that businesses need to pay close attention to each project's resource consumption to ensure they maintain a healthy cash flow.
While every business has unique financial obligations, advisors must consider-
- Overhead costs
- Payroll
- Investments
- Asset acquisition
- Maintenance costs
- Upcoming projects
Adequate financial management will gather funds over an extending period to supplement future expenses and kick start cash flow during slow seasons.
Synergy
Planning a product portfolio requires participation from several departments, not just the work of one individual. This can create various opportunities for disconnect and miscommunication if employees are not on the same page.
Therefore, project managers are responsible for establishing and maintaining positive synergy through the involved staff. Management should consider-
- Holding regular team meetings.
- Establishing an open line of communication.
- Checking in with members to ensure they meet targets.
Target Market
By using the BCG matrix during portfolio planning, managers can determine why some products are achieving success in their market while others have stunted their growth. If, after a few innovations, the underperforming products have still not improved, businesses can decide if they want to continue investing their resources into their lines.
Must-Read Content
How to Calculate and Analyze the Operating Profit Margin Ratio
How to Conduct a Target Market Analysis 7 Steps
How to Perform a Product Analysis 5 Steps
Inventory Analytics Definition, Benefits, and Metrics to Track
What is Product Innovation? 5 Pillars to Know
