Product portfolio management (PPM)

This is how complex product portfolios can be in reality…

This starts with working out exactly what the customer benefit expectations are. Even if we have captured these well, they first have to be translated into a product: Requirements must be correctly recorded, described and prioritised, technical solutions must be found, implemented and tested. And then, of course, we also need the right market access: sales channels that reach the target customers and the right positioning and approach. An incredible amount of coordination and decision-making is required along the way. But we are only talking about ONE product! But how should this entire process be handled if a company has MANY products? Industrial companies with a product portfolio of over 60 product lines with 240 products, in 10 different market segments and in over 40 different countries are not uncommon.

A good PDP is necessary but not sufficient.

A well-defined product development process (PDP) with an upstream or integrated innovation funnel, in which ideas for new products or product improvements are systematically evaluated, is necessary but far from sufficient. Although the usual evaluation mechanisms certainly look at sales and market potential and the associated implementation costs, they often fail to take into account the view and influence on the current existing portfolio, the associated target markets and defined strategies

How to recognise typical portfolio symptoms.

The result is products that cannibalise existing products, products for which there is no market access, products that were developed without the market in mind and missing products that customers would have liked to have. The realisation that something has gone wrong usually comes after a long delay, especially in the case of capital and industrial goods with long sales cycles. It is not that those responsible have not thought about it in advance. However, due to the large number of influencing factors and the high level of complexity, this is usually only ever done in isolation for a specific area. And that is the core problem.

A decision framework for product portfolio management is indispensable.

For this reason, it is essential to establish an overarching ‘decision framework’ for sustainable market success: This is used to make the key strategic decisions for ALL products, across ALL life cycles, differentiated for the respective product markets, systematically and reproducibly. ‘Strategic product portfolio management’ is also a decision framework. Well-implemented product portfolio management (PPM) forms the bridge between the corporate strategy on the one hand and the individual product strategies on the other. PPM ensures that all products fit into an overall strategic framework. It evaluates the performance of the current product portfolio and defines which future products the company will use to generate sales and earnings. Good product portfolio analyses show at a glance where there is potential for growth and which weaknesses need to be overcome in order to leverage this potential. A good PPM process continuously weighs up which products the available resources in development, production and marketing should be used for. The aim is not to optimise the value of individual products, but the value of the entire portfolio.

And how exactly does product portfolio management work now?

Good PPM always starts with analysing the existing portfolio. I can only correctly assess the distance and the effort required to achieve my goals and derive sensible strategies if I relentlessly assess where I currently stand with my products. For this analysis, I need a systematic structuring of the product programme on the one hand and the relevant product markets, usually by segment and country, on the other. You should consider yourself lucky if you have ever thought about a market structure model, because such a model provides a wonderful basis for the analysis. The portfolio analysis compares the performance of existing products in terms of sales, earnings and competitiveness against the background of market attractiveness in the form of market size, growth and other attractiveness factors. It quickly becomes clear where it is worth investing further and endeavouring to improve your position, or where you should only be selectively active or even reduce your involvement. Taking into account the company’s goals and strategies, a specific target portfolio can then be developed on this basis, which is strategically coherent and optimises the use of available resources.

The key to this is an evaluation system that is customised to the company but spans departments and processes. To a certain extent, it anticipates the often tedious and lengthy discussions of strategic product and marketing decisions, because an interdisciplinary agreement has already been reached in advance on what makes a market attractive for the company and how customers measure the competitive strength of suppliers. This is the ‘decision framework’ mentioned above. Of course, such an evaluation system does not answer all questions down to the last detail and further analyses are required for one product area or another. However, the majority of questions are easily answered and many trend-setting decisions can be made with great clarity and certainty in a short space of time.

Isn’t that all very time-consuming?

One justified objection is certainly that a good PPM does not just fall from the sky, it has to be built up first, and considerable resources are sometimes required for this. However, if you compare this effort with the consequences and costs of wrong portfolio decisions, this is put into perspective enormously. Especially as the continuous effort required once strategic PPM has been established is comparatively low compared to the cost of implementation. Consequently, PPM processes should be driven by product management, but they absolutely require the involvement of all key value creation stages and stakeholders. Who exactly is responsible for which aspects of the portfolio, how and by whom exactly which decisions are made and which tools and processes are used for this is as individual as the company itself. But on the other hand, many of these questions can usually be answered very quickly using proven basic patterns and appropriate solution concepts can be developed.

More impact on the market with PPM

In my view, strategic product portfolio management simply generates significantly more impact on the market thanks to clear priorities. The available resources are deployed in a focussed manner. ‘Splashing out instead of splashing out’ would be another way of describing this. Instead of getting bogged down in many ‘small, small projects’, the available energy is focussed on promising products and markets. On top of that, this also increases employee satisfaction because the focus makes it easier for employees to recognise their personal contribution and enjoy the success.

How do you get started?

In our experience, it is not the case that companies do nothing at all in the area of product portfolio management. In fact, a closer look often reveals several fragments such as sub-processes or individual analysis tools. What is almost always missing, however, is a consistent overall concept that combines the individual elements in a meaningful way and ultimately provides a genuine ‘decision framework’ to enable all product portfolio decisions to be made. The first phase of our consulting projects therefore usually consists of understanding how the current portfolio is structured, which portfolio decisions need to be made in the first place and which tools are already in use. In the next step, we can then use this as a basis to draw up an initial draft of an overall concept and test core topics using individual pilot projects.

However, if you would like to get a completely independent 360° overview of the topic first, we recommend our deep-dive training course ‘Strategic Product Portfolio Management’: In 3x 0.5-day interactive online sessions, participants gain a very good overall overview both in terms of breadth (benefits, framework, organisational anchoring, processes) and depth (analysis tools, KPIs, phase-out).