Resolving product portfolio conundrums requires strategic ingenuity, enterprise agility and political skills. Indeed, having served multiple stints in product portfolio leadership, I’ve experienced the highs and lows surrounding product portfolios. Consequently, I learned a few lessons and read a lot of articles on my journey. Accordingly, here is a brief overview combining my experience with recommended reading to help you on your journey toward building effective product portolios.
Dealing With Portfolio Complexity
Portfolios tend to grow without bound resulitng in increasing complexity. For example, it requires discpline to resist continually adding product features to gain a bit more incremental revenue. Fixing portfolio issues of this type traditionally involves pruning low-sales product lines. McKinsey & Company suggest an alternate approach of using advanced analytics to distinguish good complexity from bad complexity. Thus, they recommend pruning product portfolios based on poor cost-performance ratios derived from machine learning.
Like the article above, BCG also highlights complexity as an issue. Companies launch product variations without understanding how these variations increase complexity and cost. In BCG’s analysis, resolving product portfolio conundrums requires combining market insights with a supply-chain view. For example, from a market perspective, understand what customers value and standardize offerings. Whereas, the supply chains should acknowledge a degree of needed complexity, identify supply-side sources of complexity, and optimize the supply chain to efficiently deliver despite the complexities. In short, companies should create integrated portfolio views in support of resolving product portfolio conundrums.
Maintaining the Benefits of Portfolio Diversification
In contrast to the perils of portfolio complexity, product portfolios consisting of multiple products provide better, more stable returns. Consequently, undertake pruning in a way that perserves a foundational portfolio benefit – risk diversifcation. Indeed, an organization may accidentally generate the worst of both worlds – complexity and lack of diversification, and find itself continually resolving product portfolio conundrums. Moroever, building a diversified product portfolio not only decreases performance risk but also accelerates growth from business building. According to McKinsey & Company, businesses that launched at least four new businesss in the past 10 years were upward of twice as likely to gnerate returns of 5 or more times their investment. They attribute part of this success to the portfolio effect; diversifying risk along the way.
In the Harvard Business Review article, A Better Way to Set Strategic Priorities, Derek Lidlow proposes using resource allocation into the categories of critical, important, and desirable as a means to prioritize a product portfolio in constrast to rank ordering. In Lidlow’s view, rank ordering demotivates managers. Subsequently, dissension and turf wars arise. Accordingly, in this recommended framework he defines the categories as follows:
- Critical: assign as many resources as needed to meet a milestone
- Important: assign a fixed number of resources while taking as much time as needed to complete the milestone
- Desirable: assign resources as available
In this approach, resource allocation is a strategic activity and all managers participate in strategic decision-making rather than rank-ordering battles.
Prioritizing Product Portfolios Through a Hierarchy of Purpose
In the Harvard Business Review article, How to Prioritze Your Company’s Projects, Antonio Nieto-Rodriguez suggests businesses use a Hieararchy of Purpose to create a “laser-like focus” on fewer, vital priorities. His recommended hierachy starts from a company’s purpose and proceeds down the hierarchy:
- Purpose: What is the purpose and strategic vision of the organization?
- Priorities: After defining the purpose, define the priorities for the next 2-5 years.
- Projects: Start, stop, or continue projects consistent with priorities.
- People: Staff the projects with the best people for the projects.
- Performance: Measure project performance with outcome related measures; focusing on value creation.
Get Help in Resolving Product Portfolio Conundrums
If these product portfolio puzzles seem familiar, please start a conversation with me on how we might collaborate and get the results your business deserves.