Active product portfolio management is one of the most important enablers of profitable business. Success in portfolio management is all about having the most optimal mix of products (services) to sell, support and develop at all times in quickly evolving markets.
The portfolio of products to sell is one of the most significant assets of any company, (others being naturally customers and the organization engaging customers to products and developing new ones). Still many companies see product portfolio management as something hard and blurry, without proper process, metrics and data to support the business decisions regarding the products in the portfolio. This, among other things, has led to very large and diverse product portfolios as a “guarantee” for sales. Many businesses simply have too large portfolios. Companies have created a vast number of incrementally new products, modified the existing ones as well as acquired new products through mergers. According many academic studies, in mature companies, there are 1.8 new products added to the product portfolio for each removed product. Actually this is one of the best indicators of poor product portfolio management, not removing products actively enough.
In fact, the growth of product portfolio has negative business impact when inspected both from commercial and technical perspectives. Too many and parallel products usually result to confusion in the customer interface diluting and fragmenting volumes per product or product variant. This is also what has been observed in multiple customer surveys. Customers do not what more individual products to choose from, they want better fit to their original core needs. Large portfolios are also harder to master for sales purposes and keep up-to-date regarding product data and pricing.
When inspected from the technical perspective, too-wide product portfolio adds to the cost of owning such product portfolio and complicates the product design and development activities. Large portfolios also increases the complexity of sourcing, manufacturing, assembly, customer support, spare part sales and after care. The related negative business impacts also easily include reduced value add per person, long lead times and worse performance in on time deliveries.
Key elements of successful product portfolio management are: simple and well-functioning portfolio management process, good metrics to follow product success from all relevant perspectives, a clear product strategy and especially capability for informed product lifecycle decision making.
In simple terms, product portfolio management is allocating and prioritizing always limited resources for best business opportunities in a changing business environment. The frequency of portfolio decisions must match the pace of the change in the business environment.
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