What Is Product Portfolio Planning?
A product portfolio is the set of products, services, or features that a company offers. Product portfolio planning is a business process for planning your product mix and balancing resources, including talent, time, and money, to achieve business objectives.
Pragmatic Institute surveyed 400 product managers and found that "almost 87 percent don't use portfolio methods in planning, and more than half have too many products and inadequate funds for growth." The solution? Product portfolio planning.
Product portfolio planning is ultimately about maximizing value creation by analyzing each product's performance within the portfolio. Use that knowledge to understand how the offerings contribute to the company's overall business objectives and future strategy.
As the pace of business continues to accelerate, product innovation is critical for growth. A McKinsey study reveals that 84 percent of executives believe that innovation is vital to their growth strategy. However, only 6 percent are satisfied with their organization's innovation performance. Rightfully so, more than 30,000 new consumer products hit the market each year. Approximately 95 percent of those new products fail, according to Clayton Christensen, a Harvard Business School professor.
With the proliferation of new products and services, maximizing the value of current and future offerings is vital. Applying a systematic approach to product portfolio planning can help you meet business objectives and achieve top-line revenue growth.
Why Product Portfolio Planning Is Important
Product portfolio planning can help product teams determine if they need to improve existing products to drive greater customer value, develop new products to open up additional market segments, or end-of-life existing products to focus on higher-value opportunities.
By taking a disciplined approach to product planning, companies can better focus their finite resources. They can channel their energy on offerings that will yield the highest value for customers, boost their competitive market position, and maximize future earnings potential while minimizing product risk and failure rates.
The Downfalls of Not Participating in Product Portfolio Planning
Companies that don’t have a formalized product portfolio planning process in place face many strategic dangers. By practicing this approach, companies are more agile and competitive because they can decide how to invest, maintain, or divest their product development resources.
The fundamental downfalls of not conducting product portfolio planning can result in the following:
- Misaligned product portfolios and resources from overarching company objectives and strategies
- Competing products that result in rampant SKU proliferation — often, with limited development resources focused on low-value projects
- Failure to end-of-life products that are not contributing to business objectives and revenue growth
- Missed opportunities to introduce, enhance, or acquire a new product in response to market shifts and changing consumer preferences
- Product-market misalignment that may arise in trying to meet both customer requirements and market needs
The Benefits of Effective Product Portfolio Planning
Strategically planning your product portfolio can help you make optimal investment decisions and better use your resources. The business process provides the following benefits:
- Better product development lifecycles and more robust innovation pipelines that align with development capacity to drive revenue growth
- Faster time to market for new products that have a tighter product-market fit and bolster category competitiveness
- Higher success rates for new product introductions that further differentiate the company and enable you to replace existing products at the end of their product lifecycle
- Better-rationalized customer-focused SKUs that meet the needs of different market segments and foster customer loyalty
Product Portfolio Planning Technique
Standardized portfolio processes apply internal and external performance indicators to measure, analyze, and rationalize current products based on their performance. This data can inform your decisions on allocating investments to enhance existing products, develop new products, or divest current SKUs.
The goal of product portfolio planning is to ensure that common, objective criteria are applied to product portfolio management processes and direct portfolio decisions. While there are varied approaches to product portfolio planning, we look at planning in three stages:
- Portfolio Visibility: This first step aims to provide a bottom-up view into all projects and initiatives currently in the portfolio and product development pipeline. Read our article on product portfolio examples to see some popular brand portfolios.
- Portfolio Analysis: At this stage, you need to analyze product performance to determine how individual product lines are performing. For this step, collect the data and rank each product according to various metrics. Read our article on product portfolio matrices to learn more about the Boston Consulting Group (BCG) matrix, the business profile matrix, the GE/McKinsey Business Assessment Array, and the directional policy matrix.
- Product Prioritization: Product teams use the information from the previous two steps to prioritize the product pipeline and plan for the future.
Best Practices for Product Portfolio Planning
Product portfolio planning is a strategic business process that impacts the entire organization today and in the future. Tips for product portfolio planning include the following:
- Prepare to end-of-life products that no longer contribute to business needs
- Use data to determine resource and investment allocations
- Understand that product portfolio planning is not an exact science
- Obtain executive sponsorship
- Think long-term
The time to start systematically planning your product portfolio is now. Product portfolio planning is an essential and strategic approach to maximizing your company's value creation and future earnings potential in an increasingly competitive and fragmented market.
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