Many product teams and companies fly blind when it comes to managing and making resource decisions about existing and new products. We surveyed almost 400 product managers and found:
- Almost 87 percent don’t use portfolio management methods in planning
- More than half have too many products and inadequate funds for growth
- Nearly 25 percent are unable to kill off unsuccessful products
What product managers need is a practical approach to assess and manage their product portfolios that includes both analytics and planning. Analytics requires companies to assess their current state and determine where they are. Planning requires companies to determine where they’re going, how to invest resources for the best results, what their pipeline looks like and how to achieve portfolio goals. Planning also helps companies decide what to do about the products that aren’t going to make it. The objective of both is to determine the optimal allocation of money and resources to deliver products that help meet a company’s strategic goals.
Visual tools are important for identifying ways companies can grow their product pipeline and plan for the future. They can help companies determine how to align their capabilities with their investment, what’s happening in the market and how their products are doing today.
First, choose a growth-share strategy matrix such as the Boston Consulting Group (BCG) chart. The purpose is to plot products based on relative market share versus the growth of the respective market. The BCG matrix is divided into four quadrants. The lower left represents cash cows, products that have dominant market share in a relatively slow growth market. The lower right represents dogs or loss leaders. As a rule, these products have a relatively small market share in a slow growth market. They don’t contribute much to the business and typically businesses want to divest them. The top two quadrants represent high growth markets. They’re divided into stars, which have a dominant market share, and question marks, which are products that are just entering a fast-growth market. Identifying where company products fit on the chart provides a good sense of where to invest aggressively to maintain or grow market share and where to harvest product revenue from to actively fund high-growth markets.
Also, incorporate time-based visual charts, including roadmaps and capacity charts that illustrate how changes in investment, market condition, etc. will impact the portfolio. Because there’s a lot of uncertainty involved in creating product portfolios, it’s important to manage that uncertainty by identifying ways to grow the portfolio over time. These visual tools help identify what is and isn’t in your product pipeline to plan for the future.
Lastly, apply R-W-W analysis to test assumptions. The ultimate goal is to produce a portfolio with products prioritized for resources and funding by asking:
- Is it real? Is the opportunity for the product linked to a market problem that is urgent and pervasive? Is there market value in solving the problem?
- Is it winnable? Does the company (and product) have a decisive advantage with distribution, channel and overall go-to-market execution?
- Is it worth it? Is this the best strategic fit for the company? Are there other products or product opportunities in the portfolio that are a better use of resources and money?
As with any risk-based assessment activity, it’s counter-productive to look for perfect answers. Don’t look for certainty beyond a confidence level of 80 to 85 percent. The goal is to eliminate flawed assumptions and avoid obvious miscalculations.
Portfolio Management and Acquisitions
Inorganic company growth through acquisition is a reality for most companies. It’s also an important way to achieve many of the product organization’s goals. For some companies, acquisitions are one of the best ways to advance technologically. Not only do they bring in necessary new technology, they’re often directly accretive in terms of market share, product revenue and profitability. However, the success rate for acquisitions isn’t great, especially in the technology sector.
Here’s what typically happens:
- The board of directors advises the executive team to look for a target company or product line to accelerate growth
- The executive team engages a firm to source potential acquisition targets
- The product team is aware but uninvolved
- The executive team selects a target and proceeds to due diligence
- Due diligence is completed and the deal closes
- Product management is asked to integrate the new products into the portfolio
But addressing portfolio fit after the acquisition is too late. Portfolio management should be looked at during targeting, due diligence and post-deal phases. By adopting a portfolio management approach and getting the product team involved in all three phases, companies can mitigate risk and uncertainty and reduce post-deal integration effort and costs.
Asking—and answering—the following questions at the right stage can help increase the success rate of acquisitions:
- What product gaps or vulnerabilities does the acquisition address?
- How compatible is the selected target with our product strategy?
- Does the target product suite have a similar value proposition or similar go-to-market strategy?
- What level of product integration is necessary to achieve acquisition goals and objectives?
- Does the combined portfolio offer efficiencies that result in higher combined profits?
- Can the unique architectures coexist as new customers are added to both platforms?
- What new positioning must be created to solidify the new customer base?
- What critical roadmap elements will stretch the product team?
- What is the new priority for investing in products going forward?
Making it work
Practical portfolio management is a strategic, high-impact activity with potential results in the short and long term. It requires insight based on reliable market evidence and intuition. It requires rigorous quantitative and qualitative analysis, as well as strategic planning and execution that factors in things like growth through acquisition. Finally, it requires collaborative, iterative work from the entire product team to balance the different pieces of information and data, along with the uncertainty and risk.
The product team must:
- Be ready and willing to retire favorite products that don’t meet the needs of the market or the business
- Be ready and willing to kill—or at least defer—products that have potential but don’t fit the company’s business strategy or business model
- Rebalance money and resources with objective metrics
- Understand that there are no right answers
- Accept the fact that high levels of precision are not possible
- Start here and start now
Creating a high-value, high-impact portfolio will maximize the return on a company’s innovation investments and maintain its competitive position. It will also achieve the efficient and effective allocation of resources while forging a link between project selection and business strategy.
How to avoid repeating your mistakes
Linchpin Technology* was a midsize business-to-business software company focused on network-based applications and solutions. For seven years, the company grew almost exclusively through acquisitions, adding more than 21 different products to its portfolio.
Several of Linchpin’s products were the de facto solution in their segments, but as the products matured, profits and market share declined. Although there were many expectations and promises for synergy between new product lines and existing products, a series of acquisitions did nothing to promote a synergistic product portfolio. In 2013, the company was purchased and became private, and the new CEO launched an initiative to assess the product portfolio.
Using the BCG matrix, available market data on the competition’s market share and growth rates for the segment, the product team placed Linchpin’s top five products in the applicable quadrants. They factored in other inputs such as each product’s relative contribution to Linchpin’s overall revenue, and indicated upward or downward trends for all products. The exercise, which combined quantitative and qualitative data, provided the leadership team with a fresh perspective on the portfolio’s health.
One product was a significant cash cow. The product’s relative size—and its significant contribution to current revenue—proved there was a funding source for new opportunities. Products previously thought to be stars, or big contributors to revenue, were actually less healthy, and the forecast for future growth wasn’t positive. One product, placed in the loss-leader quadrant, was a candidate for immediate retirement. Surprisingly, no new product opportunities—or question marks—were in the pipeline to take advantage of the available funds from the cash cow.
Linchpin was in an emergency situation and needed to find an opportunity or an acquisition target to replace several unhealthy products and change the negative outlook. The exercise pinpointed a portfolio with too many unhealthy products and a lack of product pipeline. It created a sense of urgency that encouraged stakeholders to aggressively balance the portfolio and align the product direction with the needs of the business.
The product team shifted its focus to:
- Implement a process to retire underperforming products
- Launch an initiative to target new product opportunities
- Manage risk and uncertainty within the current products
Senior leadership continued to evaluate the portfolio’s overall health by reviewing updates to the growth-share strategy chart and tracking progress and delivery through product roadmaps reviews, project reviews and release plans.
The moral of the story: Linchpin was like many product companies and most product portfolios. It included too many products and there were too few high-value products in the pipeline. The portfolio wasn’t balanced across risk and value, it didn’t align with the organization’s strategy, and it didn’t deliver the value it should. By strategically reviewing its portfolio, Linchpin was able to introduce a much-improved version of its technology to the market.
* Linchpin Technology is the pseudonym for an actual company.