Intelligent resource distribution and budget allocation for new and existing products need substantial study and planning.
Product portfolio management, whether mature or expanding, is a tried and true strategy for selecting product tasks while maximizing company resources.
In this article, you will learn about various product portfolio management frameworks. Let’s get started.
What is a product portfolio management framework?
Product portfolio management is the method of managing, maintaining, and monitoring a company’s whole product portfolio, which includes all of its products and services.
When done correctly, product portfolio management is a process that manages every element of the items offered by the business for optimized growth and profitability.
- Selecting and recognizing high-value items
- Assessing product and service performance
- Determining hazards, issues, and opportunities
- Harmonizing product mix with strategic factors
- Maximizing distribution of resources throughout the portfolio
What are the various product portfolio management frameworks that exist today?
There are a number of common and useful frameworks for Product Portfolio Management. All of them differ in their perspective of analyzing organizational product portfolios.
1. The Ansoff Matrix
The Ansoff Matrix, commonly known as the product or market expansion grid, is used by companies to organize and examine their expansion procedures.
This helps entrepreneurs identify the hazards that may come with corporate growth.
As such, the Ansoff matrix depicts four techniques that are utilized for two reasons:
- To stimulate a company’s economic performance
- To assess the risks connected with each option
The four techniques include:
- Market penetration. Market penetration involves organizational procedures that establish control in a sector that already has its presence. It also includes an evaluation of how much a product is sold in relation to its overall market, which is called its market penetration rate. This strategy is utilized by institutions in formulating ways for increasing the market share of a certain product or service.
- Diversification. Diversification entails broadening the organization’s coverage across several goods and market segments. When applied, the company not only diversifies what it offers in its target markets, but it broadens its commercial possibilities. The approach supports the business in increasing its overall sales and income while reducing expenditures.
- Product development. Product development provides a steady flow of unique products that challenge the competition. It directs the development of new goods by creating objectives and establishing financial choices. The purpose of this strategy is to create a concrete competitive advantage by positioning product offers to accomplish company goals like growth of revenue, sales, and profitability.
- Market development. Market Development exposes an organization’s product or solution to target consumers that they have not yet reached or are not yet catering to. This strategy helps businesses grow by selling their present product and/or service offerings to a new consumer segment.
Note that the primary distinction between market development and market penetration is that market development seeks to expand commercial viability.
The Ansoff Matrix accomplishes this by entering completely unexplored market sectors.
While in market penetration, the market size is already established, hence the approach aims at maximizing the value of an already existing industry.
2. The BCG Growth-Share Matrix
The BCG (Boston Consulting Group) growth-share matrix is a planning method that includes graphical displays of a business’s goods and services to help the management in deciding what to maintain, sell, or spend more in.
It is a technique used by companies when analyzing the present level of value of a company’s units or product offerings.
Moreover, the BCG growth-share matrix categorizes products and services into four quadrants with its own set of distinct qualities:
- Dogs. A product is classified as a dog if it has a small share in the market with a poor pace of growth — implying that it should be restructured, sold, or dissolved in any way. Product offerings written under this category are placed on the lower right quadrant of the grid to signify that they do not create much income for the corporation since they have little to no growth. Because of this, dogs can end up as a waste of funds, spending corporate finances for long durations. Hence, they are especially suitable for divestment.
- Cash cows. When a product is labeled as a cash cow, it means that the product is in a low-growth region but with a reasonably substantial market share. Hence, the company should take advantage of it for as long as possible. Cash cows are located on the lower left quadrant. They are often seen as leaders in established markets. provide larger returns in comparison to the market’s growth rate and can be sustained in terms of cash flow. Hence why they should be utilized for as long as feasible. However, after “milking” these cash cows, they should be reinvested in stars, for high-growth, and high share.
- Stars. Products classified as stars are in high-growth areas that account for a large share of that market, which is why these companies should be invested in them more heavily. These products are written in the upper left quadrant. Meaning, they make significant income but use a huge quantity of corporate funds. If these products maintain their position, they will eventually become a cash cow when the market’s general growth rate slows.
- Question marks. Question marks are products in high-growth areas where the firm does not have a significant share in the market. These are located in the upper right corner of the grid. They often expand quickly yet absorb a huge portion of the organization’s assets. One thing to remember is that products written in this quadrant should be evaluated on a regular and in-depth basis to see whether they are worth keeping.
3. GE/McKinsey’s Portfolio Analysis Matrix
The GE-McKinsey nine-box matrix provides a systematic way for multi-enterprise corporations to organize their investments across business divisions.
It is a process for assessing business portfolios, providing additional ramifications, and assisting in prioritizing investments required for every business unit.
The GE-McKinsey Matrix takes into account a variety of factors to identify two conditions — industry attractiveness and competitive strength.
The efficiency with which the business unit will be able to collect revenue in the market is referred to as industry attractiveness.
This matrix’s vertical axis – Industry Attractiveness – is divided into three categories: high, medium, and low, which denotes the profitability of an industry for a firm to establish and operate in.
Analyze how a business unit performs in comparison to its rivals in the industry whenever you are assessing it along this facet.
- Market share
- Profit margins
- Brand recognition
- Product distinctiveness
- Potential for market share growth
- Customer satisfaction and loyalty
Just like industry attractiveness, competitive strength is also separated into high, medium, and low depending upon the company’s competitiveness in comparison to its competitors
4. The Innovation Ambition Matrix
The Innovation Ambition Matrix defines the innovation strategies of a company.
It is based on the premise that the link between markets and product portfolio creation is an essential foundation for assessing a company’s innovation ambition.
This matrix has two axes:
- Where to Play. The vertical axis focuses on where an organization is competing specifically in creating new markets (top), entering adjacent markets (middle), and catering to its current customers (bottom). In particular, this gauges the uniqueness of your consumers. Will your innovation satisfy an existing market, enter a new market, or establish a new one?
- How to Win. On the other hand, the horizontal axis signifies the kind of products used by the company (using existing products, adding incremental products, and developing new products/assets). Generally, this axis represents the originality of the goods you are giving to clients. Are you utilizing current items, introducing additional ones, or generating new products?
Furthermore, the innovation ambition matrix divides overseeing an interconnected, diversified portfolio of innovation efforts into three types:
- Core innovations. These are gradual innovation initiatives like line expansion, renewing, or increasing the performance of current items. These are quite safe choices.
- Adjacent innovations. Adjacent innovations push the business into new markets (without straying too far from its core) by slowly introducing new assets and products.
- Transformational innovations. These are breakthrough innovations or gaps that are not directly tied to existing markets or technology but are instead completely new products or services that are not expansions of existing ones.
How does a product portfolio management framework fit in with the overall business strategy?
Product portfolios fit in with your overall business strategy by:
- Enabling you to manage your prospective innovation efforts in line with how your products can contribute to your overall business strategy
- Allowing you to comprehend your products and their connection to one another as well as in terms of risks and returns, keeping you from investing in a single product alone
- Getting you to optimize your product platforms
- Identifying the appropriate degree of financing for alternative options
- Tailoring risk levels to suit your product development plans
- Providing firms with the ability to be more nimble and responsive to market situations
- Using actual analytics in making educated decisions regarding product priorities and resource allocation
- Reducing risks and guaranteeing that product investments are in line with corporate goals
- Boosting communication, collaborative efforts, and teamwork
- Contributing to the effectiveness of product management
Deliver unique products with a product portfolio management framework
Product portfolio management is a tried and true strategy for maximizing company resources, no matter the stage of your business.
It’s also important to be mindful that this process should include:
- Assessing product performance
- Determining hazards and opportunities
- Harmonizing product mix with strategic factors
- Maximizing the distribution of resources throughout the entire portfolio
These are all necessary steps in managing an effective product portfolio — it can’t just be about what sells well right now.
Or if you’re looking to branch out into new industries, there has to be some long-term vision as well.
If you want to learn more about innovation, we published an ebook to help you organize innovation in your own organization. Feel free to grab a copy of it today.