The product portfolio management involves grouping of major products that are developed and sold by businesses into (logical) portfolios. These products are organized according to major line-of-business or business segment.
The management team actively manages the product portfolios by taking decisions regarding the development of new products, modifying existing products or discontinue any other products. The addition of new products helps in diversifying the investments and investment risks.
Objectives of Product Portfolio Management
The product portfolio management involves allocation of resources for maximizing the value of the portfolio through a number of key objectives like ROI, profitability, and acceptable risk. A variety of procedures are used for achieving this objective of value maximization that ranges from financial procedures to scoring models.
Product portfolio management involves achievement of desired balance of projects by considering various parameters.
· Risk versus return
· Short-term versus long-term
· Business arenas and technologies
In order to reveal balance, there are various methods used such as bubble diagrams, histograms and pie charts.
Business Strategy Alignment
The portfolio of projects should reflect product innovation strategy of the organization and that the expenditures and spending should be in line with strategic priorities of the organization.
There are three main approaches used for alignment of business strategy.
· Top-down (strategic buckets)
· Bottom-up (effective gate keeping and decision criteria)
· Top-down and bottom-up (strategic check)
In order to achieve the proper balance between the demands of various projects in pipeline and available resources, the pipeline balance and management is done in the product portfolio management. The objective is to avoid pipeline gridlock caused by the presence of many projects with little resources at any given time.
Approaches for pipeline management
· Rank ordered priority list
· Resource supply and demand assessment
Investors should ensure that revenue (or profit) targets that are formulated during the product innovation strategy should be achievable and feasible. It is done by conducting a financial analysis of potential future value of pipeline.
Challenges of Product Portfolio Management
There are various challenges that confront product portfolio management that reflects the weaknesses in the strategy of product portfolio management.
· Projects are not low value to the business
· Product Portfolio has a poor balance
· Resource breakdown not as per the product innovation strategy
· Inefficiency in ranking and prioritizing projects
· Poor balance between the resources available and number of projects
· Projects not aligned with the business strategy
Advantages of Product Portfolio Management
With proper implementation of the Product portfolio management, organisation can reap huge benefits in the long run.
· Building a strong link between project selection and business strategy
· Achieving efficient and effective allocation of scarce resources
· Communicating priorities
· Achieving balance
· Maximizing the return on various product innovation investments
· Enabling objective project selection
· Achieving focus in activities
· Maintaining the competitive position of organisation