Successful organizations are ones that consistently ensure their product decisions are aligned with business strategies, even as strategies must change to meet current conditions. Instead of allowing pet projects and products that don’t meet set standards to leapfrog others on the priority list, product portfolio analysis empowers intelligent scrutiny and raises the highest-value products to the top.
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Organizations require data to make these informed decisions, and data is more readily available as product portfolio management cycles become connected. Siloed, incomplete or inaccurate data puts every business at risk, slows growth rates, and impacts market position. Gartner says, “Siloed portfolios can’t work in isolation to provide the organization with a true picture of performance.” But reliable, connected data that can be consistently analyzed in real time creates a strong layer of intelligence that organizations need to prioritize the right set of products, adapt to change and stay competitive.
What Is Product Portfolio Analysis?
Product portfolio analysis provides deep insight into portfolio health, risks, and opportunities by evaluating products against each other and business strategies to effectively prioritize products and inform funding decisions. It involves comparing and contrasting financial data, such as product investments, R&D costs, and market size, with product performance and business strategy alignment.
What is product portfolio analysis from the perspective of a product development organization? Much like a financial firm, companies that invest in developing products must respond to constant internal and external disruptions, continually adapting to make smarter prioritization decisions. And while leaders can set objectives and goals—tactics, resources, and strategies are a moving target.
Companies are under pressure to balance the desire to expand the portfolio with the realities of cost and complexities, all while meeting customer expectations. McKinsey reports that 40% of senior executives surveyed said they were working on reducing their product portfolios, and 44% planned to funnel R&D budgets to expanding new products. In either case, organizations need trustworthy data on which to base their judgments, such as to contract or expand the portfolio, the path to take, and the products or product lines to prioritize.
“40% of senior executives surveyed said they were working on reducing their product portfolios, and 44% planned to funnel R&D budgets to expanding new products” – McKinsey
Product portfolio analysis helps companies make better, data-backed decisions on how to achieve targets and maintain a high ROI. It is a method of collecting and sharing relevant, real-time data from inside and outside of a product portfolio to enable well-informed, high-impact decisions.
Market growth relies on market strategy, so product portfolio managers need a direct line of sight into data from across the organization.
Only a purpose-built analysis solution is capable of quickly collating all necessary data across business units in meaningful ways for cross-functional teams. They can use the solution to continuously analyze data post-launch and throughout the product lifecycle to constantly improve product portfolio management and ensure product decisions are always aligned with organizational goals.
Benefits of Product Portfolio Analysis
There are plenty of product portfolio analysis benefits, all of which support better portfolio decisions. Comprehensive development and market analytics are invaluable in shedding light into:
- What new products to launch
- What products to renovate or retire
- How to identify sources of risk and areas to adjust
- When and where to prioritize product development
- How to optimize resources and finances
Organizations can identify projects to fund, adjust funding, or abandon based on project risk, cost, performance, market relevance, and opportunity, bringing the applicable company expertise and data to bear on all funding considerations. But leaders need to get better and faster at making R&D decisions to sustain innovation and the right product development.
IDC says, “Even companies that have innovated in the past are struggling to drive innovation at scale and are hampered by lengthy processes and organizational complexity.” They go on to suggest two primary elements to support long-term innovation at speed and scale:
- “‘Mechanisms’ to implement processes and mental models that help turn good intentions into action.
- ‘Architecture’ to establish a technical structure that supports rapid growth and change.”
Product portfolio analysis provides both the mechanism and the architecture. It brings all of the pieces together for a full-picture view of current and future opportunities to build and improve the portfolio and strengthen market position.
Product-focused organizations can experience the advantages of product portfolio analysis, particularly when the analysis is powered by real-time analytics and performed on a consistent basis, not annually or quarterly. Continuous improvement demands continuous analysis because change is always a factor.
Portfolio Analysis and the Product Lifecycle
Every product has a lifecycle and is part of a larger portfolio, and each product stage requires decisions that impact the portfolio. Add in customer, competitive and market changes and regular product portfolio analysis is justified. Analysis post-launch and throughout the product lifecycle identifies:
- What works and what doesn’t
- Where to adjust
- Stages in the lifecycle where products struggle or excel
- Market opportunities
Portfolio analysis doesn’t just evaluate the health and longevity of existing products; it works equally well informing the design and development decisions of planned products. It is also effective for marketing- and sales-related post-launch decisions.
As essential as product lifecycle management software is, it is not intended to operate in a vacuum. Its full benefits are experienced through integration with other business applications to foster collaboration and enable early detection and resolution of issues.
For the business, project portfolio management software is ideal for gathering critical project elements like ideas, analytics, and resource capacity data on products they want to pursue and prioritize. For IT designers and engineers, product lifecycle management software is built to help them either execute the business plan or work with the business front office to rethink product investments based on their risk assessment or experienced roadblocks. Only with shared data can these checks and balances serve as an intelligent safety measure to prevent delays that increase costs and give competitors the ability to beat them to market.
Integrating product portfolio management and product lifecycle software is now considered a best practice—a necessary merger for a product-centric company, particularly with IoT disruptions and complex products.
Instead of silos between R&D, IT, and leadership, the convergence of product portfolio management and product lifecycle software brings teams together to solve issues earlier in the development process and find the optimal path to strategic success faster.
The end results? Accelerated product development, execution, and time to market, as well as increased quality, compliance, and overall visibility into product data, status, cost, and issues.
Since 2017, Gartner has predicted that the vast majority of product lifecycle management applications “will have partnerships or intrinsic integration with product portfolio management applications by 2020.” While a follow-up report has yet to verify the prediction, all indications point to the fact that organizations have received the message and have already integrated the two applications or are moving in that direction.
The revelation is no surprise. Product portfolio management and product lifecycle management applications complement each other, creating the foundation of a product lifecycle management strategy. Used separately, teams only get half the story and must work twice as hard. But when connected, these two powerful applications answer and document the “what,” “why,” “how,” and “when” of product development.
Product Portfolio Analysis Methods and Models
Harvard Business Review once said portfolio analysis should take place at all strategic business levels and should include each product by market segment but admitted: “such thoroughness takes much management time and requires huge quantities of data.” That was in 1981, when real-time data and automated, integrated tools were unheard of—even spreadsheets weren’t yet on the scene.
Thankfully, organizations now have powerful solutions, methods, and models with state-of-the-art analytics and valuation models at their fingertips. These tools provide instant visibility into their product lines and portfolios plus all of the many influences that impact their viability and success.
Today, how an organization approaches analyzing its portfolio is heavily dependent on its growth stage and industry. A more mature company may take a conservative approach that emphasizes portfolio diversification with limited speculation. A younger company may be more aggressive, emphasizing fewer products but wider innovation. Let’s look closer at common methods and models.
Product Portfolio Analysis Methods
Regardless of size, market or industry, the best product portfolio methods and practices must involve real-time data collection and consistent analysis versus annual or per quarter. There are multiple types of analysis and ways of looking at data, including:
- Business Case Valuation
- Product Scenario Analysis
- Product Sensitivity Analysis
- Product Risk Analysis
- Portfolio Variance Analysis
- Portfolio Optimization
To avoid silos, inefficiencies and unnecessary risks, there should also be digital integration with product lifecycle and product portfolio management software. To maintain strategic alignment, business units should have an easy, standard way to organize, filter, share and collaborate on outputs.
Product Portfolio Analysis Models
While there are clear best practices for a methodological approach to product portfolio analysis, the models which inform the methodology output vary. Similar to methodology, models are dependent on goals and the industry. There are various models to choose from, with the core being:
- BCG Growth-Share Matrix – The BCG Growth-Share Matrix is by far the most well-known model that places products into four segments based on market growth vs. market share (ex: Dogs, Cash Cows, Stars, and Question Marks)
- Hofer’s Product-Market Evolution Matrix – Hofer’s Matrix is based on the position of a product in the development lifecycle and its ability to compete
- GE Multifactor Portfolio Matrix – The GE Matrix focuses on resource allocation, looking at industry attractiveness across business strength
While this is not a comprehensive list, all models share common characteristics aimed at three goals:
- Understanding the degree to which there is room for adaptation (a general framework vs a tailored approach).
- Defining specific dimensions that construct the model.
- Identifying how the model imposes rules for resource allocation.
Product Portfolio Analysis Examples
Balancing Efficiency and Resilience and Improving Flexible, Real-time Modeling Insights
One example of how an organization leverages product portfolio analysis is with a global medical technology company that identified a huge opportunity to impact real change in healthcare. It had limited resources and difficulty understanding how to prioritize or find the right balance between short-term realities and long-term sustainability goals. Without a flexible tool with real-time modeling insights, leaders relied on gut instincts and a wait-and-see approach that could miss opportunities and stunt innovation.
The corporation implemented a dedicated product portfolio analysis solution and switched from annual to monthly portfolio modeling.
With a comprehensive portfolio view and a central source of truth for all investments, the PMO, Finance, and Global Marketing teams have confidence in their global leadership reviews.
Modeling is now global, baselined on calibrated market projections, and incorporates Discovery to Launch, with trade-offs and cannibalization as part of the revenue equation. The solution gives the Planning and Innovation team the required insights to support the company in making the best possible decisions.
Balancing Efficiency and Resilience and Improving Flexible, Real-time Modeling Insights
Another example is a multinational pharmaceutical company facing several challenges with pipeline prioritization, including no standard project valuation methodology or system to share data, and manual report generation that lacked real-time analytics or depth. It recognized the need for a single, secure and current project valuation repository, real-time advanced portfolio analytics for scenario and variance analysis, and a simpler data model and processes.
The company built a portfolio capability that increased the trust in data and analyses with real-time analytics linked to all reporting.
Improving the project valuation and portfolio analytics capabilities and increasing the frequency of its dynamic strategy and portfolio reviews from annually to quarterly resulted in a 50% decrease in lead time and a 75% effort reduction to produce monthly context governance materials.
With a single, secure repository for project and portfolio information, departmental silos are a thing of the past, and transparency from source data to scenario analysis enables data-driven portfolio decisions.
Product Portfolio Analysis Tools
Product organizations must retire antiquated tools that are not equipped to address the complexities, dependencies, and dynamic drivers of a modern business. Excel, many BI tools, and other standalone tools have an inherent problem: they are not integrated into a Product Portfolio Management Solution. The lack of connectivity means there is no single source of truth, rendering these tools obsolete for all-inclusive product portfolio analysis.
Automated, real-time analysis will always trump manual data entry, yet modern product portfolio analysis should not require a programming skillset. If it is to deliver organizational value, its usage must be universal and simplified for decision-makers and those who inform them.
When considering a product portfolio analysis tool, there are several essential capabilities to look for, depending on the complexity of your portfolio, including:
- Complex business case valuation
- Scenario thinking, optimization and testing
- Sensitivity analysis
- Monte Carlo simulation/uncertainty analysis
- Project scoring
- Resource and capacity planning tools
- Cloud-enabled portfolio reporting
- Variance analysis
- Data exchange with enterprise applications
The best tools are cloud-based to give everyone access no matter where they work. Managing change effectively means enabling leaders to see change early, predict and share its impact, and then act on it. This ability means priorities will often shift to align with strategies, but with real-time intelligence, decision-makers gain confidence that they’re steering their teams, the product portfolio, and the business in the right direction at the right time.
Building a Smarter Product Portfolio, One Decision at a Time
Organizations cannot afford to invest in products that are not tightly connected to business strategy. Proper prioritization requires a dedicated solution that pulls in and analyzes data in real time from across the business to provide forward-looking intelligence before leaders make critical investment decisions.
The primary goal of product portfolio analysis is to gain an in-depth valuation of the portfolio with analytics and reporting to maximize strategic decisions and connect strategy to the portfolio mix to maximize ROI. By relying on an advanced system to diagnose and recommend the best path to pipeline growth and delivery, one that guides investment decision-making, any organization can thrive in this dynamic climate.
Learn and see the difference it can make for an organization when real-time product portfolio analysis is a guiding beacon for a product portfolio management strategy:
This on-demand webinar uses lessons learned by global product companies, to share best practices for getting the right products to market on time and in line with strategy.