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Five Immutable Laws of Product Portfolio Management

By Duraisamy Rajan Palani – Vice President, Deloitte

To make a good business strategy, handling the complexities of product portfolio management demands more than just organizational skills—it requires a nuanced understanding of how to harmonize diverse products into a cohesive unit that drives growth and innovation. Product portfolio management is characterized by constant change and challenges, where leaders must orchestrate a symphony of products, each with its own lifecycle and trajectory. This requires not just strategic foresight but also the ability to adapt swiftly in response to market shifts and internal dynamics. Today, we delve into the essential principles that underpin successful portfolio management, unveiling five immutable laws that form the cornerstone of effective leadership.

Key Takeaways:

  • Align all portfolio efforts with a compelling vision to unify and motivate your team.
  • Maintain a strategic roadmap while remaining agile to seize new opportunities.
  • Strategically manage resources across the portfolio to maximize value and outcomes.
  • Keep the team aligned through regular updates, celebrations, and clear roadmaps.
  • Continuously assess portfolio performance and adapt strategies to meet evolving market needs.
In this article
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    Understanding Product Portfolio Management: A Spectrum of Approaches

    Two Ends of the Spectrum

    Product portfolio management can be seen through two distinct lenses. On one end, it functions as an organizational hierarchy aimed at better management of products. On the other end, it treats products as micro-enterprises, a more dynamic and agile approach.

    Traditional Organizational Hierarchy

    In the traditional view, product portfolio management serves as a way to organize products under a portfolio leader. This approach can be likened to a federal system where a central entity commands and manages different products. The focus here is on convenience and structured management.

    Micro-Enterprises: A Dynamic Approach

    A more innovative approach to product portfolio management involves treating products as micro-enterprises. This concept, highlighted in a Harvard Business Review case study, was effectively implemented by the consumer electronics company AIR. Recognizing that their traditional structure did not align with market realities and trends, AIR reorganized their company into smaller, more agile units.

    Implementation at AIR

      1. Platforms and Micro-Enterprises
        • Platforms: Represent large segments of the business, such as the refrigerator or television divisions.
        • Micro-Enterprises: Smaller, focused groups within platforms that cater to specific market segments (e.g., urban stores or rural elderly families). Each micro-enterprise operates like an independent company with separate accounts and dedicated personnel.
      2. Internal Nodes for Support
        • Design Nodes: Create product prototypes.
        • Production Nodes: Handle manufacturing.
        • Customer Success Nodes: Provide help desk support.
        • Quality Nodes: Test products and prototypes.

    Each node is highly accountable and contractually bound to the micro-enterprises they serve, enhancing responsibility and efficiency.

    Enhanced Accountability and Agility

    This structure leads to a higher level of accountability compared to typical organizational models. Micro-enterprises have their own targets and performance goals, guided by specific P&L objectives. The platform leader oversees the micro-enterprises within their platform, ensuring alignment with the overall vision.

    The Five Laws of Product Portfolio Management

    Law 1: Create a Purpose for the Portfolio

    Product portfolio management is not just about organizing products; it is about imbuing them with a shared purpose. A portfolio leader must establish a vision, shared purpose, or common wisdom statement to guide the portfolio’s trajectory. This principle ensures that all products within the portfolio align with a common goal, regardless of their stage in the development cycle.

    For instance, consider a portfolio with the vision statement: “A portfolio turns ideas into food products of superior value and affordable cost.” Within this portfolio, products may be at various stages—ideation, prototyping, production, or already in the market. Despite these differences, all products must adhere to the shared purpose, guiding them through their evolutionary stages.

    Products rarely follow a straight path from conception to market. They encounter ups and downs, deviations from their expected trajectory. However, the portfolio’s purpose acts as a guiding principle, helping realign products whenever they go off track. For example, if a space mission’s trajectory is not linear, it could land on Venus instead of Mars. Similarly, in product management, deviations must be corrected by referring back to the portfolio’s purpose.

    When products deviate from their intended path, the portfolio’s purpose helps bring them back on track. If a food product starts to deviate from its goal of delivering superior value at an affordable cost, adjustments must be made. This could involve lowering costs, improving value, or even scrapping the product if it no longer fits within the portfolio’s purpose.

    An illustrative example of this principle in action is Flagship Pioneering, a venture capital firm based in Boston. This firm focuses on breakthroughs in human health and sustainability through life sciences companies. Unlike traditional venture capital firms, Flagship Pioneering does not fund companies or products outside of its portfolio. Each company is treated as a product within the portfolio, guided by the purpose of achieving breakthroughs in health and sustainability.

    Flagship Pioneering follows a structured process:

      1. Exploration: They create and test hypotheses within their network of experts.
      2. Prototyping: If a hypothesis graduates to the next level, a prototype company is created to develop a prototype product.
      3. Validation: The prototype is tested, intellectual property is developed, and feedback is gathered from users.
      4. Growth: Successful prototypes lead to the formation of new companies, which are then structured and scaled.

    A notable success story from Flagship Pioneering is Moderna, the company behind one of the COVID-19 vaccines. This example demonstrates how a clear purpose can guide products through various stages of their life cycle, from hypothesis to market success.

    Law 2: Bridge the Strategy-Result Gap with Portfolio Management

    Organizations typically develop strategies to achieve their goals, creating initiatives to drive these strategies toward tangible outcomes, such as profit or business growth. However, a gap often exists between the strategy and the desired outcome. This gap arises from the disconnection between the numerous products and projects designed to execute these strategies, known as the “strategy-result gap.”

    Utilizing Portfolio Management

    Portfolio management serves as a strategic principle that bridges the gap between strategy and outcome. As a portfolio leader, one must view their role as pivotal in connecting the strategy to the outcome, rather than merely managing a group of products. The elevation to this level often stems from operational success as a product manager, but the larger responsibility is to unify these products under a common vision within the portfolio management framework.

    The Three-Box Solution

    Professor Vijay Govindarajan’s “Three Box Solution” offers a compelling approach to managing strategy and operations:

      1. Managing the Present: This involves day-to-day management and operational efficiency. It’s crucial to stay engaged with teams, conduct regular meetings, and ensure smooth operations.
      2. Creating the Future: This requires inventing new business models and strategic roadmaps that align with the portfolio’s purpose. The focus should be on generating new products for new markets or introducing entirely new initiatives that the company is not currently undertaking.
      3. Forget the Past: Certain aspects of current processes might hinder future innovation. Identifying and letting go of these hindrances is essential for creating something new and impactful.

    By managing these three boxes, leaders can differentiate between strategy and operations, ensuring that the strategic initiatives drive towards the desired business outcomes.

    The Role of Portfolio Management

    Portfolio management plays a crucial role in bridging the strategy-result gap. As a portfolio leader:

      • Bridge the Gap: Think of the role as connecting the strategy to the outcome, ensuring all products and projects align with the overarching strategic vision.
      • Carry the Strategy Forward: The portfolio leader must ensure that every product and project under their purview moves from its current state towards the intended business outcome, driven by the portfolio’s common purpose.
      • Strategic Roadmap: Develop a strategic roadmap that outlines how the portfolio’s purpose will deliver specific business outcomes. This roadmap should justify the investments made by the company in various strategic initiatives.
      • Innovate and Adapt: Focus on creating new business models and strategic initiatives while also identifying and eliminating current processes that may impede future growth.

    Law 3: Navigate a Spatial Awareness

    As a portfolio leader, it is essential to recognize that your time will be spread thin across various tasks and responsibilities. To manage this effectively, you must establish a central point of focus, a “docking station,” that you can always return to.

    Balancing Involvement and Delegation

    There will be times when specific products require your direct involvement due to your experience and expertise. While it’s important to contribute where necessary, it’s equally crucial to return to your central focus point. This balance prevents you from getting too engrossed in individual projects and neglecting other important signals and tasks that require your attention.

    Mentorship and Empowerment

    A common temptation for experienced leaders is to take on tasks themselves, believing they can do it better. However, a more effective approach is to mentor and equip your team to handle these tasks independently. By doing so, you not only lighten your load but also increase the overall knowledge and capability within your team.

    Practical Tips for Staying Centered

    To maintain your central focus, consider implementing practical strategies:

      • Visual Reminders: Keep a visual reminder of your central point of focus. This could be a small picture or note placed in a visible location, such as behind your desktop.
      • Regular Check-Ins: Schedule regular check-ins with your docking station to ensure you’re not neglecting other important aspects of your portfolio.
      • Equip and Delegate: Continuously look for opportunities to delegate tasks and mentor team members, enabling them to take on responsibilities independently.

    Leadership Example: Shackleton’s Endurance Expedition

    The story of Sir Ernest Shackleton’s Endurance expedition offers valuable leadership lessons applicable to portfolio management.

      1. Learning from Experience: Shackleton learned critical leadership lessons from his previous expedition with Captain Robert Falcon Scott. Scott’s indecisiveness and insecurity affected the entire team’s morale, emphasizing the importance of confident and decisive leadership.
      2. Prioritizing the Mission: During Shackleton’s 1907 expedition, he recognized the team’s physical limits and decided to turn back just 97 miles from the South Pole, prioritizing the crew’s safety over the mission’s completion. This decision underscores the importance of assessing resources and making tough decisions for the greater good.
      3. Maintaining Composure: In 1914, Shackleton faced a severe snowstorm that trapped the ship in ice. Instead of panicking, he kept the crew calm by organizing activities like poker games. He then swiftly took action to create shelters and eventually led the crew to safety, demonstrating the importance of maintaining composure and acting decisively in crisis situations.
      4. Respecting Skills Over Personal Differences: Despite personal differences with a crew member named McNeish, Shackleton recognized his skills as essential for the rescue mission. He prioritized the mission’s success over personal feelings, highlighting the need to value team members’ skills and contributions above personal biases.

    Law 4: Effective Resource Management for Infinite Possibilities

    Resource management is a fundamental aspect of product and project management, often involving finite resources allocated to achieve specific product specifications. However, as a portfolio leader, resource management transcends beyond individual products. It is about aligning resources to a common purpose that bridges the gap between strategy and results, maximizing business outcomes through strategic resource allocation.

    Strategic Resource Allocation

    As a portfolio leader, your perspective on resources must shift from a product-centric view to a strategic, holistic approach. Resources include not only people but also money, facilities, tools, and technology. These resources must be managed in a way that not only supports individual products but also advances the overall strategic objectives of the portfolio.

    Continuous Creation of the Future

    To manage resources effectively, it is crucial to assign a portion of your resources to activities focused on future creation. This means dedicating people and tools to innovative initiatives that align with your portfolio’s overarching purpose. By doing so, you ensure that your organization is constantly evolving and prepared for future challenges.

    Maximizing Business Outcomes

    Effective resource management in a portfolio context involves utilizing resources to achieve the highest possible business outcomes. This requires a strategic allocation of resources, channeling their energies into the right areas to accomplish more than what individual products could achieve alone. The collective common purpose of the portfolio drives these efforts, creating synergies that lead to greater success.

    Business Model Canvas Approach

    One practical technique for strategic resource management is using the Business Model Canvas. This tool helps you visualize and organize your portfolio’s resources and activities to maximize value creation.

      1. Value Propositions: Identify the key value propositions that your strategy must deliver to achieve the desired business outcomes.
      2. Customer Segments and Channels: Define the customer segments and the channels through which you will reach them.
      3. Key Activities: Focus on the key activities that will drive the value propositions, rather than listing individual products.
      4. Key Resources: Determine the resources needed to perform these key activities, ensuring they align with the strategic goals.
      5. Cost Structure and Revenue Streams: Map out the cost structure and potential revenue streams resulting from these activities.

    Using this approach, you can shift your perspective from managing individual products to strategically managing resources to achieve broader business objectives.

    Example: Optimal Resource Allocation

    Consider you have 100 people and a budget of $1,000. Instead of distributing these resources equally across 10 projects, you align them based on the strategic value of each initiative. This might mean allocating more resources to high-impact projects and fewer to those with lesser strategic importance.

    By focusing on the collective common purpose and key value propositions, you can optimize resource utilization, ensuring that each resource contributes maximally to the portfolio’s success.

    Law 5: Leveraging Communication as a Leadership Tool

    Communication is one of the most powerful tools in a leader’s arsenal. As a portfolio leader, your communication needs will vary at different points of your portfolio’s evolution. Effective communication can align your team with a common purpose, motivate them, and keep them focused on the overarching goals of the portfolio.

    Establishing a Common Purpose

    When you start a new portfolio or become the leader of an existing one, the first step is to establish a common purpose. Communicate a clear vision and explain why it is worth achieving. Highlight the benefits for the organization, such as creating value from resources, delivering these values to clients, and achieving business growth and profitability. Equally important, is to communicate what is in it for the individuals involved. Draw inspiration from historical examples like NASA’s mission to the moon, where astronauts were motivated by a clear, shared goal despite the personal risks involved.

    Creating a Roadmap

    Once the common purpose is communicated, develop a comprehensive roadmap that outlines the broader journey ahead. This roadmap should show how individual products fit into the larger picture. Take inspiration from Boeing’s response to Airbus’s A380, where numerous components and products were aligned to create a superior aircraft. Communicating this roadmap helps prevent disjointed efforts and ensures everyone understands how their work contributes to the overall goal.

    Execution and Ongoing Communication

    During the execution phase, use various communication methods such as town halls, crisis communications, and risk assessments to keep your team informed and prepared. Constantly reinforce the common purpose to prevent it from being forgotten in the daily hustle. In our busy, highly distracted digital world, regular reinforcement is crucial to keep everyone aligned with the mission.

    Celebrating Achievements

    Celebrate achievements, no matter how small they may seem. Recognize client successes and individual contributions that add value to the portfolio. Celebrating these milestones keeps your team motivated and reinforces their importance to the overall mission.

    Setting Future Goals

    As the portfolio nears its current goals, it’s essential to communicate the next steps. Show your team where the portfolio is headed and elevate the bar to maintain their enthusiasm and commitment. This forward-looking perspective helps mitigate concerns about job security or the future relevance of their work.

    Structuring Your Communication

    To manage communication effectively, consider using a communication matrix. This tool helps you organize and plan your communication efforts systematically. Here’s an example of what a communication matrix might look like:

      • Communication Need: Define the specific need for communication.
      • Objective: Clearly state the objective of the communication.
      • Distribution Channel: Determine the most effective channel for the message (e.g., email, presentation, one-on-one meetings).
      • Timing/Trigger: Identify the timing or events that trigger the communication.
      • Target Audience: Specify who the communication is aimed at.
      • Responsibility: Assign responsibility for delivering the communication.

    By systematically planning your communication, you ensure that the right messages reach the right people at the right time, fostering understanding and alignment within your team.

    Product portfolio management is a complex and dynamic discipline that requires a strategic approach and adherence to key principles. By defining and communicating a common purpose, balancing focus with flexibility, optimizing resource allocation, fostering continuous communication, and committing to measurement and adaptation, you can navigate the challenges of managing multiple products and drive your organization toward sustained success. Embrace these five immutable laws of product portfolio management to unlock the full potential of your portfolio and achieve your strategic objectives.

    Frequently Asked Questions

    Product Portfolio Management involves strategically orchestrating a company’s offerings to create a well-balanced mix of products that align with market trends and cater to customer needs.

    A portfolio leader’s role shifts from overseeing individual products to becoming a conductor that bridges strategy and outcomes.

    Portfolio Management goes beyond product-specific management and involves a broader, strategic perspective. It bridges the gap between initial strategy formulation and ultimate business outcomes, ensuring alignment and effective execution of initiatives.

    About the Author

    Duraisamy Rajan Palani – Vice President, Deloitte

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