Why product portfolio management for product managers?
When you’re managing a single product you don’t really need to worry about portfolio management. But when your portfolio has grown to 10 products (this article on product lifecycle management talks about the growth of your portfolio) it’s a different ballgame. Are you treating every product equally or are some products more equal than others? Product Portfolio Management helps you, the product manager, maximize investments in your portfolio.
There are several tools to help in managing investments in the product portfolio. The BCG Matrix, or growth-share matrix, or Boston Box is probably the most known one. You have probably heard about dogs, stars, question marks and cash cows. Harvest the the cash cow (MS-Office, Google Search), deal with the question mark (Android Watch), polish your stars (Iphone, Slack, MS-Teams, Pfizer’s Covid vaccine) and get rid of the dogs (Google plus).
The McKinsey / GE-Matrix as an alternative to the Boston Box
The simplicity of the Boston Box is beautiful. I like the evolution of the Boston box by McKinsey / GE better though, and believe it’s more useful for product managers. The 9-box model considers ‘medium’ next to low and high as options and the model looks at the competitive position and attractiveness of the market instead of just looking at the growth rate and market share. Competitive position and Attractiveness require you to first think about their meaning and derive at criterion that are important to you, this makes the model more multidimensional.
Let’s explore the model further
The vertical axis talks about the competitive strength of the products in your portfolio. Competitive strength includes for example your market share, the way you manage the distribution channel, access to production capacity, profit margins, etc.
The horizontal axis looks at the attractiveness of the market. How fast is the market growing, how large is the market, how easy is it for competitors to enter the market and compete, are there any legal challenges for operating on the market, etc.
Looking at the model, you can see the boxes are colored as well. They have the followin meaning:
Grow/Invest – The green boxes imply investing in the portfolio with the objective to grow your portfolio. Product in these boxes provide the biggest opportunity for growth.
Hold / Invest selectively – Orange means ‘hold’. Products can move in multiple directions, hold on to the products and use a small portion of your investment to try to move selected products.
Harvest / Divest – Red does not mean many good things for your products. You have poor performing products in unattractive markets. The only reason to invest in these products is when the investment results in profits, otherwise dear Gollum, it’s time to say goodbye to your precious.
GE-Matrix: Strong competitive offering
Let’s dig further into the model and start with the portfolios where you have a strong competitive offering. This means you are leading in a super attractive market, a market that can go up or down, and a small, unattractive market.
When you are leading in a very attractive market, your goal is to maximize the opportunity. Competition will try to overtake your position and they will use all means available to do so. This could be lowballing on pricing (and you counter this by differentiating your portfolio and offer multiple flavors at different price points). They can also come up with amazing new features, like a fifth camera on a smartphone, really who needs that…. (which you counter by doing the same, or coming up with a sixth camera). The point is you monitor competition, you monitor your customers to see if your product still meets their need, and you invest in your portfolio to retain your product leadership position.
When your product operates in an unattractive market your approach is going to be different. An unattractive market could grow to become an attractive market but it could also never grow. It can also mean that the market used to be attractive, but is slowly degrading (like a market for ipods). The result is the same, you are sitting there with your fancy product in a not so sexy market. Your goal is to ensure profitability of the product with minimal investments. So defend your customer base, and try to maximize the returns from this product. When the segments your are operating in are growing, and hence your are moving one square to the left, things change and you can reconsider. If the market is not moving and you stop investing, it’s likely that you move a square down.
GE-Matrix: Medium competitive offering
Second tier, you are not the product leader. You wanna be the leader, so how do you get there?
When the market is hot and attractive but your competitive position is not as strong as the leader you have to challenge the leader. Perhaps there are segments where your competitor is not successful yet, go and attack those. Let me provide an example. In one the companies I worked for we were selling training content to distributors. These distributors in their turn were adding services to the content and selling training programs to corporates. We were the leader in a niche market, and our competitors were not able to get in. Looking for alternative segments, one of the competitors started to sell training content directly to corporates. Many corporates were not looking for add-on services and were fine buying just content. We challenged their leadership, but were not able to get in.
So finding unexploited segments is one of the strategies to follow. You could also start an aggressive marketing campaign to develop your brand. An acquisition program where your salesteams are poaching their customers could also be a strategy (keeping in mind that your competitors can do the same, triggering a race to the bottom). Striving for product leadership through innovation could also be an option.
When your product is not the hottest, and the market is also not super exciting it means your stuck in the middle. Focus on growing segments so that you move one square to the left if the segments you are operating in are growing. Alternatively, you can also try to specialize and move up a square where you can become a leader in a medium attractive market.
A medium competitive product in a low attractive market means as much as sitting out the ride. Your customers will stay with you if you’re maintaining the portfolio at the right level. The only reason they will leave is when you mess up and start neglecting them or neglecting the portfolio. So, perhaps you need to invest a bit here and there, but keep a low profile. The one thing you should really do in this phase is optimize your pricing strategy – link.
GE Matrix: Low competitive offering
You’re operating in a market with a product that is not close to being the leader. There is hardly anything competitive about your product proposition. What to do, go for the lowest price, or are there alternatives?
When the market is attractive, but your product is not super sexy you have to find a way to elevate the competitive position of your product and overcome your weaknesses. Figure out what your strengths are, and specialize around these strengths.
Let me give an example. I worked in the Learning Management System (LMS) space for a while. This was a super-saturated space where over the years all the big providers challenged each other for leadership. This resulted in providers launching feature after feature after feature continuously claiming the innovation leadership card. My company launched a super simple no-frills LMS and removed all unnecessary features following the trend in the airline industry. This became a success, and suddenly we moved up a square and were up against the big boys in RFPs.
Another option when in this bottom left square is to go for acquisitions. Team up with a number of other players in this space, and buy marketshare.
The bottom right two squares are trouble. When you’re in the middle lowest square it means your product is not competitive, and the market is medium attractive. You can decide to work towards withdrawal or try to find ways to expand – either the attractiveness of the market by specializing in a niche, or by strengthening the competitive position of the product by going for niches. Just don’t go overboard in your approach, as you should really not spend too much time on this portfolio.
The same holds through obviously to having a poor competitive product in an unattractive market. Best thing to do is divest the portfolio and focus on other products. The challenge with this statement is that for many companies divesting the portfolio is tough. I experienced the same, it hurts to let go of a portfolio. Customers are still using it, and what does it matter that it just sits there? Actually a lot. All products cost money. Just having the product available takes up mindshare, and you can better spend this on other products. Sales teams get questions, you have to pay ongoing maintenance costs, etc. etc. So think about it – – time to say goodbye?