Goals of Product Portfolio Management

    Goals:

                                                        

                                                                         

Portfolio Management practices in industry reveals three goals: 

1.  Max the value of portfolio. The maximization of the portfolio is achieved by the use of financial tools such as ECV (expected commercial value), PI (Productivity Index).
2.  Achieving the right balance (with the use of Scoring Models) 
3. Linking the portfolio to the business strategy. The company assess its strengths and weaknesses and the industry (Porter's 5 Forces). 

Product Portfolio Management as a factor of Success

Cooper, Edgett, Kleinschmidt 1999 introduced the top 4 reasons of why PPT is important. These are:

•         Competitive position, because portfolio management and project selection are crucial for mantaining business’s competitive position. New product and technology choices that management makes today determine what the business will look like in the future. An estimated 32% of firms’ sales today come from new products introduced within the last 5 years . 
•        Efficient resource allocation, because resources such as people, time, and money arescarce, and is crucial for the business to manage them properly and on the right projects. The allocation of scarce and vital R&D, engineering, marketing, and operations resources is of vital importance for the success of both the rpoject and the company.. 
•        Strategic, because project selection is closely linked to the business’s strategy. It is one route by which senior management operationalizes their business’s strategy—the types of products, markets, and technologies management has chosen to attack, and the relative emphasis on each.
•     Focus, because the business wants to be focused  not do too many projects because of the scarcity of resources.  An error here for example is that companies are trying to do too many projects for the limited resources available and this results in longer cycle times, poor quality of execution, and underperforming new products. 

Major Challenges for Portfolio Management

Portfolio Management faces many challenges, the most important are:

1. The portfolio of projects does not reflect the business's strategy. Studies has shown that there is a gap between  product strategies  and  the strategic arenas, the product types, markets and technologies that would generate these new products. The breakdown of R&D spending by project type often reveals serious disconnects between the goals/strategies of the business and where the money was spent.
2. Poor - quality portfolios. This problem is depicted in one's executives's words: "We implemented our portfolio management approach and the first thing that became evident was that half our projects were in the wrong quadrants, including some of our big ones!"
3. It is tunnels not funnels.  A big problem is that the gates in new product processes (Go/Kill Decisions) are often perceived to be ineffective. In many companies projects tend to take on lives of their own. 
4. Scarce Resources and a lack of focus. Many firms face the problem of having too many projects comparing the resources they have available. As a result many projects even the best ones lack adequate people, time and money and thus it takes too long to reach the market. Poor resource allocation can also create many other problems along with poor resource allocation.
5. Trivialization of product development. It is connected with lack of resources. The time pressure of new products and "quick" revenues leads many companies to pick "low hanging fruit" projects that can be done easily. In that case projects that would help the company to gain competitive advantage are missing from the portfolio.