At some point in your marketing duties you may have to participate in a project where you have to analyze a product portfolio in terms of its life cycle, revenue growth or decline, new products for emerging markets, and the difficult “divestiture” product discussion. Whether you are a VP / Director of Product Management, Product Line Manager, or a CMO leading a cross functional strategy team, the understanding of a complex portfolio of products at a business and technical level across many organizations is a challenge. There is the technical view from engineering and product management that manifests itself in lists of features in a release schedule, the revenue and profitability view from finance, and the strategic view of market growth, maturity, and decline. Overall, how do you prioritize budgets and resources for the individual product lines beyond just simple revenue and sales pipeline metrics? You need an “organizing concept” to frame the overall discussion and provide a common language and understanding of the current portfolio’s situation – a least common denominator of understanding across engineering, marketing, sales, finance, operations, and service organizations. We have discussed in a previous post of how important a product line’s Business Model definition is for successful planning – this is a step that must come before any analysis or activity. The following is a method for analyzing a company or business units product lines in terms of its life-cycle – a “framing” method to set a strategic product line discussion.
A simple methodology to “frame” the product line portfolio analysis can be summarized in three steps:
Step 1. Create a Product Line Metrics Matrix – include relevant business and market metrics including market share, growth, % of revenue etc. (see below)
Step 2. Based on your Product Line Metrics Matrix determine where each product line falls on the Product life-cycle curve – introduction, growth, maturity, and decline.
Step 3. Based on steps 1 and 2 create a “Product Position and Market Attractiveness Matrix” matrix to help determine the broad strategies for each product line – “build”, “hold”, and “harvest”.
Note that this is a “framework” to set a strategic discussion and cross functional understanding but not a complete product line analysis. This will set your baseline business understanding for subsequent analysis and recommendations. One of the challenges with this method is the interpretive and subjective nature of the steps – keep this in mind when creating the tools.
Product Line Metrics Matrix. This is a simple matrix that sets the foundation and context. The basic information in the matrix, however, can be very insightful when laid out in this manner. Many times in cross functional team analysis obvious issues are hidden in detailed discussions and opinions that make it difficult to see the big picture clearly. The tools in this discussion help raise that level of discussion to a simplified strategic business view with a common understanding across diverse functional perspectives.
Each column represents each product line and has the following information: First we compare the market CAGR growth / decline both from an industry analysts and internal point of view. Industry Analysts estimates at times can be too aggressive or conservative in terms of market growth or decline so its important to compare these estimates to your own internal growth or decline percentages. This is important information for when we start building the Product life-cycle graph as we will need to place the product line in a growth, maturity, or decline phase. Next, we look at the product line’s market share and % of revenue.
In the Figure 1 above its obvious “at a glance” that the majority of the revenue of this business unit is derived from product lines that are in decline in terms of market CAGR. It’s important to note, however, that the product lines in these markets with negative CAGR are the “cash cows” of the portfolio. This highlights a problem for the business unit that sets the context that everyone gets in an instant. Once we have completed this matrix we are ready to build the product life-cycle graph.
Product Life Cycle Graph. The next step in the analysis is to construct a product life-cycle graph based on the information from the Product Line Metrics Matrix.
The life-cycle graph is really just another “at a glance” view of the product portfolio situation and context. In figure 2 the majority of the business units revenues are derived from product lines that are in decline in terms of product life cycle. (We are assuming a common product life-cycle curve in this example.) 25% of the products lines revenues are based on mature product lines while 30% of revenues are based on product lines in growth phases. Obviously, in the out years this business unit will have issues maintaining profitable revenue growth – or it already may be a reality. One caveat here: this is not an absolute analysis (i.e. its both qualitative and quantitive) and there are the grey areas between product maturity and decline for example. Use this framework as a guide in your overall analysis and context setting.
From these two simple tools we can communicate quickly the product line issues that need to be addressed at a strategic and business level. This should begin to raise your team’s discussions from a granular “in the weeds” view to a collaborative business problem solving discussion. The final tool in our “framework” is the “Product Line Position and Market Attractiveness” matrix.
Product Line Position and Market Attractiveness Matrix. This is an adaptation of a technique used to compare various business units and develop broad strategic mandates for capital use. In our case we have adapted the tool to cover product lines and the broad strategies applied depending on how the product lines fall in the matrix.
The two axes in this approach are the attractiveness of the market and the competitive position of the product line. Where a particular product line falls along these axes is determined by an analysis of that product line and its market, using the following criteria:
Market Attractiveness: Market Size, Growth, Competitive Structure, Profitability, Technology Evolution
Product Line Position: Market Share, Vendor Position, Profitability, Margins, Technology Position, Market Awareness
Depending on where a product line falls on the matrix in Figure 3, its product line approach is either to invest capital and resources to build market position, to hold by balancing cash generation and selective cash and resource use, or to harvest or divest. Expected shifts in market attractiveness or product line position lead to the need to reassess strategy. A business unit can plot its product portfolio on such a matrix to insure that the appropriate allocation of resources for each product line is made.
As we all know resources and capital are not infinite in any size company and the prioritization of product releases, resources, and budgets for a particular product line can be wrought with inefficiency, opinion, and short-term sales pipeline view. As we step through our life-cycle process we can begin to make more informed decisions on prioritization efforts. In the above example product lines 3 and 6 would get priority for resources and capital since we have classified them with a “build” strategy. This does not diminish the importance of the cash cows classified with a “harvest” or “divest” strategy for product lines 1,2, and 4 since this is the cash engine that is driving current investment and growth. However, in a harvest strategy we employ cost reductions such that we can still maintain profitable revenue that is used for growth. We may decide to outsource much of the development of these product lines or some of the assets could be divested and sold to a private equity firm to generate cash and re-investment into the business. The market attractiveness / product line position matrix is less precisely quantifiable requiring inherently subjective judgments about where a particular product line should be plotted, however, combined with the above matrix analysis one can develop the credibility of the tool to help in resource prioritization discussions for future investment.
The above frameworks can act as an “organizing concept” to frame your overall product line strategy discussions and provide a common language and understanding of the current portfolio’s situation. It can provide a simple “at a glance” least common denominator of understanding across engineering, marketing, sales, finance, operations, and service organizations that can serve to foster collaboration, cross functional team problem solving, and driving the next phase of detailed execution plans for success.