Product Portfolio Management Is Crucial For Effective Business Growth And Strategy.

Most organisations offer more than one product or service. The advantage here is that the various products – the product portfolio  can be managed so that they are not all in the same phase in their life cycles.

Having a balanced portfolio allows for the most efficient use of both cash and human resources.

Hollensen, S. (2015) Marketing Management: A relationship approach. 3^rd ed. Harlow Pearson.

Explore the concept of product portfolio management, using appropriate marketing models and industry examples to demonstrate your learning and application.

Indicate how any company could apply the concepts around portfolio management, making generic recommendations.

You are required to produce an essay that demonstrates your understanding of key aspects of Strategic Marketing.

Portfolio Management Models

Product portfolio management is powerful decision process that involves constantly updating and revising a variety of new products and expansion projects. In an organization, it is stirred by the availability of various challenges in the market (Foxall, 2014). Available resources and the product cycle stage of the product determine the portfolio management process (Jugend, 2016). In the process, new products are assessed, picked and prioritized. Existing products might be put on hold, terminated or de-prioritized. The diversification of products is a strategic marketing technique that shapes the competitive edge of companies that serves competitive markets (Wilson, 2012). The market instigates an organization to adopt an effective portfolio management strategy that will encompass ways that will make the company be assured of survival in the market that is dominated by powerful market players (Klingbel, 2014). The decision of what product portfolio to avail to the customer is determined by informed decisions in the light of the objectives of the organization (Kolm, 2014). Goals of portfolio management include; balance, sufficiency, value maximization, pipeline balance and business strategy alignment. Some of the issues that come up due to the lack of portfolio management include:

1. There are numerous projects to initiate and insufficient resources available.
2. Projects to be initiated do not always indicate the business’ strategy so great deals of projects are discontinued to the strategic concerns of the business.
3. Go/kill decision positions are inadequate so substandard projects are often not killed.
4. Incorrect projects are chosen, so the portfolio’s quality is substandard. 

This model was advanced to work out the risks entailed in financial markets that are characterized by unpredictability over the interest gained in days to come on different investment products. The potential risk and loss of a portfolio over a certain duration of time are known a value at risk model. Financial experts to approximate the risk involved in any financial portfolio utilize it.

The banking industry has disregarded the importance of direct regulation of bank undertakings since the 1980s. Instead, it has focused on calling for banks to keep capital to deal with the risks related to the undertakings they decide to take part in. In 1996, there was an amendment to the first international capital requirements (Basel Accords). It spelled out specific capital charges for market risks that have been measured by value0at-risk. This is worked out as a one-day 99% VaR and then scaled by a square root of ten – presuming a static portfolio for independent daily P&Ls in ten days.

One should be keen when dealing with VaR calculations involving the occurrence of risks events and magnitudes because their potential was understated when advancing this model.  

This theory, proposed by Stephen Ross in 1976, stresses on the correlation between an asset and various alike market risk factors. It asserts that the value of an asset is contingent on company specific and macro factors.

The Product Portfolio Selection Process

Doing a factor analysis of an assumed two-factor structure with two varying prices can test this theory. Let's assume the two firms involved are Toyota and Ford. In the first sample, both Toyota and Ford have combined such that their betas are zero on factor one. In the second sample, the companies have integrated making their second-factor betas equivalent to zero. The investor is likely to make a conclusion that there is just one factor if he adds a factor analysis in each sample.

The doubts about the testability of APT should be considered as sometimes factors may fail to capture relatively small betas.

Product portfolio management revolves around formulating the most viable products that the company will embark on.  For instance the combining of products that is cheap to produce with those that are costly to produce. The company will consider the products in regards to the objectives of the organization (Varley, 2014). The profits that the products will give will determine if the product will be selected or not. (Kaiser, 2015). An organization has to come up with the alternatives that are available to be able to a range to choose from.

The next step in the portfolio management would be to select the best products that will form an efficient portfolio. An efficient portfolio refers to that which contains products that offer the highest profits with low costs. The organization should also have the required resources that can support the continued supply of the products. Moreover, the organization can then assess its macro and micro factors to validate the combination of the products.

An organization can carry out a review of the portfolio selected to identify if the decision on the portfolio was the most informed decision. The evaluation process aids in the assessing the feasibility of the decision so as to ensure that the combination of the products is that which will ensure high returns and those that can be diversified in case the need arises. The selection of the most efficient portfolio to market is one of the steps to strategic marketing (Stettina, 2015).

The product selection process will utilize the BCG model. The BCG allows the incorporation of various products and the way resources are supposed to be utilized so as to create a competitive advantage. Berkshire Hathaway Company that is based in the Unites States effectively utilizes the BCG model. The company deals in diverse services that range from insurance, publishing, rail transportation, supplying of uniforms to retail business (Varley, 2014).  The company can balance its resources to all these projects so that it can ensure that its portfolio is well managed.

How to Ensure a Balanced Portfolio

It is imperative to note that though the company runs businesses itself. It has also shared in other institutions, and thus it has to make sure that everything is well managed. It is crucial also to identify that the company engages most of its resources in the insurance services because of the high acceptability levels of insurance services (Jugend, 2016).  The insurance services have a large market share and a promise of growth even though the competition at the market is very high.   The insurance services thus lie in the stars category. The company thus engages feasible marketing strategies that create awareness of the brand to the potential stakeholders. The retail business that the company engages in thriving and the company is guaranteed of returns automatically and thus in this category the company does not invest a lot because it is already assured of high returns. In this case, the products are most likely to lie in the cash cows quadrant in the BCG model (Stettina, 2015).

Berkshire Company is divesting in products that lie in the dog’s quadrant that has low returns because of the small market share that they command.

A figure of the BCG Matrix

Source: Robert M.G. (2004). Contemporary Strategy Analysis: Concepts, Techniques, and Applications

Another example of a company that borrows the ideas of the BCG model is the Wells Fargo Company that deals in the provision of banking services. The company provides insurance, banking and investing services to its customers (Hollensen, 2015). The company has ensured that all the services that it deals with are efficient so as to satisfy the needs of the customers fully.  The company receives most of its returns from the banking department, and that is why it invests most of its resources in opening and managing of the branches of the banks all over the country.  

The Insurance services are like the cash cows due to the favorable regulations in the US, and thus it is assured of stable returns (Tolonen, 2015). Due to the technological advancements that are taking place, the company engages in the incorporation of technology into its systems but consciously to make sure that it does not at the same time increase its expenses extremely.  In this case, technology falls under the question marks quadrant because the company is not sure of the returns that it will acquire if it embraces technology that is new and sophisticated.

Industry Examples

                                                                                     GE McKinsey

                                                                    A figure of the GE-McKinsey Matrix

Source: Retrieved from https://www.google.com/search?q=GE+McKinsey+matrix&client=firefox-b&tbm=isch&imgil=hURJ_l5U-eZqCM%253 

The GE MC Kinsey matrix aims at categorically helping managers in identifying the viable ways of brand marketing, return on investment and how well the products of the company can be marketed the matrix contains 9 quadrants that indicate the  strategies that a company can take depending on the portfolio that is holding (Hollensen, 2015).

In the case of a telecommunication company that deals with the providence of communication services, the company can use the GE MC Kinsey matrix.  GE can be used in strategizing on which services or products that the company should market in regards to the market attractiveness and the strength of the business (Milford, 2014). For instance in the case of the implementation of a change in the lifestyle of the customers, the company can aim at protecting the position of the company through investing more resources in customizing the mobile services to suit the changed tastes and preferences of the services offered by the company in the case of mobile money (McNally, 2013).  Apple Company embraces the GE model, first because it has a wide range of products that it provides to its customers. The products command different market attractiveness and business strengths.  

For instance, Apple Company majorly reinforces the brands that have high market share and business strength so as to protect its position in the market. For the products that are new in the market, customers are not aware of them, so the company ensures that they are strengthened through advertisements so as to surpass the weaknesses that they face in the market (Turner, 2014).  Products such as I-Phones are already accepted in the market, and thus the company invests limited funds in marketing them for the products are now in the harvesting stage. All the strategies are in the bid to have an efficient portfolio (Bilbao-Osorio, 2013). In the same way, Samsung company which deals in the manufacture and distribution of electronics applies the model more so in the acquiring of business attractiveness in its commodities because of the stiff competition that it faces from  capable companies such as Apple.  Samsung also engages in product developments that are aimed at fetching high returns from very attractive markets.  

Before deciding on the portfolio to select, the company assesses the objectives that it has against the portfolio to be chosen. For instance, if the company aims at making supernatural profits, then it embarks on products that do not have much competition, have low costs of productions and can cover a large market share. With these factors, then the organization can be able to attain its intentions (Stark, 2015). Also, the time frame of the objectives should also be specified so that the organization can verify the timeliness of the returns of the alternatives (Cang, 2016).

For a proper portfolio management, the manager must devise ways that will help get to the end goals of an organization (Kock, 2015). The decisions should be those that entertain high returns and with low costs associated with them. The management must select the best methods that are workable and the most efficient to the operations of the company.

It is imperative for the manager to assess the extent at which the products can achieve the overall objectives of the organization. The information aids in the informing of the possibility of a feasible combination of other products that can blend with the other objectives of the organization in the bid to achieve the main purpose of the company (Hope, 2014). The scope of the product also dictates the available resources that are assessable for the company to expand.  If the company has enough resources, then the likelihood of the company diversifying into more products is high than the case in which the company has limited resources (Klingbel, 2014). Resources, in this case, encompass the skilled staff, adequate capital, and raw materials. A balanced portfolio will only survive in the situation that a company has a wider scope in what it wants to achieve and the company is conversant with the risk associated with the products in the market.

The other bit of strategic management of the portfolio is ensuring that the portfolio that the company engages in can dominate the market in most of the instances. If the products are those, which command a larger market share, then the likelihood of the company failing is very low (Foxall, 2014). It is imperative also to identify that the dominance of the products must be associated with strategic marketing that incorporates the use of the marketing methods that are cost effective and those that are impactful to the target population (Cang, 2016). The use of the most efficient advertisements methods, for instance, the television can pull a large number of customers towards the specific products. The advantage of a balanced portfolio is the fact that if any of the products is accepted in the market, then there is a possibility that the rest of the products will be bought with the assumption that the company has quality products.

The manager of the company must be able to conduct his daily functions as a manager. The manager should be able to forecast the future of the company in the coming period. The manager should thus be able to make decisions that will still be applicable shortly. It is ideal to note that a manager should be able to come up with a portfolio that can be sustainable in the future (Mullins, 2012). There is no essence of supplying commodities that will most likely be wiped out of the market in the coming financial year. Also, if then this is the case; the company should develop new products to be sold along the others so that when they are no more the company can still achieve its target profits within the stipulated period (Turner, 2014).

The Significance of Portfolio Management in an organization

Portfolio management ensures that no resources be it labor, funds or raw materials of the company are misused in any manner (Martinsuo, 2013). Portfolio management calls for the execution of the most significant projects in the organization, and so the organization cannot risk creating any inefficiency with the allocation of the resources. This is to be able to run an organization that is keen on saving costs and at the same time achieving its major objectives within the period allocated.

Portfolio management has the element of good corporate governance. A high performing management ensures that all the workers in the organization are conversant with their specific duties and responsibilities. Also, the workers are scrutinized on whether they are performing their tasks as required or not. To sum up, portfolio management brings the element of accountability amongst the employees and thus the coordination role of the manager is well done (Akroyd, 2016).

The management of a product portfolio facilitates employee awareness of the essence of authority in the organization. The management makes most of the decisions, and then they are communicated to the employees who are supposed to adhere to the policies being implemented (Cravens, 2012). It is thus factual that the continued review of the portfolio management process aids in the creation of a culture of respect for the authority of the day, which necessitates smooth running of the organization.

 Communication is enhanced through the collaboration that is created between the employees together with the other stakeholders in the company. With product portfolio management there is the need to gather information from all the concerned parties including the customers so as to get sufficient information that will aid in coming up with the best policies that will be accepted by the interested parties (Almould, 2011). When all the parties are integrated into the management process, they become more sensitive to the organizational issues because they feel that they are part of the success of the company. Communication will also be entertained if the company disseminates information in the timeliest manner to gain the confidence of those that it concerns.

Organizations should be more robust in their operations by ensuring that they embrace a portfolio management models that are viable with their business operations (Rubera, 2016). The product portfolio should comprise of products that will attract more sales and those that can survive in the market for a period. It is relevant to note that a PPM can be used in ensuring that efficiency is met in all the departments of the organization.  Companies should carry out research on the trends in the market so as to identify on what they should engage so as to acquire a large market share (Kaiser, 2015). It is crucial to note that companies should identify their market segments and make sure that they address their values and expectations so as to ensure that they protect their market position (Lehnert, 2016). Also, companies should have capabilities when they are entering the market so that they can only focus on strategies that will be profitable rather than those that will threaten the survival of the company.

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