The ROI of Product Portfolio Management

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Issue in Focus: The ROI of Product Portfolio Management: The “How to Guide” for Predicting Return on Investment for PPM explains that companies are frequently challenged when they are required to develop a credible, supportable financial model to determine the benefits of PPM initiatives. This “Issue in Focus” is intended to help guide companies in developing a realistic ROI based on a conservative financial model.

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Table of Contents

  • Introducing the Issue
  • Calculating the Benefits of Product Portfolio Management
  • Growing the Top Line
  • Calculating Cost Savings
  • Incorporating the “Soft” Benefits
  • Example
  • Recommendations
  • About the Author
  • Footnotes

Introducing the Issue

A headline in BusinessWeek stating “Chrysler and the Innovation Basement” in 2007 may not have been a surprise. More recent statements such as Sony’s CEO public declaring an innovation problem and declaring that “Sony Corp is focusing on innovation as the next phase of its recovery, pinning its hopes on new products with the wow factor” might raise a few eyebrows. Sony, by most counts, is an innovator. Likewise Forbes’ article on “Motorola’s Innovation Problem” shows how the mighty can (and do) fall if they are not focused on properly managing their product portfolios. What these companies are likely experiencing is a poorly balanced portfolio, one that does not properly balance the investment in innovative new products with enhancements and extensions of existing products. Many companies recognize the need to improve their product portfolio management (PPM) processes even without a crisis in their headlines. These companies want to improve the way they identify, select, and oversee the collection of products that they take to market. They can rightfully expect to achieve higher levels of profitability through a number of means, including:

  • Selecting higher value products
  • Making better – and more timely – decisions to correct or cancel product development projects with limited return
  • Improving time to market
  • Improving product development efficiency
  • Aligning their product portfolio with company strategy
  • Balancing product development work with available resources
  • Balancing the risk in their product portfolio

Manufacturers recognize that these operational improvements will help improve the profitability of their product portfolio and the value provided by new products. These companies are frequently challenged, however, when they are required to develop a credible, supportable financial model to determine the benefits of the intended improvements. This “Issue in Focus” is intended to help guide companies in developing a realistic ROI based on a conservative financial model.