Portfolio With A Capital "P"

In the last couple of years, an increasing number of technology companies have discovered, or rediscovered, or redefined their own portfolio. Here are a few examples of where you can see this new appreciation of portfolios:

  • Using the portfolio to define alignment. Recently, I wrote a profile of Sterling Commerce's efforts to deal with the inevitable misalignments that occur in any company with lots of products, particularly after making acquisitions. Their decision to use the portfolio as the instrument of realignment is by no means unique, but it wasn't as common several years ago as it is now. (And it's still not as common as it should be.) Vendors like Sterling have to take two steps for realignment to succeed: (1) define the portfolio clearly, in a way that suggests measures of misalignment; (2) enforce this standard on people who would otherwise continue moving in the same direction unless acted upon by an outside force. Not everyone has succeeded at both, or even understood that both were necessary. 
  • Incorporating "that other thing" into the portfolio. Traditionally in this industry, product companies have struggled to understand services, and service companies have found productization to be equally challenging. "That other thing," whether a product or service, was always part of the vendor's overall value proposition. Now, some product companies have paid more attention to their services strategy. For example, SaaS vendors such as RightNow make services a prominent part of their value proposition. Compare that to the early days of SaaS, when most vendors had no services strategy at all. For obvious reasons, I can't mention them by name, but I've had a lot of inquiries and other conversations with services companies who want to treat their service offerings more as products. 
  • Incorporating partners into the portfolio. To address a business problem, the vendor will provide some of the pieces, and partners will provide others. That principle might seem obvious, but many tech vendors haven't acted as though they believed it. Lately, I've seen a lot of companies who, earlier, seemed surprised to discover they had partners, now embrace them as if they were long-lost relatives. 
  • Putting "portfolio" into a job description. Nowhere can you find more reliable signs of corporate priorities than the org chart. Some people who used to have the job title product manager are now portfolio managers. We've also encountered solutions managers, which in some cases really are portfolio managers.
  • Saying no. A sizable percentage of people whom we've interviewed for research on product management have said that the role's success depends on the ability to nix projects. PMs worry not only about feature creep within a single product, but product creep in the overall portfolio. To quote one person whom I interviewed for an upcoming study of PM and SaaS, "If all you're doing is enabling more and more work, you're not really managing anything."

What's going on here? The recession is the most obvious explanation. The portfolio defines the collection of products and services you should provide, and the level of maturity of these investments. When the economy got ugly, tech vendors, in the same fashion as everyone else, put their investments under more careful scrutiny.

While the recession certainly contributed to this trend towards greater portfolio-mindedness, it's not the most important factor. While earlier downturns were not as bad as the recent economic unpleasantness, at least one of them, the bursting of the dot-com bubble, was very painful for the technology industry. Everyone from wing-and-a-prayer startups to big established vendors were benefiting from that era of giddiness, and everyone suffered to some extent when it ended. Nevertheless, the end of the dot-com era didn't result in the same portfolio-mindedness.

The root cause of portfolio-mindedness is a mental shift in how the technology industry understands its own business. The lenses through which tech vendors view both threats and opportunities are different. Vendors used to be in the business of delivering products and services to customers; increasingly, they've seen themselves as creating value that's mutually beneficial for both vendor and customer alike. In this worldview, the portfolio is the tangible expression of that value, as it exists today, and as it might exist in the future.

While that's an easy principle to state, it's much harder to live by it. For starters, it requires an abandonment of an older definition of portfolio management, centered around project, task, and resource management. (Here's an example.) While you have to manage these elements to successfully create and maintain a portfolio, they don't define the portfolio. That bigger concept of portfolio – Portfolio with a capital "P" – is what vendors are trying to define, and then align their business activities around it. You can't identify a hole in your portfolio, or the amount of investment that component A deserves relative to component B, through a schedule manager, time sheet, or governance workflow. Those tools help with execution, not strategy.

Some vendors in the business of portfolio management have understood this shift. Accept Software, for example, has a clear value proposition for their own portfolio: We will help you collect information that affects the future of your portfolio (Ideas), incorporate that information into your decision-making (Portfolio), and then provide clear guidelines for what the portfolio components need to be (Requirements). You can see the contours of Portfolio with a capital "P" very clearly in their tools offering.

Portfolio consciousness-raising is a sign that the industry has matured. Given the rapidity of market changes and the speed of innovation, portfolio management is inherently challenging. The value you provide today may not be exactly the same as what you provide a year from now. Nonetheless, tech vendors see their business depending on taking their portfolio seriously, instead of treating it as just a list of SKUs.

Comments

Saying no and pruning

I love the "Hoard is not a portfolio" quote. Look at the line cards for BMC, CA, Quest, Adobe, Oracle, et al and they look strikingly like hoards.

Joshua Duncan responded to a WSJ article on pruning the portfolio on his A Random Jog blog and I've jumped in questions of my own. So this is timely research.

I'd like to see more about why companies have such large portfolios (and concomitant large sales staffs & cost structures) when they really only have a few products that are core to the company. How much more money would they make and how much more profit would they make if the cut products and sales staff to match?

What options do they have for cutting those products? Are there alternate channels that exist? Do they HAVE to EoL a product? For those alternate channels, do they HAVE to sell a product off completely or are there ways to split the brand (Honda & Acura style)?

Thanks.

Tj

Christine Crandell

Great post, Tom. Right on the mark, as usual.

I believe there are multiple market forces that are driving product portfolio management onto the C-suite agenda. Portfolio management is the only way companies can take the pop culture definition of 'lean' and operationalize it across the organization. In a jobless recovery where we all must do more with less to meet customer expectations; only through a holistic approach to determine where to invest precious resources and make sure the target ROI is achieved can companies grow. The best part of this trend is that 'portfolio management' has gone from the finance department into product management and from a platitude to an operating principle.

Keep writing on this topic.

Alignment

As firms in high-tech industries experience mergers and acquisitions, product portfolios and product management processes suffer a siloing effect that make alignment very difficult. Instead of considering portfolio management as a process in its own right, incorporating portfolio management across each of The 7 Pillars of Product Management can begin to mitigate some of these issues.

http://www.twitter.com/justintsmith

Great post...

Good input for Services company moving to Product/ SaaS space.