In today’s highly competitive business world, it is not enough to optimize individual products. The cost-optimized design of individual products does not automatically lead to cost optimization for the entire company. There are often significant synergies between the respective products and product ranges. Looking at the entire product portfolio provides an additional perspective for cost optimization.
The challenge of historically grown portfolios
Many companies face a common problem: their product portfolio has grown organically over the years without a systematic review of profitability. The result? Not every product continues to make a significant contribution to value creation – some even operate at a loss. At the same time, the biggest margin contributors are often not known and are therefore not the focus of sales activities.
The systematic approach to product portfolio optimization
This is where product portfolio optimization (PPO) comes in. It looks at the portfolio as a whole, optimizes the portfolio so that it best fits the company’s financial and strategic goals and ensures resources are used optimally.
A typical PPO project has four clearly defined phases:
- Screening and clustering the existing portfolio: The first phase involves a thorough analysis and grouping of all existing products according to relevant criteria such as sales, margin, market share, and strategic importance
- Transparency on true costs and margins: This phase determines the actual costs and margins of each product, also taking into account hidden costs such as complexity costs
- Feature and requirements analysis: Here, the product features and customer requirements are systematically analyzed to determine the actual value contribution of each feature
- Streamlining the current product portfolio: In the final phase, the portfolio is optimized by carefully evaluating financial and strategic management objectives
The concrete results of a successful PPO
Product portfolio optimization delivers several valuable results:
- Transparency on the margins of all products: A clear view of the profitability of the entire portfolio empowers better decision-making
- Reduction of complexity costs: Hidden costs are reduced by streamlining and optimizing product offerings
- Margin-optimized product portfolio: The result is a refined portfolio in which profitable products carry more weight and resources are deployed in a more targeted manner
Product portfolio optimization is a powerful tool for increasing competitiveness. It enables companies to focus their resources on profitable products and reduce complexity at the same time. The result is a portfolio that is more than the sum of its individual parts – a strategically aligned, profitable product range that optimally contributes to the company’s goals.
In our brochure “Product cost management as a driver of competitiveness” you will find detailed information on the methods and their application in practice.
In the upcoming article, we will explore how to embed the approaches of the series sustainably within the organization. Stay tuned!
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