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UNIVERSITY OF OULU P .O. Box 8000 F I -90014 UNIVERSITY OF OULU FINLAND
A C T A U N I V E R S I T A T I S O U L U E N S I S
Professor Esa Hohtola
University Lecturer Santeri Palviainen
Postdoctoral research fellow Sanna Taskila
Professor Olli Vuolteenaho
University Lecturer Veli-Matti Ulvinen
Director Sinikka Eskelinen
Professor Jari Juga
University Lecturer Anu Soikkeli
Professor Olli Vuolteenaho
Publications Editor Kirsti Nurkkala
ISBN 978-952-62-1266-1 (Paperback)ISBN 978-952-62-1267-8 (PDF)ISSN 0355-3213 (Print)ISSN 1796-2226 (Online)
U N I V E R S I TAT I S O U L U E N S I SACTAC
TECHNICA
U N I V E R S I TAT I S O U L U E N S I SACTAC
TECHNICA
OULU 2016
C 574
Arto Tolonen
PRODUCT PORTFOLIO MANAGEMENT OVER HORIZONTAL AND VERTICAL PORTFOLIOS
UNIVERSITY OF OULU GRADUATE SCHOOL;UNIVERSITY OF OULU,FACULTY OF TECHNOLOGY
C 574
ACTA
Arto Tolonen
C574etukansi.kesken.fm Page 1 Monday, May 23, 2016 2:13 PM
A C T A U N I V E R S I T A T I S O U L U E N S I SC Te c h n i c a 5 7 4
ARTO TOLONEN
PRODUCT PORTFOLIO MANAGEMENT OVER HORIZONTAL AND VERTICAL PORTFOLIOS
Academic dissertation to be presented with the assent ofthe Doctoral Training Committee of Technology andNatural Sciences of the University of Oulu for publicdefence in Auditorium IT116, Linnanmaa, on 22 June2016, at 12 noon
UNIVERSITY OF OULU, OULU 2016
Copyright © 2016Acta Univ. Oul. C 574, 2016
Supervised byProfessor Harri Haapasalo
Reviewed byProfessor Jussi HeikkiläProfessor Giovanna Lo Nigro
ISBN 978-952-62-1266-1 (Paperback)ISBN 978-952-62-1267-8 (PDF)
ISSN 0355-3213 (Printed)ISSN 1796-2226 (Online)
Cover DesignRaimo Ahonen
JUVENES PRINTTAMPERE 2016
OpponentsProfessor Jussi HeikkiläAdjunct professor Jari Collin
Tolonen, Arto, Product portfolio management over horizontal and verticalportfolios. University of Oulu Graduate School; University of Oulu, Faculty of TechnologyActa Univ. Oul. C 574, 2016University of Oulu, P.O. Box 8000, FI-90014 University of Oulu, Finland
Abstract
The main objective of this study is to clarify the current challenges and preconditions relating toproduct portfolio management (PPM) and widen the PPM framework over horizontal and verticalportfolios, including a related governance model, strategic performance management and the PPMprocess. This study analyses comprehensively the current PPM literature and the relevant practicesof 10 case companies representing business areas such as hardware (HW), software (SW) andServices. This study approaches PPM from a more comprehensive viewpoint as all product lifecycle phases and product structure levels are not covered well in this context by the earlierliterature.
The principal results of this study involve revealing the need for a new PPM governance modelincluding strategic targets, KPIs and the PPM process according to vertical and horizontalportfolios. The created PPM framework clarifies the strategic role of PPM in cross-functionalanalysis and decision making for commercial and technical portfolios. The role and the impact ofstrategic PPM have been further enhanced by positioning the PPM process on the level of otherbusiness processes.
The created PPM framework enhances the collaboration between business and engineeringteams. The managerial implications include the potential preconditions of clarifying the dynamicand active role of PPM at the level of other business processes. The findings can aid businessmanagers in understanding PPM as an entity that has a role in managing the entire productportfolio and its renewal based on strategic performance measures over horizontal and verticalportfolios according to cross-functional governance bodies. This highlights the criticality ofmanaging all items both in commercial and technical portfolios. The role of other businessprocesses should be highly operational by executing product development, marketing and sales,delivery and care activities according to PPM decisions. The primary role of PPM should be activemanagement of the entire product portfolio over product life cycle phases and product structurelevels, instead of merely focusing on new product development, to ensure product portfoliorenewal.
Keywords: business processes, commercial and technical portfolios and productstructure levels, horizontal and vertical product portfolios, product life cyclemanagement, product life cycle phases, product portfolio management, productportfolio management challenges and preconditions, product portfolio managementgovernance model, product portfolio management process, product portfolioperformance management
Tolonen, Arto, Horisontaalinen ja vertikaalinen tuoteportfolion hallinta. Oulun yliopiston tutkijakoulu; Oulun yliopisto, Teknillinen tiedekuntaActa Univ. Oul. C 574, 2016Oulun yliopisto, PL 8000, 90014 Oulun yliopisto
Tiivistelmä
Tämä tutkimus selventää tuoteportfolion hallintaan liittyviä edellytyksiä ja haasteita, sekä laa-jentaa tuoteportfolion hallintamallia, suorituskyvyn johtamista ja prosessia horisontaalisesti javertikaalisesti. Tuoteportfolion hallintaa on lähestytty kattavasti analysoimalla nykyistä kirjalli-suutta, sekä kymmenen kohdeyrityksen käytänteitä nykytila-analyysin keinoin. Kohdeyrityksetedustavat useita liiketoiminta- ja tuotealueita kattaen laitteiston, ohjelmiston ja palvelut. Tämätutkimus lähestyy tuoteportfolion hallintaa laajemmalta katsantokannalta kuin nykyinen kirjalli-suus joka ei kata kaikkia tuotteen elinkaaren vaiheita ja tuoterakennetasoja.
Tämän väitöstutkimuksen tärkeimmät tulokset liittyvät uuden tuoteportfolion hallintamallintarpeellisuuden esille tuomiseen, sisältäen tuoteportfolion strategiset tavoitteet, suorituskykymit-tarit ja hallintaprosessin perustuen vertikaalisiin ja horisontaalisiin tuoteportfolioihin. Luotu vii-tekehys selkeyttää tuoteportfolion hallinnan strategista roolia organisaatiorajat ja liiketoiminta-prosessit ylittävässä analyysissa ja päätöksenteossa liittyen kaupallisiin ja teknisiin tuoteportfoli-oihin. Strategisen tuoteportfolion hallinnan roolia ja merkitystä on erityisesti korostettu nosta-malla tuoteportfolion hallintaprosessi muiden liiketoimintaprosessien tasolle.
Tässä tutkimuksessa luotu tuoteportfolion hallinnan viitekehys vahvistaa yhteistyötä liiketoi-minnanjohto- ja insinööritiimien välillä kaikilla organisaatiotasoilla. Työn kontribuutiot yritys-johdolle korostavat tuoteportfolion hallintaprosessin keskitettyä, dynaamista ja aktiivista rooliajohtaa yrityksen kaupallisia ja teknisiä nimikkeitä horisontaalisesti ja vertikaalisesti kokonaisuu-tena perustuen strategisiin suorituskykymittareihin. Tuoteportfolion hallinta yli horisontaalistenja vertikaalisten portfolioiden mahdollistaa tuoteportfolion uudistumisen yli kaikkien elinkaari-vaiheiden ja tuoterakennetasojen. Muiden liiketoimintaprosessien roolin tulisi olla selkeästi ope-ratiivinen toteuttaen tuotekehitykseen, markkinointiin, myyntiin, tilaamiseen, hankintaan, toimit-tamiseen ja huoltoon liittyviä tehtäviä perustuen strategisiin tuoteportfolion hallinnan tavoittei-siin ja suorituskykymittareihin.
Asiasanat: horisontaaliset ja vertikaaliset tuoteportfoliot, kaupalliset ja teknisetportfoliot, tuoteportfolion hallinnan edellytykset ja haasteet, tuoteportfolion hallinta,tuoteportfolion hallintamalli, tuoteportfolion hallintaprosessi, tuoteportfolionsuorituskyvyn hallinta, tuoterakenteen tasot, tuotteen elinkaaren hallinta, tuotteenelinkaaren vaiheet
9
Acknowledgements
Since nearly 25 years ago, when I earned my M.Sc. in production technology in
1992, the target for my next degree was roughly defined in my mind as: “It would
be reasonable to defend my doctoral thesis the latest when 42-years old”. Today,
with a delay of eight years, this target has been reached. At the end, to make this
happen a change of an employer and a career was required. Previous managerial
positions in global business environment were changed to a temporary doctoral
student position at the University of Oulu. Someone might wonder whether this was
a wise movement. Yes, it was, indeed!
The last 3.5 years has been a learning journey to academic research work, in an
environment that has unique features and requires totally new competences and a
way of thinking. In the past, I was every now and then interviewed by many
researchers and my opinions and knowledge was taken as empirical industry based
facts. Nowadays, I am in the role of the ‘young’ researcher and to date I have only
learned the very basics of the research work. As we say in Industrial Engineering
and Management, University of Oulu, a doctoral thesis is just a ‘driving’ licence
for scientific research. My journey in doing research has only begun.
I could have selected a topic that was closely related to my earlier work
experience and competences, such as supply chain management, product
development, or business process development. Also, design for excellence and
delivery capability creation were among the most potential choices for a topic for a
long time. However, product portfolio management over horizontal and vertical
portfolios, as this study is named, was selected as the research topic as there was a
significant gap both in academic research and industrial practices.
This study, a doctoral dissertation, if approved today by the opponents, is a
result of many professional individuals and groups of people that have supported
and guided the work. Firstly I would like to thank Professor Harri Haapasalo. He
has supported this initiative from the very first telephone discussion on a late Friday
evening in autumn 2012. On my way to cinema, I asked if it was possible to have
this opportunity to work on my doctoral dissertation, yet I cannot remember which
film I was going to see. Harri’s professionalism in guiding his doctoral students is
excellent. He tries to plan the most effective route that would be straight forward
enough, and as simple as possible for the doctoral student. Everything one will read,
or analyse theoretically and empirically are linked to next papers to be published,
and to teaching and course updates. In my case, trying to reach the target according
to the most direct and effective route also resulted in a new course on product
10
portfolio management during the first month after starting in Harri’s research group.
I did ask Harri how is it possible for me to teach the students how the product
portfolio management should be planned and executed, before I have the answers
myself. He asked me to start the education by teaching the students at least what
the challenges and business impact due to missing portfolio management practices
are. The work with Harri always consists of features of good spirit and rich wording.
Thank you Harri for your support.
Secondly, I would like to thank Dr Janne Härkönen, one of my co-authors. He
is the one who can teach how to write and build the structure of scientific papers.
You, as a reader, might think that I can express myself by using excellent sentences
and paragraphs in the form of scientific text. Maybe none of my original sentences
intended for the articles were correct at first as originally written by me, in fact
everything has been discussed and corrected together to learn the academic way.
Typical discussions were: “…is this what you try to say here…this bit is in a totally
wrong section of the paper…you have not answered the second research question
at all…you cannot just make this comment without proper scientific analysis and
research…it is not about your opinions…”. Thank you Janne, you are the master of
academic writing and research. Without your support today’s doctoral defence
would have not taken place, or at least would be at a much later date.
Thirdly, I would like to show my gratitude towards the rest of my co-authors
Dr Hanna Kropsu-Vehkaperä, doctoral student Marzieh Shahmarichatghieh
(“Negar”), and Dr Matti Verkasalo. Your contribution has been remarkable. I will
never forget Hanna’s reaction to my first article draft. I sent the paper for Hanna to
comment, and she was in my room after five minutes and made a question: “Did
you write this introduction by yourself without citing any previous research papers
and researchers?” Yes, I did. Negar, it has been a pleasure to work with you, you
have opened new and fresh viewpoints to this research. I have learned a lot from
you, it is all about “teknoloki”. Matti, we have known each other for some 20 years,
and finally during this study, I have realised why you have often thought and seen
many things from a bit different angle than the most of our other colleagues. There
is a scientist inside of you.
I would also like to thank my pre-examiners, Professor Giovanna Lo Nigro,
University of Palermo, Italy, and Professor Jussi Heikkilä, Tampere University of
Technology. Your contribution, towards the end of this research has further
improved the structure of this study and helped to simplify it for the readers. I am
looking forward to co-operating with both of you in future research initiatives and
11
education. Both Tampere and Palermo come just after Oulu as preferred locations
to live.
My colleagues in Faculty of Technology, especially the ones in Industrial
Engineering and Management, your fruitful support and positive attitude in guiding
me throughout this journey has shown the best of our working society. The work
we have done together in research and education has been part of my steps towards
this moment. However, my journey in professional studies and work has started
already in 1987 as a technical student in Production Technology, Mechanical
Engineering. My teacher, professor, boss, mentor and a friend, CEO Juhani
Pylkkänen, I have always appreciated the way you work, think and behave. You are
the most optimistic person I have ever known.
I would also like to thank and express my gratitude to Tauno Tönning
foundation for the financial support during this study. I bow deeply towards
University of Oulu, Faculty of Technology, Industrial Engineering and
Management and TEKES for funding the research project. In addition, I would like
to thank all those companies and individuals who have taken part in this study,
contributed their time and provided relevant access. I know that this research has
been beneficial for you.
My lovely family and friends, without your continuous and positive support
this milestone in my life would have never happened. Unfortunately, I have been
self-centred along the way to get this work done, mostly during weekends and
evenings. This time has been away from you. Especially I would like to thank my
great and positive children, Tapio, Sallamari and Markus for your patience,
understanding and curiosity about this work. At the end, this journey during the last
3.5 years resulted in tremendous changes in my life. One could ask whether they
were partially caused by this study, perhaps, or maybe not, I am not sure. However,
my deep appreciation belongs to my ex-wife, Minna, you have supported my life
since high school.
Finally, last but not least, thank you Sari, we have known each other for a long
time and have taken a new approach to our relationship during the last steps of this
study. My future will be with you, your daughter Laura and my lovely children
Tapio, Sallamari and Markus, I am so proud of you all.
Oulu, Finland, June 2016 Arto Tolonen
13
Abbreviations
ABC Activity Based Costing
B2B Business to Business
B2C Business to Consumer
BIS Business Intelligent System
BPM Business Process Management
BPMS Business Process Management System
CEO Chief Executive Officer
CPO Chief Process Officer
ERP Enterprise Resource Planning
F&C Finance and Control
GQM Goal Question Matrix
HW Hardware
ISO International Organization for Standardization
IT Information Technology
KPI Key Performance Indicator
LCA Life Cycle Assessment
NPD New Product Development
PDM Product Data Management
PFO Process Focused Organisation
PLM Product Life Cycle Management
PM Product Management
PMT Project Management Team
PPM Product Portfolio Management
PPMB Product Portfolio Management Board
PPMT Product Portfolio Management Team
R&D Research and Development
RQ Research Question
SW Software
15
Original publications
This thesis is based on the following publications, which are referred throughout
the text by their Roman numerals:
I Tolonen A, Kropsu-Vehkapera H & Haapasalo H (2014) Product portfolio management – Current challenges and preconditions. International Journal of Performance Measurement 4(2): 69-90.
II Tolonen A, Harkonen J & Haapasalo H (2014) Product portfolio management – Governance for commercial and technical portfolios over life cycle. Technology and Investment 5(4): 173-183.
III Tolonen A, Shahmarichatghieh M, Harkonen J & Haapasalo H (2015) Product portfolio management – Targets and key performance indicators for product portfolio renewal over life cycle. International Journal of Production Economics 170: 468-477.
IV Tolonen A, Harkonen J, Verkasalo M & Haapasalo M (2015) Product portfolio management process over horizontal and vertical portfolios. International Journal of Product Life Cycle Management 8(3): 189-215.
All four articles have been published in journals and have undergone a double blind
review process. The author of this dissertation has been the primary author in all of
the original publications. The researcher has been responsible for formulating the
research problems, collecting the relevant literature, formulating the research
questions, coordinating the collection of empirical material, analysing the material,
drawing conclusions and finally being the primary author in all the four articles.
The role of the co-authors included reviewing and commenting on the article
manuscripts of the first author.
17
Contents
Abstract
Tiivistelmä
Acknowledgements 9
Abbreviations 13
Original publications 15
Contents 17
1 Introduction 19
1.1 Background and research environment ................................................... 19
1.2 Objectives, scope ..................................................................................... 21
1.3 Research process ..................................................................................... 24
2 Theoretical foundation 31
2.1 Theoretical framework ............................................................................ 31
2.2 Business process management ................................................................. 33
2.2.1 Business processes ........................................................................ 33
2.2.2 Governance ................................................................................... 34
2.2.3 Strategy and business process alignment ...................................... 35
2.3 Portfolio management .............................................................................. 36
2.3.1 Product life cycle management ..................................................... 36
2.3.2 Product portfolio management ...................................................... 37
2.4 Theory synthesis ...................................................................................... 40
3 Research contribution 43
3.1 Product portfolio management challenges and preconditions ................. 43
3.2 Governance model ................................................................................... 46
3.3 Strategic targets and key performance indicators .................................... 48
3.4 Processes and methods ............................................................................ 51
3.5 Research contribution synthesis .............................................................. 56
4 Discussion 61
4.1 Theoretical contribution .......................................................................... 61
4.2 Managerial implications .......................................................................... 64
4.3 Reliability and validity ............................................................................ 68
4.4 Further research ....................................................................................... 72
List of references 75
Appendix 87
Original publications 95
19
1 Introduction
1.1 Background and research environment
Portfolio management is a critical tool for the management team to allocate and
prioritise limited resources for different business opportunities (Menke 2006, Gould
2009) according to strategic objectives (Bruch & Bellgran 2014). The portfolio
management approach has been practised in many areas such as financial assets,
projects, IT and products (Wan et al. 2012, Orfi et al. 2011, den Hartog 2012,
Vähäniitty 2006, Kang & Montoya 2014).
A diverse product portfolio has been seen as a positive driver for companies’
sales volumes (Wan et al. 2012, Hayes et al. 2005). Within the last decades, the
growth of product portfolios has taken place due to various reasons. Both
fundamental architectural and smaller, constant incremental innovations are viewed
as critical for product portfolio renewal (O’Reilly & Tushman 2004). A vast number
of incremental new products have been created by product development activities
(Balachandra 1997, den Hartog 2012, Majava et al. 2013, Majava et al. 2014),
resulting in growing product portfolios (Basili et al. 1994, Beaujon et al. 2001,
Bojnec & Romif 2011). In addition, modifications to existing products have been
implemented in order to respond to various customer needs and to secure
competitive positioning in the market (e.g. Poolton & Barclay, 1998, Lynn et al.
1999, Hanninen et al. 2014). The growth of product portfolios has also been caused
by company mergers and acquisitions (Gerwin & Ferris 2004). In fact, product
portfolio growth has been high, as, according to Droge et al. (2012), for each
removed product, 1.8 new ones have been added to the portfolios. The business
drivers, the related business targets and the KPIs might be partially different for the
new and the existing products, which should be taken into account by the
management teams (O’Reilly & Tushman 2004). The management of existing and
new products can be organised by focused line organisations, which, however, are
often compromises of many different views, structures and management cultures
(O’Reilly & Tushman 2004, Sosa et al. 2004, Cooper et al. 1999).
In fact, the growth of product portfolios can have negative impacts both
commercially and technically (Orfi et al. 2011). Too many and parallel products
may result in the potential confusion of the customers (e.g. Jiao & Chen 2006, Wan
et al. 2012, Cooper et al. 1999), resulting in reduced sales per product variant
(Cooper & Griffiths 1994, Randall & Ulrich 2001, Thonemann & Bradley 2002, Pil
20
& Holweg 2004). Due to company mergers, an increasing number of joint product
development projects are executed, further adding to the complexity and risk of the
cannibalisation of product portfolios (Gerwin & Ferris 2004). Internally, a too-wide
product portfolio adds to the cost of the product portfolio and complicates the
product design and development activities but also adds to the complexity in
relation to business processes such as manufacturing, assembly and supply chain
(Orfi et al. 2011, Langenberg et al. 2012). The related negative business impacts
involve reduced value added per headcount, longer lead times and a decrease in on-
time deliveries (Gunasekaran et al. 2004, Cooper et al. 1997, den Hartog 2012,
Dickinson et al. 2001).
The management of the product development process and other business
processes as well as product portfolio management (PPM) need to be aligned
strategically (Bai & Sarkis 2013). The process management approach is seen as the
success factor for managing new product development in an organised manner
(Barczak et al. 2009, Hanninen et al. 2014), while strategic PPM activities are seen
as the supervising element of product management and requirements development
at the enterprise level (Leffingwell 2007). Instead of focusing on, and optimising,
single products, companies can benefit from a product portfolio and product family
approach (Salvador et al. 2002).
Companies have faced challenges in building systematic product structure
concepts (Forza & Salvador 2007, Silvola et al. 2010) for use in business processes
(Hvam et al. 2008, Tidstam & Malmqvist 2010). Information waste, as described
by Oehmen and Rebentisch (2010), has been growing the quantity of information
rather than the quality of information (Lee & Dale 1998). This has resulted in
challenges in product information management over the product life cycle
(Assouroko et al. 2014). For instance, the integration of different types of items
such as mechanics, electronics, SW and services in the form of a full view of
product configurations has been a challenging topic (Saaksvuori 2011).
Overall, the PPM research has focused on and covered well the strategic and
tactical PPM practices mainly for the new product development life cycle phase
(Cooper et al. 2001). The remaining product and product portfolio life cycle phases
have been given minor attention. In addition, the current life cycle assessment (LCA)
methodologies have been applied more on the level of individual products rather
than for entire product portfolios (Meinrenken et al. 2012).
21
1.2 Objectives, scope
The competitiveness in global, regional and local markets requires a wide product
offering. This has been the major driver for increasing the number of new products
and product variants. However, new products and related technical items have been
ramped up into active marketing, sales and delivery life cycles in parallel to existing
products, resulting in growing and costly product portfolios with minor, or zero,
total sales increase. Hence, product portfolio management activities require
attention.
The main motive for this research arises from the fact that the focus of product
portfolio management (PPM) has traditionally had an unnecessarily narrow view
focusing on new product development or sales and marketing. This study aims to
define a new PPM framework according to horizontal portfolios over product life
cycle phases and vertical portfolios over product structure levels in order to extend
the scope of the PPM. Vertically, portfolios are defined as commercial and technical
portfolios. A commercial portfolio consists of the solutions, product families,
product configurations and sales items that are visible to customers and can be
ordered, delivered and invoiced. A technical portfolio consists of technical items
such as main assemblies, sub-assemblies, components, SW builds and service
processes.
The research objective of this study is formulated
To clarify the current challenges relating to product portfolio management
(PPM) and widen the PPM framework over horizontal and vertical portfolios,
including a related governance model, strategic performance management and
the PPM process.
In this study, the research objective was approached from four complementary
viewpoints: PPM challenges and preconditions, a governance model, a performance
management framework and the process over product life cycle phases and product
structure levels. These four viewpoints, each corresponding to an individual
original publication, were condensed into four research questions (RQs), as
presented in Table 1. The related journal articles attempt to answer each research
question. Each article builds on the results from the previous ones and influence
subsequent ones during the process. Particularly, RQ1 (article 1) has influenced the
other research questions, as the identified preconditions have been considered when
formulating the later research questions and articles. The main contributions of
22
these articles are consolidated in this compilation dissertation to address the
research objective.
Table 1. Research questions.
RQ# Research questions Title of original study Publication
RQ1 What are the challenges and
preconditions for product portfolio
management?
Product Portfolio Management –
Current challenges and
preconditions
International Journal of
Performance
Measurement
RQ2 What kind of governance model
combines commercial and technical
product portfolios over life cycle?
Product portfolio management –
Governance for commercial and
technical portfolios over life cycle
Technology and
Investment
RQ3 What kind of performance
management framework would
promote product portfolio renewal over
life cycle?
Product portfolio management –
Targets and key performance
indicators for product portfolio
renewal over life cycle
International Journal of
Production Economics
RQ4 What kind of PPM process covers all
life cycle phases and product structure
levels?
Product portfolio management
process over horizontal and
vertical portfolios
International Journal of
Product Life cycle
Management
Each research question and the related articles are an integral part of this study. RQ1
is attempted to be answered by a fundamental analysis of the earlier PPM literature
as well as current state analysis within case companies to identify and classify the
PPM challenges and preconditions. The preconditions for PPM have been further
studied via the following research questions, RQ2, RQ3 and RQ4, to develop a
potential new framework for PPM over horizontal and vertical portfolios. The
structure of this study, including the research articles, is illustrated in Figure 1. The
figure clarifies the relation of the preconditions arising through article 1 (RQ1) and
the other research questions.
23
Fig. 1. Stucture of the study and the research articles.
The four research articles complement each other and provide important
contributions to the research objective. The research objective has remained the
same throughout the doctoral studies, but the research questions have been refined
throughout the progress. PPM challenges and preconditions are documented in
article 1. The six preconditions, derived based on both the literature and interviews,
are further analysed and developed in the second, third and fourth research articles.
Article 2 tackles preconditions 3 and 4 by analysing and creating commercial and
technical portfolios over life cycle together with a related PPM governance model.
Article 3 tackles the precondition 2 by creating the strategic PPM targets and
performance indicators based on company strategy. The fourth article covers
precondition 5, the creation of the PPM process, and also partly precondition 6, the
creation of data availability and reporting capabilities. However, the detailed master
data concepts including the static and dynamic product master data sources, data
connections and related information systems were left out of the scope of the study.
The focus of this study as a whole is on the PPM concept and its position as a
holistic analysis and decision-making process involving questions of what products
are to be developed, marketed, sold, delivered, cared and finally removed. The
practices involving the question of how the products are processed during the
product development, marketing, sales, delivery and care business processes are not
covered. Neither are detailed financial and accounting practices such as activity-
based costing or business case calculations and product management on the
individual product level included in the focus of this study. Performance
24
management concepts such as balanced scorecard and value stream mapping are
not part the scope of this study, either.
1.3 Research process
Research philosophy entails epistemological, ontological and ethical questions that
a researcher needs to consider when thinking of scientific research. These
considerations involve questions such as how can one believe and know a given
reality based on scientific research; how is scientific knowledge obtained; when is
the knowledge scientific; and when does the researcher abuse his research object or
act unethically against the scientific community (Lancaster 2005). Figure 2
illustrates the epistemological and ontological positioning, research strategy and
research design frame along which this study is positioned.
Fig. 2. Epistemological and ontological positioning, research strategy and research
design frame.
Epistemology is concerned with what is regarded as appropriate knowledge about
the social world. A vital aspect is the question over whether a natural science model
of the research process is suitable for studying the social world (Bryman & Bell
2003). Epistemology covers questions of what is, or should be, regarded as
acceptable knowledge within a discipline. In this context, a central issue is the
question of whether or not the social world can, and should be, studied according
to the same principles, procedures and philosophies as the natural sciences
(Saunders 2007). Epistemology can be roughly divided into positivism and
interpretivism and viewed along that axis (Saunders 2007). Positivism, a natural
science epistemology, is seen as extremely difficult to outline in a precise manner.
According to positivism, only phenomena and knowledge that can be assured
25
through senses can be considered knowledge (Saunders 2007). Interpretivism, on
the other hand, shares the view that the subject matter of social sciences, people and
their institutions is fundamentally different from that of the natural sciences.
(Saunders 2007). When viewing the epistemological positioning of this study along
the axis of positivism and interpretivism, this research positions closer to
interpretivism than positivism, since the main objective of this research is to analyse
and interpret company-wide, non-standardised organisational practices rather than
analyse positivistic correlations.
Ontology is concerned with whether the social world is considered as external
to the social actors or whether people are in the process of the approach (Bryman
& Bell 2003). Ontology is concerned with the nature of social entities. The central
focus of ontology is whether social entities can, and should, be considered objective
entities with a reality external to the social actors or if they can, and should be,
considered as social constructions built up from the perceptions and actions of the
social actors. These are referred to as objectivism and subjectivism, respectively,
and roughly constitute the axis of ontological positioning (Saunders 2007, Bryman
& Bell 2003). Objectivism is an ontological position implying that social
phenomena confront us social actors as external facts that are beyond our reach or
influence. Organisation can be discussed as a tangible object, which has rules and
regulations, and which adopts standardised procedures for getting things done
(Saunders 2007, Bryman & Bell 2003). Subjectivism, on the other hand, challenges
the suggestion that categories such as organisation and culture are pre-given and
that social actors are external realities. According to subjectivism, social
phenomena are created by social actors and are highlighted as their individual
experiences. The social order may be negotiated and consists of agreed-upon
patterns (Saunders 2007). The ontological position of this research is, however,
pragmatism, where the researcher can choose viewpoints from both approaches,
and the guiding factor is the suitability of those approaches for the research
questions (Saunders 2007).
In scientific research, it is essential to understand and make a distinction
between whether the scientific data are utilised to test existing theories or whether
the data are used to form new theory. Testing existing theories would be deductive
research, while research that forms new theory can be seen as inductive. Deductive
research forms hypotheses based on existing theories and tests those hypotheses.
Inductive research aims at generalising based on analysis and observations to form
new theory (Bryman and Bell 2003). Also, the role of experience is emphasised in
empirical research, experience that is founded on perceptual observations and
26
knowledge that is typically obtained via inductive reasoning (Manktelow 1999,
Eskola & Suoranta 1998). In this study, the logic or reasoning is mainly inductive,
as generalising conclusions is attempted based on the research, and conclusions are
founded on factors arising from the data under examination.
In this study, the manner of investigation is qualitative to gain practical insight
into product portfolio management. Nevertheless, it might be possible to research
the topic using both quantitative and qualitative methodologies. However, a
qualitative research approach provides more in-depth knowledge of product
portfolio management practices and the relations and viewpoints of different
stakeholders. Also, obtaining data for statistical analysis would have been difficult
for the researcher. Qualitative research means clarifying the meaning and
significance of the phenomenon in question, typically utilising samples chosen by
the researcher. A typical qualitative approach entails collecting data directly from
the field either by the means of interviews and/or observations. The research objects
are studied and analysed carefully, even though they are limited in number. The
emphasis is on the quality of the research input. The sample size in qualitative
research must, however, be large enough for the type of intended analysis.
Qualitative research provides the researcher some degree of freedom, but the
researcher may be bound by his own values and limitations in describing true
realities. Hence, it may be impossible to be fully objective, as the analysed
phenomenon and the researcher are linked to each other. For this reason, all research
is subjective, as the researcher’s own understanding may influence the results to
some extent (Eisenhardt 1989, Hirsjarvi et al. 2008, Yin 2003, Kasanen et al. 1993,
Denzin & Lincoln 2005, Patton 2002, Hirsjarvi & Huttunen 1995).
The research process is executed according to the most suitable research
methodology that can be seen as the strategy for the research plan (Crotty 1998,
Moore 1987). This research utilises a qualitative, inductive and multiple case study
research approach. The research process was carried out in 10 phases (see Figure
3).
27
Fig. 3. Research process.
The first five research phases, conducted during the work for the first article, were
the fundamental part of the research process identifying the current PPM challenges
and preconditions and creating the baseline for further research phases, research
questions and articles. Within the first phase, the earlier literature surrounding the
topic was analysed. Complimentary literature analyses were also carried out when
working on the later articles. The relevant keywords were identified during the
literature searches to determine the most suitable journals and conference articles
for further analysis. The keywords used included product portfolio management,
product portfolio management challenges and preconditions, product portfolio
management process, business processes, product portfolio management
governance model, product life cycle phases, product life cycle management,
product portfolio performance management, horizontal and vertical product
portfolios, commercial and technical portfolios and product structure levels. Large
number of journal articles, conference papers, books and book chapters were
studied in order to familiarise the researcher with earlier PPM research and to create
the research questionnaire for conducting the empirical case company analyses. The
life cycle phases that were used as a reference point in the questionnaire were NPD,
ramp-up, maintain, ramp-down, field maintenance/warranty and removal. A total of
163 open questions were created during this research and were classified into the
28
following eight sub-categories covering the research questions for all four articles
and the study:
1. Current product portfolio
2. Product portfolio management methods, processes and tools
3. Product management methods and processes
4. Product portfolio management and product management governance models
5. Product portfolio management targets and key performance indicators (KPIs)
6. Product management targets and KPIs
7. Product portfolio management and product management connection to other
Business Processes
8. Main challenges in product portfolio management
Each case company was analysed by utilising face-to-face workshops on a one-by-
one basis for semi-structured interviews. Typically, each workshop was organised
as full-day interview sessions. There were many workshops in the biggest company
due high interest in PPM and the number of cross-functional participants. In the
case of the smaller companies, only the CEO, R&D or Product Management types
of managers and employees were interviewed. In total, 13 workshops were arranged
with a total of 58 participating informants. The semi-structured interviews were
conducted in a qualitative manner to enable the interviewees to clarify their
viewpoints as entities. All open research questions were presented during the
workshops, and the written notes were shared on a screen to validate and verify
their correctness. In addition, the workshops were recorded for detailed analysis
and for potential later clarification.
In addition to the obtained qualitative data, some numerical data were collected
to obtain an understanding of the case companies’ basic business figures, such as
sales turnover, the size of the product portfolio at each product structure level, the
number of NPD projects, the number of HW, SW and Services type of products, the
size of the organisations, the number of employees in each main function and key
financial and other business-related key figures.
The results of the literature review and the empirical current state analysis on
the PPM challenges and preconditions were classified into six categories, which
form the initial framework for PPM challenges and preconditions. The case
companies were used as a focus group to review and improve the initial framework.
The analysis summary was documented and presented to the 10 case companies
during the first common face-to-face focus group meeting. Based on the feedback
29
and recommendations, the framework was revised and written into the form of
article 1, Product portfolio management – Current challenges and precondition.
Realising the deficiencies of the current PPM theory and the lack of systematic PPM
practices in the case companies motivated the continuation of this explorative
multiple case study.
The next phase of the study was to create an initial framework for PPM
governance models over life cycle and product structure levels followed by the
second focus group review and the article 2: Product portfolio management –
Governance for commercial and technical portfolios. A framework for PPM targets,
KPIs and the process was created the same way followed by the third focus group
meeting and article 3, Product portfolio management – Targets and key
performance indicators for product portfolio renewal over life cycle. Also, article
4, Product portfolio management process over horizontal and vertical portfolios,
was created based on the results of the third focus group.
The 10 companies analysed were selected intentionally so that they would be
fundamentally different in terms of business type and maturity, markets, products
and the size of the organisation to see the potential differences in current PPM
practices. The case companies represent both large/global and small/growing
national businesses. The companies’ products represent solutions, HW, SW and
Services products or in the larger companies, all these simultaneously. The number
of interviewees was dependent on the size of the case company. Table 2 presents
the characteristics of the case companies.
Table 2. Characteristics of the case companies.
Case Portfolio
size
Product type Business life
cycle stage
Business
type
Markets # of interview sessions
and informants
A Small HW, Services Growth B2B Domestic 1 session, 1 informant
B Large HW, SW,
Services
Mature B2B Global 4 sessions, 9 informants
C Small SW Growth B2B & B2C Global 1 session, 2 informants
D Large HW, SW,
Services
Mature B2B Global 1 session, 12 informants
E Small Services Growth B2C Domestic 1 session, 3 informants
F Small HW, SW Mature B2B Global 1 session, 4 informants
G Medium HW, SW Growth B2B Global 1 session,1 informant
H Medium HW, Service Mature B2C Global 1 session, 7 informants
I Medium HW,SW, Services Mature B2B Global 1 session, 12 informants
J Large HW, Service Mature B2B Global 1 session, 7 informants
31
2 Theoretical foundation
2.1 Theoretical framework
The business process management (BPM) and portfolio management concepts have
been selected as the two main research frames to clarify the current PPM challenges
and to broaden the PPM framework over horizontal and vertical portfolios including
performance management, governance model and PPM process. BPM concepts are
used to clarify the idea and the role of cross-functional business processes, while
the portfolio management concept is the other key theoretical concept in this study
for obtaining an understanding of the earlier research in PPM.
Business process management utilises discussions from business processes,
their interactions, governance, performance management and strategic alignment to
organise the systematic customer value creation. The BPM concept (de Boer et al.
2015, Jeston & Nelis 2008, Margherita 2013) includes the definitions of business
processes (DeToro and McCabe 1997, Lin et al. 2002, Neubauer 2009, Margherita
2013, Gunasekaran & Sandhu 2010, Moisio et al. 2001, Corallo et al. 2010),
governance models (Sköld & Karlsson 2013, Pekuri et al. 2011, Poolton & Barclay
1998, Randall & Ulrich 2001, Harmon 2006, Madison 2005, Gardner 2004, Green
2004, Kersten & Verhoef 2003, Hammer 2002, Lee & Dale 1998), process
management (Bandara et al. 2011, Rummler & Brache 1990, Womack & Jones
1996) and strategic performance management and alignment (Slack et al. 2012,
O’Reilly & Tushman 2004, de Morais et al. 2014, Neubauer 2009, Kohlbacher 2010,
Monk & Wagner 2009, David 2009, Barczak et al. 2009, Pinheiro de Lima et al.
2012, Paliszkiewich 2011).
Portfolio management (Menke 2006, Gould 2009, Bruch & Bellgran 2014,
Wan et al. 2012, Orfi et al. 2011, den Hartog 2012, Vähäniitty 2006, Kang &
Montoya 2014) analysis focuses on the concepts of product life cycle management
(PLM) (Saaksvuori & Immonen 2008) and product portfolio management (Cooper
2008, Cooper et al. 1999, Leffingwell 2007, Haines 2009, Weerd et al. 2006, Bruch
& Bellgran 2014). The PLM concept clarifies the two required dimensions for the
PPM: the horizontal dimension according to product life cycle phases (Heizer &
Render 2014, Crnkovic et al. 2003, Stark 2005, Venugopalan et al. 2012,
Meinrenken et al. 2012, Meinrenken et al. 2014) and the vertical dimension
according to product structure levels (Ulrich & Eppinger 2012, Williams 2008,
Hvam et al. 2008, Goslin & Naim 2009, Kropsu-Vehkapera & Haapasalo 2011,
32
Saaksvuori 2011). The PPM concept sets the focus areas for product portfolio
performance management as strategic fit, value maximisation and portfolio balance
(Cooper et al. 1999, Cooper et al. 2004, Barczak et al. 2009, McNally et al. 2012,
Mikkola 2000, Vähäniitty 2006, Leffingwell 2007, Weerd et al. 2006, Kamensky
2000). In addition, the strategic alignment of PPM and BPM is seen as a critical
theoretical focus area (Bruch & Bellgran 2014, Sosa et al. 2004, Ebert 2006,
Clarkson & Eckert 2004, Schultz et al. 2013, Tan et al. 2008, Elbashir et al. 2008).
Figure 4 illustrates the theoretical foundation of this study.
Fig. 4. Theoretical base for the study.
To be able to focus on the selected scope in this study, PPM over horizontal and
vertical dimensions, some related theories were left out of the analysis. These
excluded elements include the more detailed discussion on the product development
process (Ulrich & Eppinger 2012, Morgan et al. 2005, Kinnunen et al. 2014,
Mitchell et al. 1997, Kenneth et al. 2012, Cooper et al. 2002, Lettice et al. 2005,
De Brentani 2000, MacCormack et al. 2012, Ericsson & Erixon 2000, Krishnan &
Ulrich 2001), the sales process (Büyüközkan 2009, Elliott & Tam 2014, Keller 2008,
Zhang et al. 2014, Bonner & Walker 2004), the delivery process (Gunasekaran &
Kobu 2007, Ball et al. 2011, Huang et al. 2001, Almgren 2000, Berg 2007, Carrillo
et al. 2006, Cheng et al. 2010, Elstner & Krause 2014, Groover 2010, Haller et al,
2003, Hüntelmann et al. 2007, Li et al. 2014, Mukerji et al. 2010, Shang & Marlow
33
2005, Surbier et al. 2014, Van Hoek & Chapman 2007, Kuo et al. 2001), the care
process (Goffin 2000, Goffin 2003, Kuo et al. 2010, Sije & Ochieng 2013, van Eijk
et al. 2012, Gmelin & Seuring 2014) and the related performance targets and KPIs.
Neither are the concepts of business case calculation (Dyllick & Hockerts 2002,
Kinnunen et al. 2011, Hanninen et al. 2013) such as activity-based costing (Cagwin
& Bouwman 2002, Kennedy & Affleck-Graves 2001, Margherita 2013) and
balanced score card (Gibbons & Kaplan 2015 , Hoque 2014) included.
2.2 Business process management
2.2.1 Business processes
Business processes are cross-functional processes that focus on customer needs
over organisational borders (DeToro & McCabe 1997). Business processes can be
structured and modelled through multiple ways and methods (Lin et al. 2002) while
seen as value-generating (primary) and supplementary (secondary) (Neubauer 2009,
Margherita 2013). Business processes also link company operations to customers’
requirements (Lee & Dale 1998, Kock 2005). The primary activities contribute
directly to value creation via product development, marketing, sales, manufacturing,
logistics and services (Margherita 2013, Gunasekaran & Sandhu 2010, Moisio et al.
2001, Corallo et al. 2010).
Any major changes in the business environment, vision and business processes
require breakthrough types of performance improvements (Slack et al. 2012,
O’Reilly & Tushman 2004). The interest toward BPM as a research focus area and
managerial topic is growing among researchers and companies with the needs to
adapt to changing business requirements and to improve the efficiency of the
business processes and products (de Morais et al. 2014, Neubauer 2009,
Kohlbacher 2010, Monk & Wagner 2009). According to Pinheiro de Lima et al.
(2012), companies’ performance management requires the tight integration of
business processes.
Business process management is founded on process leadership, process
governance, process performance, strategic alignment, people capability, project
execution and technology (Jeston & Nelis 2008).
The business results are achieved via cross-functional processes and by the
efforts of the individual employees, not by functional organisations (Rummler &
Brache 1990, Womack & Jones 1996). According to Neubauer (2009), few
34
companies have reached the status of process focused organisation (PFO). Instead
of focusing on individual tasks of functional organisations, the PFOs define and
manage end-to-end business processes according to agreed process targets (Harmon
2006, Madison 2005, Gardner 2004, Green 2004, Kersten & Verhoef 2003,
Hammer 2002, Lee & Dale 1998).
The maturity level of a PFO is determined based on seven key criteria as
preconditions for business process improvement: alignment of strategy and
business processes based on implemented methods to measure the alignment,
implemented process management including the governance mechanism, allocated
IT-resources for business processes, implemented business processes control
mechanisms and risk management (Kersten & Verhoef 2003, Madison 2005). The
maturity of the BPM can be evaluated by an organisational process management
maturity model (de Boer et al. 2015). The method is based on five maturity levels
which are evaluated by six attributes. On the fifth, the highest, maturity level, the
company processes are described, and the operational activities are managed
according to strategically aligned process targets and performance indicators. In
addition, BPM-related performance management systems have been created and
used autonomously by trained and assigned resources to adjust work based on
agreed targets and operational status. The most common methods for business
process management include balanced scorecard, benchmarking, total quality
management, six sigma, value-oriented management and lean management
(Neubauer 2009). In fact, the number of different BPM maturity models and
evaluation tools is high, resulting in challenges in selecting the most relevant ones
(Röglinguer et al. 2012). In addition, a business process management system
(BPMS) requires integrations between information systems in order to obtain
information for process control, performance management and reporting for the
internal and external stakeholders (Tian & Quan 2008, Genaroro & Lourero 2015).
2.2.2 Governance
The governance mechanism ensures the integrity of the company in managing the
components of the business process management system, including the process
strategy, process model, process execution and process performance (Margherita
2013). The structure of the business BPM governance focuses on business
processes and relevant relations (Doebeli et al. 2011) such as an organisational
structure (Kiraka & Manning 2005).
35
Cross-functional processes connect the organisation and individual employees
to execute the business in terms of targeted performance levels on quality, cost and
time (Rummler & Brache 1990). The deficiencies of functional organisations can
be improved by utilising cross-functional steering bodies (Sköld & Karlsson 2013,
Pekuri et al. 2011, Poolton & Barclay 1998, Randall & Ulrich 2001). According to
Jeston (2008) the business process owners and related improvement teams should
be formalised as are any other critical roles in the organisation. The process
architecture can be supported by nominating the process managers according to
organisational responsibilities (Jeston & Nelis 2008, Haapasalo et al. 2006). The
most important individual factor in business process management is the nomination
of the chief process officer (CPO) and process owners to be responsible for process
design, measurement, documentation and resource allocation in order to implement
the process-based operational model (Kersten & Verhoef 2003, Madison 2005,
Kaplan & Norton 1993). The CPO and process owners should set targets for the
business processes according to the company’s strategic objectives in order to build
and maintain them operationally (Neubauer 2009). According to de Boer et al.
(2015), BPM governance aims at organisational management via process-based
responsibilities, performance assessment and process management culture beyond
the departmental boundaries. Business processes should be developed based on
long-term strategic targets in continuous improvement by the process owners, teams
and by individual job performers (Lee & Dale 1998, Rummler & Brache 1990). The
systematic use of formal processes has a greater impact on the success of the
company than does the organisational model (Barczak et al. 2009, Sosa et al. 2004).
2.2.3 Strategy and business process alignment
The risk in BPM involves having too many different targets and indicators, as the
quantity might create confusion about the most strategic performance measures
(Lee & Dale 1998). According to Barczak et al. (2009), only 60% of NPD teams
have their targets derived from the company strategy. Nevertheless, the base for the
well-integrated business processes should be a clearly defined mission statement
and company strategy (Harmon 2006, Schmidt & Treichler 1998, Haapasalo et al.
2006, Williams 2008, King et al. 2010, Pinheiro de Lima et al. 2012). The mission
statement can be product, technology and customer oriented, defining the
competitive advantage of the company (Falsey 1989, King et al. 2010) and the
position of the company in a value chain (David 2009, Kinnunen et al. 2013).
36
Strategy creation and implementation can be seen as a static business process
and should be modelled and managed as systematically as any other business
processes (Munive-Hernandez et al. 2004). Kaplan and Norton (2001) have defined
the foundation for strategy-driven objective setting and performance management
merely from the organisational viewpoint. Burlton (2010), on the other hand, has
taken the business process viewpoint. According to Burlton (2010), the activities
for aligning the strategy and business processes are the following: validation of
strategic direction, identification of stakeholder relationships, consolidation of
strategic criteria, creation of business process architecture, creation of performance
measures, alignment of process governance, creation of process priorities,
alignment of key resources for the processes and definition of organisational
transformation portfolio.
Strategic alignment is pointed out as the most important success factor for the
development of business processes and performance management practices (Bai &
Sarkis 2013). The alignment between BPM and strategy has been studied further by
de Morais et al. (2014) over the BPM life cycle in order to create a holistic approach
for BPM. The BPM should be the strategic choice for performance management in
order to monitor and manage the implementation of the strategic targets based on
agreed indicators (de Boer et al. 2015). The linkage of strategy and operational
measures can be strengthened by using the goal question metric (GQM) type of
hierarchy from the highest level objective to sub-targets and related measured
(Basili et al. 1994). The similar “performance pyramids” have also been studied by
Lynch and Cross (1992) and by Rummler and Brache (1990).
2.3 Portfolio management
2.3.1 Product life cycle management
The traditional market-oriented view identifies four product life cycles phases of
introduction, growth, maturation and decline (Heizer & Render 2014). Other
divisions also exist; for example, Crnkovic et al. (2003) describes the life cycle
according to six phases: the product business idea, requirements management,
development, production, operations and maintenance, and disposal of the product.
In addition, Stark (2005) defines the life cycle according to five phases of imagine,
define, realise, support and service and retire. Regardless of the utilised division
into phases, in order to identify a product life cycle, the related processes and
37
resources need to be known from the start of product development and
manufacturing to product obsolescence (Crnkovic 2003). The current life cycle
assessment methodologies have nevertheless been applied more at the level of
individual products than for entire product portfolios (Venugopalan et al. 2012,
Meinrenken et al. 2012, Meinrenken et al. 2014).
Product life cycle management enables companies to store and manage the
product master data for the use of all business processes and organisations
(Saaksvuori & Immonen 2008). Product data management systems can be used
efficiently for the creation of configurable and modular products by the automation
of the data integrations (Ulrich & Eppinger 2012, Williams 2008), enabling a high
number of different solutions for customers through a minimum number of items in
the portfolio (Hvam et al. 2008, Goslin & Naim 2009). According to Silvola et al.
(2010), the preconditions for companywide master data management are defined to
include product data models, nominated data owners and controlled data quality.
The existing information technology (IT)-based PLM solutions focus and support
the data management activities during the NPD phase better than over the entire life
cycle (Saaksvuori 2011). However, the product data attributes are typically
managed not only in product data management (PDM) systems but can be spread
over many areas and systems such as enterprise resource planning (ERP) (Sriti et
al. 2015, Sonzini et al. 2015, Gomez et al. 2014, Tidstam & Malmqvist, 2015).
2.3.2 Product portfolio management
Product portfolios consist of all the company’s products, which can be categorised
in many ways: by customer segments; by technology generations; by product
families or by product types such as HW, SW and Services (Kropsu-Vehkapera &
Haapasalo 2011). Intangible service products are viewed as heterogeneous due to
the involvement of the customers’ own activities during the service processes
(Sampson 2001, Lovelock & Gummesson 2008, Edvardsson et al. 2005). The other
specific feature of the service products is their dependency on the moment and time
in which they are served. Service products cannot be produced and stored before
they are used (Röβner & Kicherer 2012, Heizer & Render 2014). Service products
are experienced by the customer, a reason for which the exact value of service
products is difficult to determine (Johnston & Clark 2001).
PPM can be seen as an analysis and decision-making process for managing
multiple different viewpoints such as uncertainty, dynamic opportunities, markets,
customers, technologies and interdependencies between portfolio items to obtain
38
clear decisions based on agreed strategic targets and criteria by the executive level
cross-functional management body (Cooper et al. 1999, Leffingwell 2007, Haines
2009, Weerd et al. 2006). PPM should extend the strategic decision making over
product generations by combining the strategy, the performance management and
the development of the business processes (Bruch & Bellgran 2014).
The strategic aim of the PPM is to secure the long-term growth and profitability
of the company via strategic product road maps (Haapasalo et al. 2006) and product
portfolio selections (Mikkola 2000, Cooper et al. 2004). As much as one-third of
the sales may come from technologies and products introduced only five years ago
(Griffin 1997). The resource allocations for products should be done according to
short- and long-term PPM (Ward & Peppard 2002, Kinnunen et al. 2011). In fact,
the best performing companies may direct about 40% of their product development
capabilities to totally new products and innovations (Cooper et al. 2004).
Product portfolio analysis and decision making as viewed as important to be
done periodically and on an event basis. The holistic periodical review is more
strategic by nature, while event-based tactical reviews focus on key individual
products and their development projects (Cooper 2008). Several product portfolio
analysis methods have been recommended for simultaneous portfolio analysis in
order to obtain a wider perspective and different viewpoints for decision making
(Cooper et al. 1999, Leffingwell 2007). Ward et al. (2010) emphasise the
importance of the PPM over life cycle phases to manage product variety within
NPD and after introduction.
The potential misalignment of the product and organisational structures
nevertheless increases the challenges of managing the product portfolio by
individual line organisations (Sosa et al. 2004). Internal business processes such as
manufacturing set requirements for the product portfolio’s efficiency, expecting a
low amount of product variants (Ebert 2006, Clarkson & Eckert 2004). A
governance body for strategic product portfolio decision needs cover all key
processes and functions of the company due to fact that the product decisions
impact all of them (Cooper et al. 2001, Meeamol et al. 2011). Systematic PPM is
viewed to be more important by technology and senior managers than by the
marketing and sales managers at the customer interface (Schultz et al. 2013, Cooper
et al. 2001). Systematic PPM requires the availability of the product and business
data for the purpose of fact-based analysis and decision making. The cost of the
process, including activities, resources, related materials and energy used, can be
defined by the activity-based costing method (Margherita 2013).
39
In companies, the challenges in PPM management can be multiple, negatively
impacting business performance. In fact, PPM-related decision making can be
intuitive and objective when fact based data or systematic PPM processes are
lacking (Kester et al. 2011). The knowledge of the entire product portfolio and
architecture can be split among separate organisations which are specialists in
certain product groups, resulting in a sub-optimised and fragmented product
portfolio (Beaujon et al. 2001, Sosa et al. 2004). For example, too many and low
value NPD projects result in too many extensions, modifications, enhancements,
short-term projects and lack of focus (Ward et al. 2010, Cooper et al. 2001).
Operationally, a too-wide product portfolio that consists of multiple similar
products leads to increased demand volatility; inventories; order cycle time and
costs for operations, R&D, marketing and administration (Ward et al. 2010,
Dickinson et al. 2001).
The strategic targets of a company should be embedded not only in all business
processes but also acknowledged even by each individual employee’s performance
criteria and operational objectives (Kaplan & Norton 2001, Pinheiro de Lima et al.
2012, Paliszkiewich 2011). The foundation for strategy-driven objective setting
includes the alignment of the organisational strategy and process architecture
(Haapasalo et al. 2006, Jeston & Nelis 2008). The process performance system
verifies the execution of processes according to process targets (Margherita 2013).
The dashboard, the business intelligent system (BIS), can consist of strategic,
tactical and operational levels of performance measures (Elbashir et al. 2008) and
should be tied to specific organisational performance goals (Hall 2003). The process
control dashboard requires integrated business processes and performance reporting
system (Tan et al. 2008).
Success in business performance can be clearly linked to systematically
measured PPM goals and the active usage of the PPM methods and tools (Cooper
et al. 1999, Cooper et al. 2004, Barczak et al. 2009, McNally et al. 2012). The key
product portfolio performance focus areas can be summarised as follows: 1) product
portfolio strategic fit, 2) value maximisation and 3) the balance of the product
portfolio (Cooper et al. 1997, Barczak et al. 2009, Vähäniitty 2006, Leffingwell
2007, Weerd et al. 2006, Mikkola 2000, Kamensky 2000). Sustainability has been
gaining the increasing interest of both customers and the industry. However,
sustainability as ISO standard-related performance metrics for product portfolio
evaluation is still in the development phase (Draucker et al. 2011).
40
2.4 Theory synthesis
In this study, the theoretical foundation for PPM was clarified based on a selected
scope of earlier literature focusing on BPM and portfolio management. In addition,
the PLM concept has been acknowledged to include the concept of the life cycle
management that is applied in the PPM over horizontal portfolios in this study.
A few interesting findings, can be made in the earlier BPM and PPM research,
particularly deficiencies. The PPM research itself has mainly focused on the NPD
life cycle phase to determine the appropriate priorities regarding new product
development initiatives, projects, and programs according to strategic fit, value
maximisation and portfolio balance. Nevertheless, PPM practices in the later
product life cycle phases have not been adequately studied. The second finding is
related to the narrow focus of PPM on “products” within the vertical dimension of
product structure. Previous PPM literature has excluded the technical product
portfolio, such as the items that create the major costs for the product portfolio. The
third observation relates to the role of the PPM process in business process
architecture, as the previous literature has failed to identify its importance. Overall,
the components of the business process management system can be seen as process
strategy, process model, process execution and process performance (Margherita
2013). However, product portfolio management has not been directly covered by
any of previous BPM systems. The literature on BPM does not recognise the role
of the PPM as a centralised and cross-functional analysis and decision process for
products and services, those that are produced by the business processes. According
to BPM, “products and services can be seen as just the outcome of activities that
are executed within the business processes” (Weske 2007).
The relation and the hierarchy between the PPM process and business processes
need to be addressed further. While BPM improves the efficiency of the business
processes and their integrations and alignment, PPM should concentrate on the
efficiency of the product portfolio itself according to key product portfolio
performance management areas. The role of PPM could be further developed by
applying the adequate practices of the BPM, PLM and PPM concepts. Highly
efficient business processes and overall productivity can be seen as the internal
objectives and drivers for BPM. However, the alignment of the company strategy,
business processes and employees of the organisation to define and manage high
customer value through products and services could be clarified further by the
strategic role of PPM. The role of PPM could be strengthened in a hierarchy of
business processes to manage the entire product portfolio according to strategic and
41
aligned product portfolio performance targets. The PPM concept could be extended
to manage the entire product portfolio, all company HW, SW and Services products,
over product life phases and product structure levels by applying PLM concepts.
This study clarifies the current challenges relating to PPM and widens the PPM
framework over horizontal and vertical portfolios (Figure 5), including a related
governance model, strategic performance management and the role of the PPM
process in business process architecture. In fact, the PPM process could be seen as
the primary business process, directly impacting the customer value via centrally
analysed and decided products and services.
Fig. 5. The extension of the PPM concept horizontally and vertically to manage the entire
product portfolio.
43
3 Research contribution
3.1 Product portfolio management challenges and preconditions
The first article addresses RQ1 on the PPM challenges and preconditions, based on
the current state analysis of earlier PPM related literature and 10 case companies
According to earlier research and literature, PPM is about the cross-functional top
management level analysis and decision-making process to define what products a
company should have. PPM targets have been defined as strategic fit, value
maximisation and portfolio balance in order to prioritise the products and product
development projects at the NPD life cycle phase. The PPM methods and tools can
be classified into strategic and operational tools including strategic, financial and
portfolio balance viewpoints. Many parallel PPM analysis tools were recommended
to obtain wider perspectives for portfolio analysis and decision making. PPM
analysis and decision making are viewed as requiring a lot of commercial,
operational and financial data. The focus of the earlier research on PPM has been
on the new product development life cycle phase, leaving open questions on how
the existing products are impacted by the new products and how to manage the
entire portfolio over the life cycle phases. In addition, one notable observation is
that the current PPM literature defines the PPM concept mainly for “commercial
products and product portfolios”, leaving the items on technical product structure
levels less attention.
The empirical part of the current state analysis resulted in observations of weak
PPM practices in the case companies. The overall knowledge and competencies in
PPM were seen as a generic challenge regardless of the maturity, type of business,
size and history of the case companies. The product portfolio renewal was seen to
be very slow or sub-optimised to certain life cycle phases or product structure levels
only. The PPM concept was not clearly defined in the case companies, and the
assumed PPM strategic and operational practices were not realised systematically.
The lack of PPM strategic targets were seen as a major risk in productisation and
decision making. PPM strategic targets and KPIs were not consistently defined as
three the product portfolio performance management areas of strategic fit, value
maximisation and portfolio balance, resulting in potential sub-optimisation and, in
the worst case, in unprofitable product portfolio explosion within several life cycle
phases and product structure levels. The sales and volume targets were typically set
on business unit and individual product levels, while the capabilities for product
44
level profitability reporting were implemented only in one case company. Due to
challenges in data availability, sales and cost reporting structures, product
profitability reporting was seen as a major PPM deficiency in the case companies.
Overall, the PPM targets for strategic fit and portfolio balance were not clearly
defined.
The structure and the definitions of the product portfolios vary a lot depending
on the stakeholder viewpoints, resulting in fragmented views and opinions among
the interviewed persons. The major differences were in product portfolio
understanding and were visible in the viewpoints regarding the commercial and
technical portfolios. The marketing and sales functions saw the products very
differently in comparison to product development, manufacturing and procurement.
Challenges in visibility over the entire product portfolio, over all sellable and
technical items, and the life cycle phases resulted in inefficiencies in product
portfolio analysis, decision making and productisation. Due to unclarified portfolio
definitions, the related portfolio governance models were not consistently defined,
structured and implemented formally over the entire product portfolio. The overall
challenge is to have focus and time via dedicated resources for PPM on the needed
levels of organisation. In most of the cases, the “ownership of the product portfolios”
was not defined as a role with expected responsibilities. Only in one case company
was the product portfolio manager nominated as an owner with named team
members. Their roles and responsibilities were, however, still evolving and not fully
implemented. The product management role of looking after individual product(s)
was defined and implemented in a few case companies but not consistently the same
among the companies. The lack of product portfolio level business case thinking is
visible in the growing size and proliferation of the product portfolios and in product
cannibalisation. The lack of common definitions of the product portfolios, products,
product structure levels and life cycle phases resulted in invisibility and incapability
of managing all commercial and technical items. The PPM process was not
described and implemented as a centralised analysis and decision-making process.
Some PPM activities were done in a fragmented manner in different organisations,
and processes, but not consistently over all life cycle phases and product structure
levels according to the three strategic product portfolio performance management
areas of strategic fit, value maximisation and portfolio balance. Only a couple of
strategic and tactical tools were utilised, such as product roadmaps and financial
figures. The lack of systematic PPM practices is a potential driver for related
business impacts and risks such as the unprofitable growth of the portfolios,
resulting in unnecessary activities in business processes. The typical example
45
involved the technical maintenance of inactive sales items (no sales, no deliveries,
no invoices, not contracted any longer) and their technical structures in product
design applications and PLM/PDM-, sales- and ERP-systems. The data targets and
data specifications for PPM have not been defined thoroughly by the case
companies, resulting in more data intuitive portfolio management than fact-based
portfolio management. The creation of the data requirement specifications
according to the needs of PPM were seen to involve major improvement potential
for PLM/PDM tools.
The created PPM preconditions are described in Table 3. The first column and
the summary of the related challenges in the case companies are listed in the second
column. The examples of earlier PPM research that can be seen to be aligned with
the developed PPM preconditions are listed in third column.
Table 3. PPM challenges and preconditions.
# Developed PPM
preconditions
Analysed PPM challenges in the case companies Related earlier literature
1 Understanding
about the
concept of PPM
PPM as a concept not well known, explosion of the
product portfolios, focus on NPD phase, product life
cycles not defined, cannibalisation of products,
inadequate clean-up activities, slow portfolio renewal.
Gerwin & Ferris 2004,
O’Reilly & Tushman 2004,
Wan et al. 2012, Cooper &
Griffiths 1994, Randall &
Ulrich 2001, Thonemann &
Bradley 2002, Pil & Holweg
2004, Hayes et al. 2005,
den Hartog 2012, Ward et
al. 2010, Cooper et al.
2001.
2 PPM strategic
targets and
performance
measures based
on company
strategy
The usability of PPM as a concept and a tool for
strategy implementation has not been consistently
understood and utilised. PPM targets and KPIs were
not defined consistently, except financial KPIs.
Profitability reporting on high level (business unit or
business line) mostly, not product level.
Wan et al. 2012, Bojnec &
Romih 2011, Pekuri et al.
2011, Cooper et al. 1997a,
Mikkola 2000, Basili et al.
1994, Lynch & Cross 1992,
Kaplan & Norton 2001.
3 Strategic
product
portfolios
No clear definitions or common guidelines on what is a
product, product structure and what are the related
product portfolios, but many individual assumptions
and opinions exist. Challenges in the visibility of all
sellable and technical items resulting in inefficiencies
in productisation, modularity and configurability.
Salvador et al. 2002, Ward
& Peppard, 2002, Kinnunen
et al. 2011, Sosa et al.
2004.
46
# Developed PPM
preconditions
Analysed PPM challenges in the case companies Related earlier literature
4 PPM ownership
and governance
models
Definition of commercial and technical ownership
varies within life cycle phases and product structure
levels or the ownerships were not discussed at all.
Missing product and product portfolio owners and their
roles, especially in the case of wider solutions.
Cooper et al. 1999, Cooper
et al. 2001, Meeamol et al.
2011, O’Reilly & Tushman
2004, Paliszkiewich 2011.
5 PPM processes
and tools
Process management concepts were not implemented
consistently in PPM. Lack of clarity on who should do
the product portfolio analysis and make decisions over
life cycle and product structure levels. Only a couple of
strategic and tactical tools utilised (typically product
roadmaps and financial figures only).
O’Reilly & Tushman 2004,
Ward et al. 2010, Cooper et
al. 2001, Rummler &
Brache 1990, Haapasalo et
al. 2006, Jeston &Nelis
2008, Slack et al. 2012.
6 Product and
business data
availability and
reporting
capability
The PPM reporting targets were not systematically
specified, resulting in lack of data requirements,
classification, data availability and mutual decisions.
Reports as a list of strategic and profitable products
were not available.
Saaksvuori 2011, Sosa et
al. 2004, Hanninen et al,
2014.
As a result of article 1 and as an answer to RQ1, this study presents the
preconditions for PPM development and implementation in the case companies.
The details for the preconditions are further developed by the other three research
questions and articles.
3.2 Governance model
The second article addresses RQ2 by analysing and developing a new approach for
the PPM governance model framework to address the PPM challenges faced by the
case companies. The earlier literature defines well the nature of PPM as cross-
functional analysis and decision making by executive level managers representing
the key business functions and processes such as product development, marketing,
sales, operations and services. The idea of cross-functional analysis and decision
making is to avoid potential misalignments and different interests between
organisational structure and product architectures. However, the extant literature
merely provides sound guidance on how to analyse and prioritise the product and
product development projects within the NPD life cycle phase.
47
The current state analysis in 10 case companies resulted in observations on the
PPM activities in the NPD phase. In most of the companies, product development
is a strategic focus area and includes cross-functional business teams and technical
teams. The separation into commercial and technical portfolio management was
observed both in the earlier literature and in the empirical case company analysis.
The business viewpoint was typically managed at the level of executive
management teams, business unit management teams and business lines.
Commercial portfolio management was in the interest of the business management,
including marketing and sales teams. The allocation of investments and key new
product decisions were done at the highest business management levels and the
more detailed commercial product and product development roadmaps in business
units. The lack of product portfolio managers as a role was also observed. As noted
earlier, a product portfolio manager was nominated in only one case company,
while in the other companies, the assumed role was taken by the CEO or business
management. Nevertheless, the expected roles and responsibilities in PPM varied
greatly and were not understood consistently at same time. Product Managers (PMs)
were nominated in six case companies, while the role was not given to anyone in
the rest of the case companies. The nominated PM roles varied greatly depending
on the given focus areas by the different home organisations. In these six cases, the
PM focus was on individual products, not on the entire product portfolio.
The technical part of portfolio management was managed by the cross-
functional or business unit-related technical product development steering teams or
line organisations. The interests in the technical portfolios were seen to be more on
the side of the product development and operations teams. The most notable
observation, however, is that the primary focus of these functions is on new
products and NPD rather than on existing products. The technical maintenance
activities of the existing products were often given to different organisations outside
primary product development. Naturally, in smaller companies, the same people
and teams try to manage all products but the interest is typically on the side of new
product development. The borders of the business and technical steering teams and
related line organisations add to the challenges of managing the entire product
portfolio as a united entity.
Figure 6 illustrates the framework developed for Product Portfolio
Management Governance. In the new governance model framework, both the
horizontal and vertical dimensions of portfolio management have been covered in
order to renew the entire product portfolio and to avoid the non-strategic and
unprofitable product portfolio explosion. The horizontal dimension covers the life
48
cycle phases, and the vertical portfolio covers all product structure levels such as
commercial and technical portfolios.
The framework developed for the PPM governance model consists of one
target-setting and decision-making team and one analysis team. The Product
Portfolio Management Board (PPMB) sets the product portfolio management
targets and performance metrics and makes the product decisions accordingly. They
are supported by the Product Portfolio Management Team (PPMT), consisting of
product portfolio manager and vertical and horizontal sub-portfolio owners. The
PPMB includes a product portfolio manager and representatives from all business
processes and is chaired by the CEO.
Fig. 6. The framework developed for Product Portfolio Management Governance.
3.3 Strategic targets and key performance indicators
The third article addresses RQ3 and focuses on product portfolio performance
management to promote product portfolio renewal over life cycle.
49
PPM targets and KPIs are generally well defined for the NPD life cycle phase,
which has been the main focus of the earlier PPM literature. The product
development portfolio analysis, prioritisation and decisions are to be made
according to the multiple different viewpoints of strategic fit, value maximisation
and portfolio balance. The use of only one viewpoint, such as financial, can lead
into sub-optimisation. In addition, the generic approaches for strategy
documentation were analysed to understand the required alignment of product
portfolio performance management with company strategy.
Company analyses revealed current practices in PPM targets and KPIs together
with some potential challenges. The companies’ tendency to follow customers’
requirements for product development has resulted in a trend of accelerated and
wide product offering. New products have been introduced in parallel with existing
products for the same market segments and customers without ramping down the
older products. The visibility over the entire product portfolio has often been limited
to single products, different product views and specific life cycle phases depending
on the stakeholders. This has resulted in rapid product portfolio growth,
cannibalisation of market shares and overall cost increase due to parallel products.
Product portfolio performance management challenges were identified and
viewed to be very common in the analysed case companies, including a lack of clear
PPM strategic targets, potential conflicts of interest in PPM and deficiencies in
follow-up over life cycle at the portfolio, sub-portfolio and product levels. In fact,
only a few of the currently used performance measures in the case companies can
be directly linked to product portfolio performance management, specifically, the
number of products, sales and delivery volumes. However, in the bigger companies,
the related numerical targets have not been set for the entire portfolio level but
rather for business units or product lines.
The strategic renewal of the product portfolio assumes frequent new product
introductions and the simultaneous forward flow of existing products within the life
cycle. Therefore, a new product portfolio performance management framework
over life cycle is created in the third article. The product portfolio performance
management over life cycle includes four cornerstones: 1) the nine components of
a mission statement, 2) the three performance management focus areas of PPM
(Table 4), 3) the horizontal sub-portfolios (Figure 7) and 4) a performance
management dashboard. This type of performance management framework may
have the potential to enable effective and strategic sustainable product portfolio
renewal over life cycle. The created matrix should be used by first listing the future,
existing and declining strategic market segments, customers, products and
50
technologies and then analysing the sales, cost and profitability of these. The
portfolio balance should be analysed by listing the views such as short/long term
and low/high risk initiatives and the use of related resources and investments for
these.
Table 4. Mission statement – PPM target-setting matrix.
1) Nine components of the mission statement 2) PPM focus areas in target setting and performance
management
Strategic Fit Value Maximisation Portfolio Balance
1. Market Segments X X X
2. Customers X X X
3. Products (HW, SW, Services, Docs) X X X
4. Technology X X X
5. Economic Success X X X
6. Competitive Advantage X X X
7. Values X X X
8. Public Image and Social Responsibility X X X
9. Employees X X X
The third cornerstone, the four horizontal sub-portfolios – NPD, Maintain,
Warranty and Archive – are presented in Figure 7. The products that fulfil the
strategic PPM targets should be identified within each life cycle phase. The focus
of the business processes should be directed to develop, sell, deliver and care for
the products that fulfil the agreed PPM criteria, targets and KPIs, such as strategic
fit and value maximisation.
51
Fig. 7. The 3rd cornerstone: horizontal sub-product portfolios.
The aim of the fourth cornerstone, the dashboard, is to connect the PPM and
business processes performance management to enable creating, selling, delivering
and caring only those products that are aligned with the company strategy. Product
portfolio renewal should occur in balance and synchrony with new product
introductions, and old product ramp-downs by the aligned activities over all
business processes.
3.4 Processes and methods
The fourth article addresses RQ4 by analysing the existing PPM practices to obtain
an understanding of how systematically the PPM processes and methods are applied
in the case companies. The article emphasises the importance of the PPM concept
and process at the level of other business processes.
The existing PPM decision-making culture in the case companies is more
intuitive than objective and focuses mainly on the NPD life cycle phase to prioritise
the NPD projects and related products. Nevertheless, a product can be seen
differently by the stakeholders depending on their interests and viewpoint. PPM
practices vertically over all product structure levels and horizontally over life cycle
phases have not been the main focus and have not been specified adequately.
In order to respond to the identified PPM challenges over all sellable and
technical items, a new PPM process based on horizontal and vertical dimensions
52
should be created and implemented. The horizontal dimension analyses and
manages the PPM practices over product portfolio life cycle phases and the vertical
dimension over product portfolio layers. Vertically, the critical issue is to define the
product in the context of PPM. The sellable items belong to solution, product family,
product configuration and sales item portfolios. Non-sellable technical items belong
to the main assembly, sub-assembly and component portfolios.
The new PPM process should be positioned and seen strategically as a new
business process on the level of the other traditional business processes of Product
Development, Marketing and Sales, Deliver, Care and Support (Figure 8). The
strategic and centralised role of the PPM process is to analyse, decide and
communicate what products, as sellable items and technical items, are to be
developed, marketed, sold, delivered, cared for and finally removed over life cycle
on each product structure level by the other business processes. The role of the other
business processes is to define how the product-related activities are realised in their
focus areas and implement them accordingly.
Fig. 8. PPM process on the level of other key business processes.
The created PPM process includes the roles, tasks and methods for PPM over
horizontal and vertical portfolios. The developed methods include PPM process
chart, mission statement – PPM target-setting matrix (Table 4), PPM data input
and analysis template (Table 5) and PPM dashboard (Table 6). The created PPM
process participants include board of directors, Product Portfolio Management
Board (PPMB) and Product Portfolio Management Team (PPMT) (figures 6 and 9).
The executive team should act in the role of PPMB having the cross-functional view
53
of all business processes. The nominated product portfolio manager acts as the head
of PPMT and as a secretary for PPMB. The members of the PPMT should be the
horizontal and vertical sub-portfolio owners. Their role is to analyse the product
portfolio within horizontal and vertical sub-portfolios and prepare the decision
proposals according to agreed criteria. The horizontal and vertical portfolios widen
the strategic and operational analysis and decision making in order to renew and
develop the entire product portfolio not only by introducing new items but also by
moving the older items further in their life cycle until the final removal of them.
55
Table 5. PPM data input and analysis template.
Category Sub-category
Data classification Product data
Item description
Type of item
HW, SW, services, mixed
Product structure level classification
Solution, product family, product configuration, sales item, version
item, main assembly, sub-assembly, component
Type of business
B2B, B2C, both
Market segments:
Future potential, existing growth, existing, mature, existing decline
Customer segments:
Global, regional, local, all
Competitive advantage
Differentiation, cost competitiveness, both
Degree of newness / use of platforms and common modules
Future technology, existing dominant technology, old declining
technology, all
New item totally, new item based on existing sellable items, new
item based on new technical items, new item based on existing
technical items
Number of replaced previous items
1, 2, 3, …
Product life cycle
phase
Product life cycle (Horizontal sub-portfolio)
NPD portfolio [date of planned ramp-up]
Maintain portfolio [date of planned ramp-down]
Warranty portfolio [date of planned end of warranty]
Archive portfolio [date of planned end of archive]
Product portfolio
management targets
and KPIs
Strategic fit
Strategic, supportive, non-strategic
Value maximisation
Targeted sales turnover / year [k€]
Actual sales turnover / year [k€]
Change of sales turnover within one year [%]
Cost of goods sold (COGS) [k€]
Gross margin [k€]
Gross margin [%]
Profit margin [k€]
Profit margin [%]
Portfolio balance
Planned resources [HC]
Actual resources [HC]
Low risk, medium risk, high risk
Planned new investments [k€]
56
Table 6. PPM dashboard template – PPM KPIs.
Category Sub-category Total
value
Strategic
products
Supportive
products
Non-
strategic
products
Size of portfolio Number of active items [pcs]
Number of inactive items [pcs]
100 000
50 000
15 000
2 000
20 000
20 000
65 000
28 000
Sales turnover Targeted sales turnover / year [k€]
Actual sales turnover / year [k€]
Sales turnover increase, within
one year [%]
96 000
78 500
+10
73 700
50 200
-46,81
9 400
12 000
21,67
12 900
16 300
20,86
Cost
Profitability
Cost of goods sold (COGS] [k€]
Gross margin [k€]
Profit margin [k€]
Profit [%]
54 510
23 990
7 223
21
34 610
15 590
…
9 500
2 500
10 400
5 900
Balance Planned resources [HC]
Actual resources [HC]
Planned new investments [k€]
Low risk, medium risk, high risk
48 000
45 200
10 000
xxx
Number of replaced previous items xxx
3.5 Research contribution synthesis
This study extends the role of PPM to analyse the product portfolio vertically over
product structure levels and horizontally over life cycle phases. The current
challenges and preconditions for PPM were analysed in order to create the new
PPM framework over horizontal and vertical portfolios, including related
governance model, performance management and process (Table 7).
Table 7. Research summary and contribution of the individual articles.
RQ# Main results
1. What are the challenges and
preconditions for product portfolio
management?
The PPM preconditions
Basic understanding about the idea and concept of PPM
PPM strategic targets and performance measures based on
company strategy
Strategic product portfolios
PPM ownership and governance models
PPM processes and tools
Data availability and reporting capability
2. What kind of governance model
combines commercial and technical
product portfolios over life cycle?
Product Portfolio Management Board (PPMB)
Product Portfolio Management Team (PPMT) consisting of
vertical and horizontal sub-portfolio owners
57
3. What kind of performance
management framework would
promote product portfolio renewal
over life cycle?
Product portfolio performance management framework over life
cycle includes four cornerstones
Nine components of a mission statement
Three product portfolio performance management focus areas
of the PPM
The horizontal sub-portfolios
Performance management dashboard
4. What kind of PPM process covers
all life cycle phases and product
structure levels?
PPM process over horizontal and vertical portfolios includes the
key roles
Product Portfolio Management Board
Product Portfolio Management Team
Horizontal and Vertical Sub-portfolio Managers and key
methods
PPM process chart
Company strategy in the form of a mission statement
Mission statement – PPM target-setting matrix
PPM data input and analysis template
PPM dashboard template – PPM KPIs
The existing PPM literature and the current practices in the case companies were
seen as inadequate for solving the identified PPM challenges. The results indicate
the narrow focus of the earlier literature and the low level of knowledge and
practices in the 10 analysed case companies in terms of PPM. Within the focus
group meetings, the need for the new PPM framework was discussed and realised
as a means to manage the entire product portfolio over life cycle phases and product
structure levels. The entire product portfolio includes all commercial and technical
items at all life cycle phases, both commercial and technical portfolios. The aim of
commercial portfolio management is to manage the strategic value offering for
customers according to strategic and profitable commercial items such as solutions,
product families, sub-product portfolios, product configurations and sales items.
The commercial sales items can consist of HW, SW and Services products and their
combinations. The aim of technical portfolio management is to analyse and develop
modular and cost efficient technical solutions and structures in order to productise
the required HW, SW and Service sales items.
The created governance model includes the operational product portfolio
analysis team, PPMT, and the product portfolio decision-making team, PPMB.
According to the created PPM governance model, the PPMT headed by the product
portfolio manager consists of horizontal and vertical sub-portfolio managers. The
role of PPMT is operational and administrative. PPMT analyses the entire product
portfolio in a continuous manner and creates product portfolio decision proposals.
58
In addition, PPMT acts as a concept owner for PPM. PPMB should be the highest
and only decision-making body for product portfolio decisions regarding the
question of what the products in the company are. PPMB is headed by the CEO,
and the members represent all key business processes, including the finance and
control (F&C) function.
To create the PPM targets and KPIs according to the company’s strategic
objectives, the mission statement – PPM target-setting matrix should be used by the
PPMB. The product portfolio management process on the level of other business
processes should be implemented with a unique and central role to analyse, define
and decide the company’s products over horizontal and vertical portfolios. The PPM
process analyses and produces decisions on what kinds of products are to be
developed, marketed, sold, delivered, maintained and finally removed in the short
and long term according to company strategy. The role of the other business
processes will then be more operational and relate to how the products are to be
developed, marketed, sold, delivered and cared for.
As a result of the present study, the PPM framework over horizontal and
vertical product portfolios (Figure 10) should be implemented according to five
main steps, as follows:
– Step 1: Creation of the PPM concept over horizontal and vertical portfolios (the
lower part of the figure) by PPMT
– Step 2: Creation of the strategic PPM targets and KPIs according to mission
statement – PPM target-setting matrix by PPMB
– Step 3: Analysis of the product portfolios over horizontal and vertical portfolios
according to the PPM process by PPMT
– Step 4: Product portfolio decision making according to defined PPM strategic
targets and criteria by PPMB
– Step 5: Communication and deployment of the PPM by PPMT decision in co-
operation with operational business processes and functions
61
4 Discussion
4.1 Theoretical contribution
This study identifies the current challenges and preconditions for PPM and creates
a new PPM framework, Product Portfolio Management over Horizontal and
Vertical Portfolios. Table 8 summarises the theoretical implications of the four
articles.
Table 8. Summary of theoretical contribution.
Article/Title Theoretical contribution
1. Product Portfolio
Management –
Current challenges
and preconditions
Documenting PPM challenges
Classifying challenges to six preconditions
Creation of basic understanding about the idea and concept of PPM
Creation of PPM strategic targets and performance measures based on
company strategy
Creation of strategic product portfolios
Creation of PPM ownership and governance models
Creation of PPM processes and tools
Creation of data availability and reporting capability
2. Product portfolio
management –
Governance for
commercial and
technical portfolios
over life cycle
Creating and documenting the concept of vertical portfolios
Commercial portfolio
Technical portfolio
Creating and documenting the concept of horizontal portfolios
NPD portfolio
Maintain portfolio
Warranty portfolio
Archive portfolio
Extending and documenting the PPM governance model over horizontal and
vertical portfolios
Product Portfolio Management Board (PPMB)
Product Portfolio Management Team (PPMT) consisting of vertical and
horizontal sub-portfolio owners
3. Product portfolio
management –
Targets and key
performance indicators
for product portfolio
renewal over life cycle
Creating and documenting the product portfolio performance management
framework over life cycle including four cornerstones
PPM target-setting matrix based on nine components of a mission statement
and three product portfolio performance management focus areas
The horizontal sub-portfolios
Performance management dashboard
62
Article/Title Theoretical contribution
4. Product portfolio
management process
over horizontal and
vertical portfolios
Creating and documenting the PPM process over horizontal and vertical
portfolios
Documenting the key roles in PPM process
Creating and documenting key methods for the PPM process
PPM process chart
Mission statement – PPM target-setting matrix
PPM data input and analysis template
PPM dashboard template – PPM KPIs
The first article, Product portfolio management – Current challenges and
preconditions, clarifies the current challenges and preconditions in PPM and
complements the existing literature (see e.g. Ward et al. 2010, Cooper et al. 2001,
Ward et al. 2010, Kester et al. 2011, Sosa et al. 2004, Beaujon et al. 2001,
Saaksvuori 2011). PPM challenges were classified into generic, process,
governance model, performance management and data availability-related
viewpoints and categories, which were further developed as six preconditions. As a
major contribution to the existing literature, the fundamental newness of this article
lies in the identification of the lack of sub-portfolios and related PPM practices,
both horizontally over life cycle phases and vertically over product structure levels,
in order to avoid portfolio explosion both commercially and technically.
The second article, Product portfolio management – Governance for
commercial and technical portfolios over life cycle, proposes the new PPM
governance model based on horizontal and vertical sub-portfolios. The current
literature identifies PPM management as a cross-functional higher management
level analysis and decision-making process for product initiatives in the new
product development phase (e.g. Kropsu-Vehkaperä & Haapasalo 2011, Ebert 2006,
Clarkson & Eckert 2004, Cooper et al. 2001, Meeamol et al. 2011, Sosa et al. 2004).
The previous literature leaves fundamental questions open relating to PPM both
over horizontal product portfolio life cycle phases and vertical product portfolio
layers. Indeed, the focus and wording in the existing PPM literature is more often
about “projects and their prioritising within NPD” in order to prioritise the
investments and resources for the most potential product development projects.
Horizontally, the current literature on PPM can be seen to cover the NPD phase of
the product life well. However, PPM over the entire product life cycle including
related targets and KPIs, governance models and processes has not previously been
described adequately. Vertically, the current PPM literature focuses on “product”
only and not technical items in the lower parts of the product structure. The
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definition of the product as an individual commercial or technical item, or group of
items, leaves room for many different views and fundamental clarifications. This
article extends the concept of the PPM governance model to vertically cover both
commercial and technical portfolios, including related sub-portfolios according to
the product structure concept. In addition, the created PPM governance model
framework consists of four horizontal sub-portfolios to manage the renewal of the
product portfolios over life cycle. The new PPM governance model framework
includes the centralised PPM analysis team, consisting of vertical and horizontal
sub-portfolio owners as a major contribution to the existing literature and studies.
The third article, Product portfolio management – Targets and key performance
indicators for product portfolio renewal over life cycle, develops a product portfolio
performance management framework over life cycle. The created and documented
product portfolio performance management framework over life cycle includes four
cornerstones: nine components of a mission statement, three product portfolio
performance management focus areas, horizontal sub-portfolios and the
performance management dashboard of the company. This article contributes to
earlier strategic management and business process management (e.g. Williams 2008,
King et al. 2010, Falsey 1989, Harmon 2006) and product portfolio performance
management related literature (e.g. Buch & Bellgran 2014, Menke 2006, Gould
2009, Cooper et al. 1999, Leffingwell 2007, Haines 2009, Weerd et al. 2006,
Cooper et al. 2004, Barczak et al. 2009, McNally et al. 2012, Barczak et al. 2009,
Vähäniitty 2006, Mikkola 2000, Kamensky 2000, Draucker et al. 2011) by
introducing the practical mission statement-driven PPM target-setting matrix to
obtain alignment between the PPM targets and the company strategy. The
performance management dashboard (e.g. Morais et al. 2013, Pinheiro de Lima et
al. 2013) should be enhanced to consist of targets and KPIs both for traditional
business processes and PPM. This would secure the alignment between PPM and
traditional business processes.
The fourth article, Product portfolio management process over horizontal and
vertical portfolios, creates a new PPM framework including the related governance
model, key roles, performance management targets and KPIs over horizontal and
vertical portfolios. In addition, new PPM data input, analyses and PPM dashboard
templates have been created. This article contributes to earlier PPM process-related
literature (e.g. Ward & Peppard 2002, Kinnunen et al. 2011, Cooper et al. 2004,
Cooper 2008, Leffingwell 2007, Ward et al. 2010, Neubauer 2009) by enhancing
and promoting the centralised and strategic role of the PPM process to the level of
other traditional business processes. The role of the PPM process is to analyse and
64
define what strategic and value-added product portfolio will be developed, sold,
delivered and cared for by the traditional business processes.
In summary, the fundamental contribution of this study is the extension of the
PPM analysis and decision-making concept over horizontal and vertical portfolios.
The created concept includes the related governance models based on PPMT and
PPMB, clarification and improvement of PPM strategic target setting by
introducing the mission statement – PPM target-setting matrix and creating a
proposal for a new PPM process accordingly. Finally, PPM should be seen as a
strategic business process for analysing the commercial and technical items in order
to focus on the strategic and profitable products and related technical solutions in
all business processes.
4.2 Managerial implications
As a major managerial implication, active product portfolio management should be
seen as one of the most important and critical business processes and management
focus areas for analysing, defining and managing the entire product portfolio over
horizontal and vertical portfolios according to the cross-functional PPM process.
Indeed, the entire product portfolio, consisting of all commercial and technical
items, is to be structured as horizontal and vertical portfolios and should not be seen
as an isolated managerial topic. Vertically, commercial and technical items should
be grouped according to product structure levels to form commercial and technical
portfolios. The base for the configurability of the commercial portfolio should be
built based on company-wide HW, SW and services and sales items. The technical
product portfolio should be structured according to the product structure concept
utilising well-defined and company-wide modular platforms and common technical
items to gain efficiency in product creation, sourcing, manufacturing and logistics.
Horizontally, all items should be classified according to NPD, Maintain, Warranty
and Archive portfolios or even in a more detailed manner. Indeed, both horizontal
and vertical portfolio management dimensions are to be actively managed to renew
the entire product portfolio over all life cycle phases and product structure levels
and to avoid product portfolio “explosion” as a number of commercial and technical
items.
Through the active product portfolio management, companies can focus their
business activities on strategic and profitable products. The managerial implications
of the study include modifications to the process hierarchy and the process
governance model. The created PPM as a new business process streamlines the role
65
of other business processes to be more operational rather than strategic by impacting
their content. PPM should define what the products are in the product portfolio
while the other business processes should only define how the products are
developed, sold, delivered and cared for. This will require holistic analysis and
review of the entire portfolio based on an agreed frequency according to business
dynamics. This study proposes that the PPM process should be managed as
systematically as business processes according to the created PPM process chart,
process participants, tasks and templates. In addition, the PLM/PDM concepts and
data models including product structure and life cycle definitions should be
developed as a fundamental enabler for the creation and implementation of the PPM
process.
The PPM strategic targets should be created according to the company’s
strategic objectives. To do this, the practical mission statement – PPM target-setting
matrix should be created. Cross-functional executive teams can derive the PPM
strategic targets by using the created “mission statement – PPM target-setting
matrix” and, in fact, even impact the company strategy directly. In addition to the
strategic view, an economic view over the product portfolio should be considered
at the same time to result in maximised value. The value maximisation can be seen
in the form of the profitability of the products. The third PPM managerial focus
area, the portfolio balance, enables the strategic allocation of key resources and
investments in horizontal and technical products portfolios. To reach alignment
between the PPM and other business processes, the company performance
management dashboard that include targets and KPIs, both for PPM and other
business processes, should be utilised. The key issue in product portfolio
performance management involves knowledge about the products that fulfil the
agreed PPM criteria, targets and KPIs, such as strategic fit and value maximisation.
Accordingly, “green products” fulfil both criteria for being strategic and profitable.
“Red products” are non-strategic and unprofitable. “Yellow products” might be
strategic but are non-profitable or the other way round: non-strategic and profitable.
This study points out the importance of companies utilising active PPM to focus on
the “green and yellow products”, those that should be developed, sold, delivered
and cared for by the traditional business processes. “Red products” have the most
potential for ramp-down decisions. Product portfolio renewal should not take place
by only introducing new “green products” but also by moving the older, potentially
“yellow and red products” further within their life cycle until final removal. In fact,
companies should understand that the ramp-up decisions for the new commercial
and technical items should be connected to the ramp-down decisions for the
66
identified existing items. This can help companies obtain adequate levels of product
portfolio renewal and efficiency.
In order to orchestrate the analysis and decision making for product portfolio
renewal, a PPM governance model should be created. The created PPM governance
consists of representation from all key business processes and organisational
functions to obtain a common and aligned view to reach strategic and economical
product portfolio analysis and decisions over horizontal and vertical portfolios. The
Product Portfolio Management Board (PPMB) and Product Portfolio Management
Team (PPMT) are to be used as central decision-making and analysis teams.
Companies can clearly benefit from arranging PPM governance in this manner.
Indeed, PPMB and PPMT are not proposed as new functional line organisations but
rather as cross-functional teams in matrix to existing line organisations. However,
one case company established its new PPM line organisational team consisting of a
product portfolio manager, as a team leader, and all product managers. The mission
statement – PPM target-setting matrix has been created for the use of PPMB in
order to systematically create PPM targets and KPIs and then manage the product
portfolio decisions accordingly. Two case companies utilised the developed mission
statement – PPM target-setting matrix to define strategic PPM targets and KPIs for
their companies. The PPMT, consisting of horizontal and vertical portfolio
managers, should operationally analyse the renewal and efficiency of the product
portfolio to make both planned proactive and corrective reactive product portfolio
decisions by the PPMB. The managerial implications are summarised in Table 9.
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Table 9. Summary of managerial implications.
Article/Title Managerial implications
1. Product Portfolio Management – Current
challenges and preconditions
The current challenges of the product portfolio should
be analysed and categorised to identify the most
important PPM development areas.
The PPM development plan should be created
accordingly, including PPM strategic targets,
performance measures, strategic product portfolios,
governance models, processes, data and reporting
requirements.
2. Product portfolio management – Governance
for commercial and technical portfolios over life
cycle
Vertically, commercial and technical portfolios should
be defined and implemented.
Horizontally, NPD, Maintain, Warranty and Archive
portfolios should be defined and implemented.
A PPM governance model as Product Portfolio
Management Board (PPMB) and Product Portfolio
Management Team (PPMT) consisting of vertical and
horizontal sub-portfolio owners should be nominated
and implemented.
3. Product portfolio management – Targets and
key performance indicators for product portfolio
renewal over life cycle
Strategic product portfolio performance management
targets and KPIs should be created and implemented
based on the “mission statement – PPM target-setting
matrix”.
A performance management dashboard should be
created to align the targets of PPM and other business
processes.
4. Product portfolio management process over
horizontal and vertical portfolios
The new PPM business process with key roles, tasks
and templates for PPM analysis and decision making
should be created and implemented.
The business processes should consist of activities that add value both for customers
and for the company as well as those that secure long-term business competitiveness.
A systematically managed product portfolio should be seen as the key enabler for
the competitiveness and success of the business; thus, products and services create
68
the company’s sales revenue and potential profitability. Through the active product
portfolio management, the traditional business processes can focus on producing a
strategic and profitable product portfolio to secure long-term business
competitiveness. Systematic annual, quarterly, monthly or even weekly PPM
practices can provide the potential to improve the competitiveness of companies by
using agreed PPM processes and methods based on agreed roles (people) in the
right order, at the right time and with the right quality.
As a result of this study, a new business process, PPM, should be implemented
in connection with traditional business processes. The fundamental
recommendation is to extend the scope of PPM horizontally over the life cycle and
vertically over all product structure levels according to the idea of horizontal and
vertical product portfolios, including nominated sub-portfolio owners. The
horizontal and vertical portfolios widen the strategic and operational analysis and
decision making to renew and develop the entire product portfolio.
This two-dimensional way of approaching PPM can provide new contributions
for both the analysed case companies and also others. The findings can aid business
managers in understanding PPM as an entity that has a role in analysing and
managing products and portfolios based on commonly agreed PPM targets and
KPIs. Opportunities for new business, additional sales turnover and potential cost
reductions may be missed if the product portfolio is not actively developed and
renewed by adding new products to the product portfolio, enhancing and modifying
the existing products and removing non-strategic and unprofitable products.
4.3 Reliability and validity
This study researches product portfolio management with an aim to extend the PPM
concept over horizontal and vertical dimensions. The concept of the horizontal and
vertical portfolios is new both theoretically and practically. Due to the nature of the
research, a qualitative multi-case study research method was selected to obtain
broad theoretical and empirical analysis and to enable the potential for the creation
of a new PPM framework. According to Bryman and Bell (2003), qualitative
research can be observed according to the following four viewpoints to assess the
validity and reliability of the research:
1. Trustworthiness of the results
2. Validity of the results in different environments
69
3. Repeatability of the observations
4. Influence of the researcher’s own experience and values over the results
The trustworthiness of the results can be seen as the degree of correlation with the
real world. The multiple case study research method including both theoretical and
empirical analysis improves the trustworthiness of the results. The results of this
study have been impacted by the earlier research in BPM, PLM and PPM that was
analysed based on the key words, such as product portfolio management, product
portfolio management processes, horizontal and vertical product portfolios,
business processes, governance model, collaboration, dynamic decision making,
product life cycle, product life cycle management, performance management and
performance measurement. Hence, the results can be assumed to correspond with
the real world as they have been influenced by earlier research. The interviews were
primarily realised in a semi-structured manner, which enabled interaction between
the researcher and interviewees, allowing the interviewees to explain the issues as
entities. To obtain deep current state analysis, 10 case companies were involved
with adequate numbers of interviewees. Particularly due to the cross-functional
nature of PPM, representatives from many organisational functions and business
processes participated, including product management, product development, sales,
operations, services, care and F&C. The trustworthiness of the current state analysis
was attempted to be ensured during the workshops by sharing written notes on a
screen for potential immediate corrections. In addition, company documentation
was utilised to compliment the interview findings. The trustworthiness of the
developed PPM framework as a potential new PPM concept over horizontal and
vertical portfolios was verified by organising three focus group meetings to review
the current PPM challenges and preconditions, the developed PPM governance
model and the developed PPM targets, KPIs and process. The representatives from
all 10 case companies were invited to the focus group meetings to review, discuss
and propose potential clarifications and improvements for the developed PPM
framework over horizontal and vertical portfolios. The final version of the PPM
framework was created and modified based on the feedback received. Hence, the
trustworthiness of the current state analysis can be seen to be adequate and verified.
The trustworthiness of the created PPM framework, the new PPM concept over
horizontal and vertical portfolios, can be seen as validated and qualified as well,
strengthening the earlier research. However, evaluating the trustworthiness of the
new PPM concept as an implemented and tested PPM solution to manage the entire
product portfolio is yet to be fully verified. The new PPM framework as a strategic,
70
tactical and operational process will need to be further trained, implemented and
used operationally by the case companies. The gap between the current PPM
practices and the new PPM concept is fundamental, starting from the strategic PPM
targets and KPIs which should be created based on the mission statement and
strategic targets of the company. By creating the PPM strategic targets according to
the “mission statement – PPM target-setting matrix”, the company strategy can be
clarified and improved. The common conclusion by the focus group was that the
current PPM literature and the current practices in the case companies will not solve
the identified challenges and that the new PPM framework that aims to manage the
entire product portfolio over life cycle and product levels is needed. The analysis
logic was also confirmed by other researchers, a fact that can be seen to reduce
researcher bias. However, the implementation of the new PPM governance model
– the horizontal and vertical portfolios with nominated owners, organising and
linking the product data to the created portfolios and connecting the dynamic
business information for portfolio analysis and decision making – will require
further research and empirical implementation to further secure the real-world
trustworthiness of the results. In addition, the created PPM framework could be
studied further within the three types of product areas, HW, SW and Service, to
identify the potential impact of the different businesses and products in PPM.
The results of the qualitative research should be evaluated according to their
applicability and validity in another environment (Bryman & Bell 2003, Yin 2003).
Intentionally, as an original target of this study, the created PPM framework was
developed to be suitable for various types of businesses as a generic and basic PPM
concept over horizontal and vertical portfolios. Nevertheless, the limitations of this
study include the analysis of only a limited number of companies and the realisation
that the companies lack systematic practices in their PPM. The 10 analysed
companies were selected intentionally to represent different business types,
company maturity levels, markets, products and organisational sizes. In fact, the
case companies represent both large/global and small/growing national businesses
with various types of product portfolios such as solutions, HW, SW and services
products to ensure the validity of the results as a generic framework. Hence, the
results can be seen to be applicable in other environments, but, naturally, more
practical long-term experience with the presented PPM concept is still required. The
other research approach, the selection of more homogenous industry areas and a
larger number of similar case companies, can result in different observations.
The PPM framework over horizontal and vertical portfolios was seen to be
valid not only for mature enterprises but also for starting small and midsize
71
companies regardless of the size of the organisation and type of the products. The
major difference between small, midsize and larger companies may be the number
of involved personnel in the PPMT. Naturally, the PPMT and related roles for
analysing the entire portfolio horizontally and vertically may include fewer people
in smaller companies, while in global enterprises the specific roles might require
even small teams. However, the created PPM framework itself, including the PPMB
as the governance body, targets, KPIs, the process and related templates, was seen
applicable for all the case companies regardless of the size of the company or the
type of products such as HW, SW and services. The analysis of the smaller and
technically simpler product portfolios will be easier, and the expected changes can
be made faster; thus, the PPM implementation over horizontal and vertical
portfolios can be expected to take place faster and more easily by small and midsize
companies. The bigger the organisation, the more communication, training and
change management will be needed to get centralised PPM implemented.
The validity of the research and the interest in the PPM framework should,
however, not be mixed. While the developed concept was seen to be valid for most
of the companies, the interest toward the framework may vary significantly. The
PPM framework may create more interest in companies who already have
experience with the BPM, PLM and PPM concepts. On the other hand, the interest
may vary and even be influenced by the management culture of the company. If the
company does not have a culture of clarified mission statements, aligned strategic
targets over business processes, process orientation and fact-based performance
management, the implementation of the systematic PPM can be seen as a
challenging topic. One potential reason for the lack of interest in PPM could be the
overall good or adequate profitability of the company. As long as the company
profitability is positive, true interest in analysing green, yellow and red products
may be low. However, the active product portfolio management practices are seen
to be relevant for any company trying to renew and manage both its commercial
and technical portfolios over life cycle phases.
The repeatability of the research evaluates the potential to reach the same
research results and conclusions regardless of who the researcher is, an individual
person or a team (Yin 2003). The repeatability can be improved by using the same
systematic and well-documented research process. However, the ability to achieve
exactly the same results is limited due to various factors such as the timing of the
research. Even when repeating the same research by the same group of researchers
later, the potential improvements made in the case companies might result in
different observations (Saunders et al. 2009); thus, repeating the same research by
72
other researchers can be seen as even more challenging. The other notable issue is
the potential changes in the individual interviewees and teams in the analysed case
companies, each of them having their own competence and experience in and
understanding of PPM. The repeatability of the research can be improved by storing
and archiving the research data systematically (Yin 2003), as has been done in this
research. However, the researchers’ competence, knowledge and previous
experience are seen to influence the observations. This was evident within the group
of researchers in this study as well. Different researchers may pay attention to
different topics by asking potentially deeper questions according to their own
background and interest areas.
Researchers’ interest areas, experience and competence may challenge their
objectiveness in qualitative research work (Yin 2003). Especially when the
qualitative research is realised by using semi-structured interviews and workshops,
the objectiveness of the interviewees can be questioned as well. This phenomenon
was identified during the empirical analysis of the case companies not only on the
side of the researchers but of the interviewees as well. The interviewees, even those
representing the same process or function, interpreted current PPM practices
somewhat differently in some instances. In addition, among the researchers, the
interpretation of the given answers can result in different observations and results.
In order to avoid the subjectivity of both the researchers and the interviewees and
to increase the clarity of both questions and responses, the semi-structured
questionnaire was attempted to be made as accurate as possible. Also, the researcher
has done his best to be as objective in the analyses as possible.
4.4 Further research
A generic PPM framework over horizontal and vertical portfolios was created in
this study. The created PPM framework can be seen as crucial for improving PPM
practices in the industry, even if it is yet to be fully implemented by any of the
analysed case companies. PPM over horizontal and vertical product portfolios can
be seen as a major knowledge gap both theoretically and practically. The practical
implementation of the created PPM framework and analysis of the related
experiences can be seen as a natural future research step. The same group of case
companies may have interest in longitudinal research activities. Indeed, most of the
case companies have already initiated the further adaptation and implementation of
the proposed PPM framework in their strategic and operational practices. In
addition, the created PPM framework over horizontal and vertical portfolios should
73
be developed by further narrowing the research scope and concentrating on the PPM
governance model, performance management and process separately. In addition,
involving an even wider set of case companies might provide new research
opportunities. Also, focusing the research so as to cover companies in a single sector
at a time might provide some interesting insights.
Service products and related commercial and technical portfolios require more
research. The technical product portfolio for services products might prove to be an
interesting topic for future studies. Service productisation should also be studied
further. The current literature defines the service product as intangible and time-
dependent services with customer involvement (Röβner et al. 2012, Heizer &
Render 2014). However, the service can contain of HW material and SW
components in addition to service activities.
The connection and the role of PPM as a new business process including the
related company-wide performance management dashboard require further
clarifications. This might be an interesting research question not only on the side of
PPM research but for BPM research as well.
To analyse product portfolios efficiently and to simplify the PPM analysis and
decision making, the product portfolios could be better visualised. The
identification and visualisation of the green, yellow and red products and items, as
a management focus area, should be improved and is worth of additional research
efforts.
Due to integrated business processes, the PLM/PDM systems should be further
developed accordingly over horizontal and vertical portfolios, as current
PLM/PDM applications lack functionality for the systematic product portfolio
analysis and decision making process. This could be a joint research activity
between companies, PLM/PDM tool providers and academic researchers.
The connection of product data, product life cycle information, cost data and
sales data is crucial for operational and systematic product portfolio analysis over
horizontal and vertical portfolios. The cost information is needed for all items, both
commercial and technical, while the sales revenue information is valid only for
commercial items in the portfolio. Hence, this connection might provide many
opportunities for future research.
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Appendix 1
APPM project/questionnaire for product portfolio management current state
analysis in case companies
Interview session • Name of interviewer(s):
• Date & location:
• Company:
• Name of interviewee(s), current position and experience in the company and relationship to product portfolio management:
Question categories
1. Current product portfolio.
2. Product portfolio management methods, processes and tools.
3. Product management methods, processes and tools.
4. Product portfolio management and product management governance
models.
5. Product portfolio management targets and key performance indicators
(KPIs).
6. Product management targets and key performance indicators (KPIs).
7. Product portfolio management and product management connection to
other business processes.
8. Product portfolio management challenges.
1 Current product portfolio
1.1 What is the product portfolio of the company?
1.2 How is the product portfolio described, grouped or classified?
1.2.1 New products, existing products, removed products based on life
cycle status?
1.2.2 Based on technology generations?
1.2.3 Based on customer segments?
1.2.4 Based on global and/or regional products?
1.2.5 Based on platform and application products?
1.2.6 Based on product families?
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1.2.7 Based on solutions, product families, configurations, sales items,
spare parts…?
1.2.8 Something else..?
1.2.9 Mixed/some combination of the above?
1.3 What is the size of product portfolio?
1.3.1 as number of solutions?
1.3.2 as number of product families?
1.3.3 as number of configurations?
1.3.4 as number of sales items?
1.3.5 as number of spare parts?
1.3.6 as number of some other type of product categorizing in use?
1.4 During past years,
1.4.1 How has the number of products belonging to same product family
developed?
1.4.2 What have been the root causes of this development?
2 Product portfolio management processes and tools
2.1 Are product portfolio management role, task, decisions and milestone
criteria described as a process and operational model?
2.1.1 If yes, is there process description available?
2.2 What kinds of tasks and decisions happen frequently based on “yearly clock”
and/or agreed agenda?
2.2.1 yearly activities?
2.2.2 quarterly activities?
2.2.3 monthly activities?
2.2.4 weekly activities?
2.3 What kind of product portfolio management tasks and decisions happen
based on product life cycle phases?
2.3.1 within new product development phase?
2.3.2 within ramp-up phase?
2.3.3 within maintain phase?
2.3.4 within ramp-down phase?
2.3.5 within field maintenance/warranty phase?
2.3.6 within removal phase?
2.4 What are main tools utilized in product portfolio management within
project/product evaluation, prioritization and decision making (strategic
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approaches, diagrams, matrixes, financial KPIs, simulations, mathematical
methods etc.)?
2.5 What kind of communication and change management tasks are done by
product portfolio management and by whom?
3 Product management processes and tools
3.1 Are product management roles, tasks, decisions and milestone criteria
described as a process and operational model?
3.1.1 If yes, is there a process description available?
3.2 What kinds of product management tasks and decisions happen frequently
based on “yearly clock” and/or agreed agenda?
3.2.1 yearly activities?
3.2.2 quarterly activities?
3.2.3 monthly activities?
3.2.4 weekly activities?
3.3 What kinds of product management tasks and decisions happen based on
product life cycle phases?
3.3.1 within NPD phase?
3.3.2 within ramp-up phase?
3.3.3 within maintain phase?
3.3.4 within ramp-down phase?
3.3.5 within field maintenance/warranty phase?
3.3.6 within removal phase?
3.4 What are main tools utilized in product management?
3.5 What kinds of communication and change management tasks are done by
product management?
4 Product portfolio management and product management governance models
4.1 Who owns the products?
4.1.1 Sellable levels (solution, product families, configurations, sales
items…)?
4.1.2 Engineering levels (stock keeping units, version items, assemblies,
sub-assemblies, components…)?
4.1.3 Some other levels or viewpoints of product ownership…?
4.2 Is there a specific product portfolio management function organized in the
company?
4.2.1 As an organizational unit or as cross-functional steering?
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4.2.2 Is a product portfolio management organization chart available and
can it be given?
4.2.3 How many persons are in the portfolio management organization?
4.2.4 Who is the chair for a possible cross-functional steering body?
4.2.5 Who participates in cross-functional the product portfolio
management steering body?
4.2.6 What is the power that different participants (roles) have in the
product portfolio management steering group?
4.2.7 What is the frequency of planned product portfolio management
meetings?
4.2.8 What are standard agenda topics of the planned portfolio
management meetings?
4.3 How is product management organized in the company?
4.3.1 Is a product management organization chart available and can it be
given?
4.3.2 Is product management organized by business units and/or business
lines or something else?
4.3.3 Is product management organized based on customer segments,
product families, product technologies or something else...?
4.3.4 Are there only global or also regional- and country- or customer-
specific product management teams?
4.3.5 How are the product management teams organized geographically?
4.3.6 How many employees are in the product management organization?
4.3.7 Who is the chair and who are the participants in product management
meetings?
4.3.8 What is the frequency of planned product management meetings?
4.3.9 What are standard agenda topics for the planned meetings?
5 Product portfolio management targets and key performance indicators
5.1 What are the main factors influencing your product portfolio decisions?
5.1.1 Consumer satisfaction?
5.1.2 Competition performance?
5.1.3 Strategic fit?
5.1.4 Geographic differentiation?
5.1.5 Any other? Please name it.
5.2 Why is product portfolio management important in your business?
5.3 What is the strategic goal of product portfolio management?
91
5.4 What are the more detailed sub-targets of product portfolio management?
5.5 What are the possible numerical targets, e.g. key performance indicators for
product portfolio management?
5.5.1 What are the strategic key performance indicators (strategic fit and
profitability, something else)?
5.5.2 Tactical/operative key performance indicators?
5.5.3 Are the length of product life cycle and related life cycle phases set
at the beginning of product life cycle (as targeted length of product life
cycle)?
5.6 Product portfolio management in the new product development phase?
5.6.1 How are R&D projects/products prioritized during the new product
development (NPD) phase?
5.6.2 What are the evaluation criteria to prioritize which projects are to be
started or continued in the NPD phase?
5.6.3 What are the product portfolio management targets/KPIs in the NPD
phase?
5.6.4 What tools are utilized in prioritization and evaluation?
5.7 Product portfolio management in the ramp-up phase?
5.7.1 How are R&D projects/products prioritized during the ramp-up phase?
5.7.2 What are the evaluation criteria to prioritize which projects to be
started or continued in the ramp-up phase?
5.7.3 What are the product portfolio management targets/KPIs in the ramp-
up phase?
5.7.4 What tools are utilized in prioritization and evaluation in the ramp-
up phase?
5.8 Product portfolio management in the product maintenance phase?
5.8.1 How are maintenance/development projects prioritized during the
maintenance phase?
5.8.2 What are the evaluation criteria to select to which products will be
invested as further development?
5.8.3 What are the product portfolio management targets/KPIs in the
product maintenance phase?
5.8.4 What tools are utilized in prioritization and evaluation?
5.9 Product portfolio management in the product ramp-down phase?
5.9.1 What are the criteria and triggers to make the ramp-down decision
for a product or part of the product portfolio?
5.9.2 How are ramp-down projects/products prioritized?
92
5.9.3 What are the product portfolio management targets/KPIs in the
product ramp-down phase?
5.9.4 What tools are utilized in prioritization and evaluation?
5.10 Product portfolio management in product removal phase?
5.10.1 What are the criteria and triggers for finally removing the product?
5.10.2 How are product removal projects/products prioritized?
5.10.3 What are the product portfolio management targets/KPIs in the
product removal phase?
5.10.4 What tools are utilized in prioritization and evaluation?
6 Product management targets and key performance indicators
6.1 Why might product management be important in your business?
6.2 What is the strategic goal of product management?
6.3 What are the more detailed strategic sub-targets and KPIs of product
management?
6.4 What are the tactical (operative) targets and performance indicators for
product management?
6.5 What are the product management targets/KPIs at the NPD phase?
6.5.1 from a product definition point of view?
6.5.2 from a prizing/cost management point of view?
6.5.3 from a product sales and marketing point of view?
6.5 4 from a delivery point of view?
6.5.5 from a services point of view?
6.6 What are the product management targets/KPIs at the new product ramp-
up phase?
6.6.1 from a product definition point of view?
6.6.2 from a prizing/cost management point of view?
6.6.3 from a product sales and marketing point of view?
6.6.4 from a delivery point of view?
6.6.5 from a services point of view?
6.7 What are the product management targets/KPIs at the product maintenance
phase?
6.7.1 from a product definition point of view?
6.7.2 from a prizing/cost management point of view?
6.7.3 from a product sales and marketing point of view?
6.7.4 from a delivery point of view?
6.7.5 from a services point of view?
93
6.8 What are the product management targets/KPIs at the product ramp-down
phase?
6.8.1 from a product definition point of view?
6.8.2 from a prizing/cost management point of view?
6.8.3 from a product sales and marketing point of view?
6.8.4 from a delivery point of view?
6.8.5 from a services point of view?
6.9 What are the product management targets/KPIs at the product removal
phase?
6.9.1 from a product definition point of view?
6.9.2 from a prizing/cost management point of view?
6.9.3 from a product sales and marketing point of view?
6.9.4 from a delivery point of view?
6.9.5 from a services point of view?
7 Product portfolio management and product management connection to other
business processes
7.1 Business processes
7.1.1 What kind of business processes are there in your company?
7.1.2 How is business processes structured as a main process and sub-
process?
7.1.3 What is the process governance model and who are the process
owners?
7.2 What are company’s key performance indicators in the following business
processes?
7.2.1 Product process (R&D) KPIs?
7.2.2 Marketing and sales process KPIs?
7.2.3 Delivery process KPIs?
7.2.4 Care process KPIs?
7.2.5 HR processes KPIs?
7.2 6 F&C processes KPIs?
7.3 How are product portfolio management and product management KPIs
connected to the company’s business processes and metrics?
7.3.1 Is there shared target setting between business processes? If yes, what
are typical shared targets?
7.3.2 Are there shared KPIs and follow up between business processes? If
yes, what are typical shared KPIs?
94
7.3.3 Are there shared bonus pay-related targets between business
processes? If yes, what are typical shared bonus pay-related targets?
7.4 What process management meetings and possible steering teams are
product portfolio managers and product managers part of?
7.5 How does product portfolio management and its decisions affect business
in general?
7.6 What are the main benefits of product portfolio management to business in
general?
8 Product portfolio management challenges
8.1 What are the product portfolio management challenges?
8.1.1 Is product diversification a challenge for your company? If yes, how
have you tried to approach it?
8.1.2 When you are introducing new product in the market, do you consider
cannibalization as a problem?
8.1.3 Do you verify how new products affect the market share of your other
products?
8.1.4 Do you see that your company’s product portfolio is suffering from
complexity? If yes, what are the root causes for this complexity?
8.1.5 Any other? Please name it.
8.2 What are product portfolio management related main challenges in product
ownership and governance model-related issues?
8.3 What are product portfolio management related main challenges in product
portfolio target setting and measurement-related issues?
8.4 What are product portfolio management related main challenges in
portfolio management process-related issues?
8.5 What are product portfolio management related main challenges in
portfolio management tools-related issues?
8.6 What are product portfolio management related main challenges in
portfolio and product data (and data availability)-related issues?
8.7 What are product portfolio management related main challenges in any
other areas? Please name them.
8.8 How would you improve your company’s product portfolio management?
95
Original publications
I Tolonen A, Kropsu-Vehkapera H & Haapasalo H (2014) Product portfolio management – Current challenges and preconditions. International Journal of Performance Measurement 4(2): 69-90.
II Tolonen A, Harkonen J & Haapasalo H (2014) Product portfolio management – Governance for commercial and technical portfolios over life cycle. Technology and Investment 5(4): 173-183.
III Tolonen A, Shahmarichatghieh M, Harkonen J & Haapasalo H (2015) Product portfolio management – Targets and key performance indicators for product portfolio renewal over life cycle. International Journal of Production Economics 170: 468–477.
IV Tolonen A, Harkonen J, Verkasalo M & Haapasalo M (2015) Product portfolio management process over horizontal and vertical portfolios. International Journal of Product Life Cycle Management 8(3): 189 – 215.
Reprinted with permission of the copyright holders. The above-named journals are
the original sources of publication for the four articles above. International Journal
of Performance Measurement retains the copyright for article I. The authors retain
the copyright for article II. Elsevier retains the copyright for the article III, and
Inderscience retains the copyright for article IV.
The original publications are not included in the electronic version of the study.
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