Product and Innovation Portfolio Management

Abstract

In competitive strategy, firms manage two primary (non-financial) portfolios—the product portfolio and the innovation portfolio. Portfolio management involves resource allocation to balance the important tradeoff of risk reduction and upside maximization, with important decisions around the evaluation, prioritization and selection of products and innovation projects. These two portfolios are interdependent in ways that create reinforcing dynamics—the innovation portfolio is the array of potential future products, while the product portfolio both informs innovation strategy and provides inputs to future innovation efforts. Additionally, portfolio management processes operate at two levels, which is reflected in the literature's structure. The first is a micro lens which focuses on management frameworks to boost portfolio performance and success through project-level selection tools. This research has its roots in financial portfolio management, relates closely to research on new product development and marketing product management, and explores the effects of portfolio management decisions on other organizational functions (e.g., operations). The second lens is a macro lens on portfolio management research, which considers the portfolio as a whole and integrates key organizational and competitive concepts such as entry timing, portfolio management resource allocation regimes (e.g., real options reasoning), organizational experience, and the culling of products and projects. This literature aims to set portfolio management as higher level organizational decision-making capability that embodies the growth strategy of the organization. The organizational ability to manage both the product and innovation portfolios connects portfolio management to key strategic organizational capabilities, including ambidexterity and dynamic capabilities, and operationalizes strategic flexibility. We therefore view portfolio management as a source of competitive advantage that supports organizational renewal.