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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

A doctoral thesis is just a license for scientific research

8

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

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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

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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.

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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 

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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).

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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

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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.

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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

30

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.

42

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.

54

Fig

. 9. P

PM

pro

ce

ss

ch

art

.

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

59

Fig. 10. The PPM over horizontal and vertical portfolios.

60

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

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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

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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

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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

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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

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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,

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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

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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

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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?

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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?

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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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PRODUCT PORTFOLIO MANAGEMENT OVER HORIZONTAL AND VERTICAL PORTFOLIOS

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