Product portfolio models: conceptualisation and implementation problems

Optimisation of the product portfolio is an issue of particular importance for diversified companies dealing in very volatile, and highly competitive economic and technical environments. In trying to ensure optimal allocation of their resources, companies seek to minimise the role of intuition in these complex decision processes by adopting, wherever possible and appropriate, more formalised approaches that enhance the quality of most decision-making processes. This article attempts to contribute to a critical re-assessment of the capacity of existing product portfolio models to adequately support strategic planning decisions (1). In support of this aim, some deficiencies in the conceptualisation of current portfolio models (such as lack of, blurred and/or inoperational definitions of terms, procedures used in constructing composite proxies for profitability) are discussed and, in particular, the concept of the product portfolio's balance and its relationship to product portfolio optimisation examined.