Kuester, Sabine; Landauer, Nina
January 2011
AMA Summer Educators' Conference Proceedings;2011, Vol. 22, p51
Conference Paper
Product portfolio management is an accumulation of strategic choices against the background of resource allocation and is strategically important for companies and their success. Although it is complex and dynamic in nature, in essence, product portfolio management comprises three decision areas: (1) new product development and introduction, (2) the maintenance of the existing product portfolio, and (3) product elimination decisions. While it is obvious that all three product portfolio decision areas are interrelated, most studies focus on one of the aforementioned areas. In this regard, the general understanding of product portfolio management is incomplete. Furthermore, we find a variety of studies concerned with the consequences and implications of product portfolio size or composition. However, product portfolio configuration has not been investigated as thoroughly. Therefore, the dynamic interplay of product development, portfolio maintenance, and product eliminations requires academic attention. Although there is some anecdotal evidence, a comprehensive overview of the actual and current practice of corporate product portfolio management is lacking. The objective of this study is to provide this insight and to identify current activities in the management of the size and the composition of corporate product portfolios based on a content analysis of consumer goods companies' annual reports. In corporate practice, responsibilities, hierarchies, and participation vary between companies depending on their organizational structure and operating methods. Accordingly, every company maintains its individual product portfolio management approach. To shed more light on overall product portfolio management approaches, qualitative analyses, such as content analysis, lend themselves for exploratory research. Following Yadav, Prabhu, and Chandy (2007) we use archival data instead of coping with the limitations of a survey approach in the context of corporate strategy. Annual reports were chosen as objects of investigation for our study for reasons of data availability, information content, and information veracity. In the process of our analysis, we followed Perreault and Leigh's (1989) recommendation of a "diagnostic application" of interjudge reliability checks early and repeatedly in the process in order to improve it and in order to meet the requirements of content analysis to be valid, significant, and scientifically respected. The analysis of the attention management devotes to changes in size or composition of the corporate product portfolio reveals that the importance academia attaches to the field is reflected in corporate conduct. Three-fourths (213/269) of the companies in our sample do provide information on actions enlarging the product portfolio (including innovations or line extensions), on the maintenance of the current portfolio (such as improvements or reorganizations), as well as actions resulting in a reduction of the product portfolio (e.g., streamlining efforts or the discontinuance of product lines) in their 2009 annual reports. Moreover, our inductive-deductive procedure reveals a pattern of activities demonstrating the predominance of innovation and new product introductions in product portfolio management, in contrast to product eliminations which are less frequently reported. Even though we analyzed annual reports for the financial year 2009, it became apparent that companies do not restrict their reports to this period under review. Information beyond the year 2009 is provided by many companies, for example, in announcing planned innovations and introductions. We also find evidence that managers of consumer goods companies are reluctant to announce future deletions of products. This last finding stems from the conjoint analysis of current practices in the management of corporate product portfolios and the time reference in the annual reports. We found that differences in the proportions of the so called co-occurrences between "portfolio management actions" and "time reference" are highly significant (χ² (6, 1,469) = 34.85, p < .001) and, thus, the association of the two categories is indicated. The data shows additional patterns idiosyncratic to particular industries deviant from common product portfolio management practice. The automobile industry stands out regarding the high share of companies disclosing information concerning changes of their product portfolio in size or composition as well as with regard to the mean references per company. The relative number of companies demonstrating their future orientation is also unusually high in this industry, while product deletions play a rather inferior role. The practice of an annual model policy, which is common in the automobile sector, is thus well documented in our data. Based on the exploratory insights, several avenues of future research can be identified. At first, it will be worthwhile to conduct this analysis using longitudinal data. In doing so, trends can be examined over time. In addition, longitudinal analysis will also allow to test for inconsistencies in companies' announcement versus actual implementation of decisions with regard to changes in portfolio size or composition. Furthermore, in the sense of triangulation, it would be worthwhile to follow up with a survey in order to complement our findings. Ultimately, studying the performance implications of product portfolio management practices is a relevant and promising avenue for future research. References are available upon request.


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