Life Cycle Management: from product portfolio to market strategy
In this article we show how you can optimize product life cycle management by looking at it from an innovation perspective. By combining different models, namely the 3 Horizons model, the Ansoff model, the BCG matrix and the 4 × 4 innovation matrix, we arrive at 12 possible product strategies that you can apply within product life cycle management.
Product life cycle management
In industry, product life cycle management is “the process of managing the entire life cycle of a product, from inception to design and manufacture, to service and disposal of manufactured products.” (Wikipedia). A product typically goes through the following stages of life.
From an innovation perspective, the focus is on the front end of the process, namely from idea to design to manufacturing to market launch. From a life cycle management perspective, the work then begins for the product manager: how do I ensure the best possible life cycle management? In other words, how do I get into the growth phase as quickly as possible, in order to grow to maturity in order to achieve a margin there? And how do I ensure that I can stay in that maturity phase for as long as possible?
If organizations want to get started with optimizing their portfolio of current and future services, one of the first steps we take is an inventory. What products and services does the company have now, and which ones are in the pipeline? A number of models can be used as an aid for this. The combination of these provides innovative insights.
We usually apply the Horizons model for a first inventory. The Three Horizons framework was originally developed by Baghai, Coley et al (2000) and has since been an important model for growth, change and innovation.
H1: Horizon 1
Horizon 1 is incremental innovation or improvement / renewal. Technology, solutions, market and customers are well known. In this horizon, products are developed that the company is known for, and where profits and cash flow come from. In Horizon 1, innovation is all about operating, improving and extending the current product lines.
The focus is on efficiency and doing things right. Work is carried out in a planned and orderly manner, risks and uncertainties are avoided or minimized.
H3: Horizon 3
Horizon 3 is the distant future. Technology and solutions are virtually unknown – at least in your industry. It can also concern completely unknown markets or customer groups. We call this horizon disruptive innovation, because developments in this horizon can have a major impact on your company, industry, life. The focus in this horizon is on learning what works. It’s really about entrepreneurship. How can we use new technology in our context? How does this market work?
H2: Horizon 2
Horizon 2 is in the middle of it. In horizon 2 we are working on matters that go further in scope than horizon 1. They already take some of what is expected to happen in the more distant future. The technology or solutions are known, but not yet at your organization. Market and customers are not new, but they are for your organization. There is a good idea, but how to market it is difficult to determine. Focus in this horizon is on discovering new business models and adjacent innovations.
H0: Horizon 0
Is aimed at running the business and less relevant in this context.
The Ansoff model was first published in the Harvard Business Review in 1957. It is still a well-known and widely used model. In this model, the market is plotted against the products and a distinction is made between existing and new. Ansoff uses this classification to arrive at a market strategy.
The combination: 4 x 4 innovation matrix
What do you get when you combine the thinking of these two models? The 4 × 4 innovation matrix. This matrix was introduced by Corina Kuiper & Fred van Ommen and is also described in their book Corporate Venturing (2015).
The 4 × 4 innovation matrix has an outside-in perspective: it is about the market and the perception of the customer.
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The vertical axis
The different phases of the market life cycle are plotted on the vertical axis, just as Ansoff did:
- Emerging: these are emerging markets that are still in their infancy
So there are more nuances than with Ansoff, which only distinguishes between existing and new markets.
The horizontal axis
The horizontal axis shows the different types of innovation. Horizon 1 is split into two (product) categories.
- Improvement: in existing category, example: improving diesel engines (car category)
- New in category: new product in existing category: example: introduction of electric car (car category)
- New to us: from the perspective of the organization there is a new, adjacent market or technology. From the customer’s point of view, a link can be made with existing products or services. Example: Mobility-as-a-service, greenwheel-like models.
- New to the world: seen from the organization this is totally new, it doesn’t actually exist yet. It is also new for the customer and is disruptive in the sense that the solution can mean a change in behavior. Example: flying car
Plotting the vertical and horizontal axis results in a matrix with 16 squares. A number of these are not relevant and are therefore shown as a gray area. Normally you do not introduce a solution new to the world in a downward market, for example.
We can now make a split in product development and new business creation. The left side is fairly familiar territory for the organization. There are still many unknowns in new business creation. The challenge here is to turn opportunities into opportunities. The innovation strategy here should focus on experimentation and keep it small. So applying Lean Startup and Design Thinking techniques.
What are the main differences between product development and new business creation?
From product portfolio to market strategy
If we now go to the 4 × 4 innovation matrix look, depending on the position where the product or service is located, you can link an innovation strategy to it. I follow Kuiper & Van Ommen’s setup, but combine it with the BCG matrix. After all, the BCG matrix also gives an indication of the market strategy to be pursued, and here too market growth is one of the variables.
The BCG Matrix
We then can formulate the following life cycle management strategies:
By combining the Ansoff model, BCG model, Horizons model and the 4 x 4 innovation matrix, we can define possible life cycle management strategies. This includes a classification based on the following variables
- Market share
- Product development (type of innovation)
- New business creation (type of innovation)
Visualizing the current products and services portfolio on the 4 x 4 innovation matrix can thus serve as input for life cycle management.
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