Focusing a product portfolio
Another work-in-progress book sneak-peak here. As always, comments and feedback welcome, either through comments on the form on right side of the About Me page.
I’ve been thinking about how companies focus their product portfolios so that they do not run into the peanut butter problem that Yahoo infamously was accused of. One company that has successfully managed to maintain a quite diverse portfolio that also hangs together nicely is Logitech. Logitech must constantly enter new product categories as every category it goes into get commodified fairly quickly.
Having as diverse portfolio as Logitech can lead to a company becoming unfocused. John Hagel and John Seely Brown argue that, “Without some sense of long-term position, movement rapidly degenerates into random motion… Companies lacking a sense of direction usually fall into reactive approaches, pursuing too many options at the same time. The result is that resources are spread too thinly and performance impact diminishes because all the initiatives are under-resourced. In times of increasing uncertainty and rapid change, reactive approaches can become significant traps.”
Logitech’s success shows that it is important to have a clear understanding of your values, your priorities, and what you bring to the table. Logitech’s product line is diverse but looking at it we can see some clear criteria that have guided its expansion:
- Focus on products that involve human interaction. Hands-off products like wireless routers, for example, would not be a fit for Logitech.
- Look for categories that are just emerging from the bottom of the S-curve and are poised for mainstream growth and maturity. Logitech is not a pioneer of categories, but is very good at sensing early possibilities and getting in early. It can also use its design, manufacturing, distribution and marketing prowess to thrive once the category gets mature and margin-squeezed.
- There must be opportunities for innovation, particularly in the areas of customer experience, design, ergonomics, and technologies that Logitech is familiar with (optical, ASICs, sensors, microcontrollers) or unfamiliar ones that do not require large R&D investment (e.g. software design)
- Not every category has to be a mass category. Logitech has some fairly exotic products, like specialized devices for controlling 3-D computing environments. But Logitech can make them work if they fit the criteria of demanding users who will pay a price premium, the product life-cycles are not annual or fad-driven, and there is enough of a market to support them without requiring large marketing effort.
Did Logitech start out years ago with these principles? Unlikely. It takes time to discover one’s strengths and weaknesses as a company through a process of trial and error. Just as customers have a hard time abstracting their unmet needs, companies have a hard time abstracting what they do well or not do well. It is often not until a portfolio expansion works well or fails that a company discovers where its true competencies lie. Like a rock climber, you have to fall off before you realize your limits.
Some of Logitech’s divergence guidelines could be considered core competencies, such as knowing how to spot a promising new product category and jump in at just the right time. This doesn’t involve technological competency, but it is valuable capability nevertheless, and Logitech’s consistent success at it cannot be just chance.