Strategies and Structures for Products & Services Portfolio Innovation – in the Age of AI

Strategic portfolio innovation becomes crucial as technology and services evolve.

A portfolio is the collective set of products, services, and initiatives managed and developed by an organization.

This article outlines key concepts and strategies for creating a solid portfolio to stay ahead in the dynamic environment. It mirrors the concepts and techniques that will be part of the upcoming training on May 27th in Barcelona, with an online version to follow – You can check more details and register here for the training in Barcelona or pre-register for the upcoming online version here.

Market Context: From Horizontal to Software-Powered Ecosystems

Even traditional industries like retail, construction, healthcare, finance, and government are undergoing significant transformations nowadays. Software-powered ecosystems are penetrating these spaces, reshaping how these businesses operate.

As we explained in a recent article, we are witnessing the rise of integrated software solutions that streamline workflows and enhance operational efficiency even in traditionally sales-relationship-centric markets.

This shift is creating opportunities for specialized niche solutions. Advancements in AI-powered no-code tools allow them to integrate into existing workflows, reducing the need for extensive horizontal coverage.

The Era of “Service as Software”

As Sangeet Choudary explains, we may enter an era where “Service as Software” becomes the norm. Large Language Models (LLMs) and AI agents may be able to provide not only the workflow scaffolding that traditional SaaS offers, but also to perform managerial tasks while learning from interactions for the first time in history. This evolution significantly alters service delivery and management, paving the way for enterprise workflows to be unbundled into pieces and distributed to different third-party providers (agents?) more easily. The image below is from Choudary’s piece:

Control Points: From Vertical Penetration to Horizontal Expansion and the Need for Ecosystem Partnerships

The concept of control points, as outlined in the VSKP Playbook, is crucial for service providers to dominate specific workflow elements and subsequently expand their influence horizontally. Initially, your focus should be on capturing key control points within a vertical workflow, like CRM systems or financial reconciliation tools.

Once the control points are secured, the strategy shifts to horizontal expansion, integrating additional workflow elements. Being open to third-party partnerships and ecosystems is essential for gaining customer credibility and securing a pivotal position in a modular software and services landscape. This approach solidifies the product position and creates opportunities for cross-selling and upselling your own further portfolio components, ultimately driving greater value.

Achieving dominance through control points requires building partnerships and extensions, and understanding joint customer needs. Aligning products and services to meet these needs helps create comprehensive solutions that offer superior value to their customers.

Building a Portfolio of Solutions

In today’s market, companies must go beyond single product-service offerings and focus on building a portfolio of solutions. Bringing these solutions to the market involves a mix of go-to-market (GTM) strategies. Ultimately, sales-led customer acquisition and product-led growth must be coupled with an ecosystem-led growth motion, distributing services across other ecosystems. Leveraging partnerships and integrations is essential for product portfolio success.

Evolving Organizational Structures and Empowering Teams and Small Units

Organizations must recognize the power of small, agile teams to respond to rapid changes and generate a broader range of options. This concept of small-is-powerful is exemplified by startups like A.Team and its “cloud teams” idea, and brought to the extreme by Sam Altman’s “one-person unicorns” concept, illustrating the leverage of AI technology in productivity. The potential of small, focused units in driving innovation and adaptability is essential to the modern Platform Organization.

Mapping Your Portfolio

Businesses must effectively map their portfolios by understanding the components they are building or could build to navigate this complex landscape. Specific tools like Wardley Maps are invaluable, but the fundamental goal is to gain a clear picture of the current state and potential opportunities within the portfolio.

Organizations need to adopt new structures to support the development of a diverse portfolio. Traditional functional and divisional models are giving way to more dynamic platform organizations – the latest evolution of org models, as discussed in this recent article we wrote. Product/service-centric units explore the market better than traditional divisions, and internal shared support service platforms foster innovation and responsiveness in a less bureaucratic and complex manner than matrix organizations.

The Role of Domain-Driven Design (DDD)

Once created in the context of software development, Domain-Driven Design (DDD) offers a surprisingly easy and impactful toolset to break down complex organizational systems into manageable subdomains. In DDD, a Domain refers to a specific area of knowledge, activity, or expertise within an organization, encompassing all the concepts, terminology, and rules relevant to a particular business problem or focus area.

Domains are categorized into:

• Core: the primary focus areas that provide strategic advantage and competitive edge
• Supporting: Areas that support the core domain but are not the main focus.
• Generic: Standardized areas that are essential for operations but not unique to the business.

It’s immediate to see how organizing our capabilities into domains allows us to rethink the org units. Core domains should be covered by entrepreneurial product-service units engaging with the market while supporting and generic domains should be distributed to support structures like shared services or external providers.

Businesses can identify what’s core, supporting, and generic in their organization by combining DDD with tools like Wardley Maps. This enables them to strategically re-bundle capabilities. This is a common need for bureaucratic or M&A-heavy companies from the ZIRP (Zero interest-rate policy) decade, during which leveraged buyouts were common. Now, these companies are affected by duplicated capabilities, conflicting product offerings, and inefficient support services. This approach can help their leadership teams fix the situation and prepare for new growth.

Importance of a Well-Defined Taxonomy

A well-defined product taxonomy is crucial in such a dynamic environment. It is the systematic categorization and hierarchical structure within a portfolio that establishes relationships between elements. It’s the language the organization uses to describe itself to its teams and customers.

It’s crucial for both customer understanding and operational efficiency. It clarifies value propositions, facilitates the distribution of business objectives, cascades OKRs, and distributes responsibility for input metrics. A good taxonomy helps distribute profit and loss responsibilities and calculate TCO (Total Cost of Ownership) of solutions. It couples well with organizational structures. Designing a taxonomy involves balancing internal and external perspectives, incorporating customer feedback, and iterating. It’s crucial for understanding product maturity, lifecycle, investment timing, and launch readiness for new products in the works.

Conclusions

In conclusion, the discussed portfolio innovation strategies and structures are essential for navigating the modern business landscape.

Businesses can drive innovation, enhance customer experiences, and maintain a competitive edge in an environment that presents both opportunities and challenges by understanding and implementing concepts like control points, ecosystem partnerships, and platform organizations.

Our upcoming training in Barcelona will delve deeper into these topics, providing practical insights and tools to help you apply these strategies in your organization. Don’t miss this opportunity to understand portfolio innovation and drive your business forward.