The 70-20-10 Portfolio Approach: A Strategic Guide for Product Managers

Matt Hicks

2 years ago

Knowing where to invest resources can make or break any product strategy. One approach that has proven itself time and time again, and one I particularly like is the 70-20-10 portfolio strategy. Originally popularized by companies like Google, this method divides resources across three categories to create a balanced approach to growth, innovation, and stability.

In this post, we’ll dive into how the 70-20-10 portfolio approach can empower product managers to effectively allocate time, budget, and talent across their portfolios. We’ll explore why it’s a sustainable and dynamic strategy, how to implement it in your product organization, and practical tips to keep the approach aligned with evolving business goals.

Understanding the 70-20-10 Framework

The 70-20-10 framework is straightforward yet impactful. It recommends:

70% of resources focused on core products that generate the majority of revenue or maintain the business’s current value.
20% of resources invested in adjacent opportunities, expanding or enhancing the core through new features, markets, or product variations.
10% of resources devoted to transformational projects, the high-risk, high-reward efforts that could redefine the business or set the stage for a new era of growth.

By dedicating a larger percentage to the core, companies ensure stability, while investing in adjacencies and transformational projects brings innovation and forward momentum. This approach has roots in R&D but has been successfully adapted for broader product and project portfolios. Many companies—including Google, 3M, and Intel—have used it to sustain growth and stay relevant in changing markets.

Benefits of the 70-20-10 Approach in Product Management

For product managers, the 70-20-10 framework offers numerous advantages:

Balanced Innovation: Core investments support the product’s stability, while adjacent and transformational initiatives allow for innovation without jeopardizing the foundation.
Sustainable Growth: By investing in adjacent and transformative ideas, product managers can drive sustainable growth, expanding into new markets without losing focus on the present.
Mitigated Risk: Diversifying across core, adjacent, and transformational categories distributes risk, protecting the portfolio against shifts in market demand or technology.
Goal Alignment: The framework encourages alignment with both immediate and long-term business goals, making it easier to demonstrate impact and ROI to stakeholders.

Implementing the 70-20-10 Rule in Your Product Portfolio

Integrating the 70-20-10 approach into a product portfolio requires planning, prioritization, and alignment with stakeholders. Here are actionable steps:

Step 1: Audit Your Portfolio: Start with an inventory of ongoing and planned projects. Identify which projects are focused on the core, adjacent opportunities, or transformational ideas.
Step 2: Set Objectives and KPIs: Define clear success metrics for each category. For core projects, KPIs might include customer satisfaction or retention; for adjacent projects, market growth or adoption; for transformational, breakthrough potential or engagement.
Step 3: Allocate Resources: Distribute resources according to the 70-20-10 split but remain adaptable. Some years might demand a heavier core focus; other times, the business may need more transformational investment.
Step 4: Regular Review and Adjustments: Monitor progress, shifting projects as needed to reflect their evolution and any new market insights.

The “70%” Core Projects

The majority—70%—of resources go toward projects that maintain and support the core product. These are the backbone of your business and require ongoing investment to remain competitive.

Examples of Core Projects:

Bug fixes, security updates, and compliance maintenance.
UX and performance improvements that enhance user satisfaction.
Feature updates to meet customer expectations or retain market share.

Google has maintained its search engine as its core product, continually refining it to meet evolving user needs. Google’s investment in AI for search, for example, keeps its core offering relevant in a changing landscape.

By prioritizing the core, product managers ensure their products remain robust and reliable, which builds trust and prevents churn.

The “20%” Adjacent Opportunities

Adjacent opportunities are projects that expand upon your core offering without completely deviating from it. These investments help reach new customer segments, add complementary features, or enter closely related markets.

How to Identify Adjacent Opportunities:

Customer Feedback: Analyze feedback to identify common requests or use cases outside of the current product scope.
Market Research: Look at emerging trends or competitor gaps to discover potential expansion areas.
Cross-functional Collaboration: Engage with sales and support teams to gather insights on complementary product needs.

Examples of Adjacent Projects:

Launching new product features that appeal to a different demographic.
Geographic expansion to new markets with minor localization.
Releasing a companion app or complementary tool.

Amazon expanded from its retail origins to Amazon Web Services (AWS), an adjacent but transformative move into cloud services. AWS is rooted in Amazon’s infrastructure needs but opened new revenue streams and markets.

The “10%” Transformational Projects

Transformational projects are where companies place their boldest bets. Though they consume just 10% of resources, these projects have the potential to reshape a company’s future. They’re often experimental and may involve emerging technologies or entirely new business models.

Characteristics of Transformational Projects:

High uncertainty, often requiring pilot programs or R&D.
Potential to enter completely new markets or create new products.
Aimed at creating breakthrough innovations that redefine the business.

Examples of Transformational Projects:

Developing a brand-new product that’s distinct from the core offerings.
Investing in emerging technologies, such as AI or blockchain.
Entering an untapped market with potential for high growth.

Apple’s decision to enter the mobile phone market with the iPhone was transformational. While outside its core computing business, the iPhone revolutionized the industry and became Apple’s primary revenue driver.

Common Challenges & Pitfalls in Applying the 70-20-10 Model

While effective, the 70-20-10 approach has its challenges:

Over-investment in One Area: Team biases or market pressures can lead to over-allocation in the core or adjacent categories.
Resource Constraints: Smaller companies may find it hard to allocate sufficient resources to transformational projects.
Classification Difficulty: Deciding whether a project is core, adjacent, or transformational isn’t always clear-cut and can vary by company.

Overcoming Challenges:

Cross-functional Review: Regularly assess allocations with input from key teams to ensure alignment with strategic goals.
Iterative Classification: Projects can evolve; a project classified as adjacent could become core if it proves essential to the business.

Measuring Success and Adjusting the Approach Over Time

The success of a 70-20-10 approach lies in tracking progress and iterating as needed. Each category has different indicators of success:

Core Projects: Metrics like user satisfaction, retention rate, and stability.
Adjacent Projects: Market share growth, revenue from new features, or expansion into new regions.
Transformational Projects: Potential for industry awards, breakthrough technology, or high customer adoption rates post-launch.

Regular reviews allow product managers to pivot resources based on the evolving needs of the business, helping maintain flexibility.

When to Re-evaluate or Abandon the 70-20-10 Approach

Although effective, there are situations where 70-20-10 may not suit a business:

Market Disruptions: Sudden shifts, like a new competitor or regulation, might require a temporary focus on core or transformational efforts.
Organizational Change: Leadership changes or restructuring may also necessitate different portfolio approaches.

In these cases, product managers may adopt an alternative approach, like a 90-10 split focusing only on core and adjacent projects, or a dual-core approach if there are multiple flagship products.

Conclusion

The 70-20-10 portfolio approach empowers product managers to balance innovation with stability, creating a sustainable roadmap for growth. This framework not only helps ensure resources are effectively allocated but also keeps product portfolios diverse and resilient.

Adopting this approach may require a shift in mindset, but it offers a dynamic way to stay relevant, encourage innovation, and, ultimately, drive long-term success. Whether you’re managing a single product line or a multi-product portfolio, the 70-20-10 approach can help you align with broader business goals while remaining adaptable.