Monday, July 28, 2008

Product Management - Developing breakthrough products

How does companies such as Apple, P&G, Nokia, Ikea, Google, Tata Motors, Toyota etc., comeup with so many successful products? How do successful companies - GE, IBM, Microsoft, Cisco, Unilever, Intel, HP, etc., maintain their market supremacy?

The secret to success lies in their ability to spot market winners ahead of the competition. Spotting a market winner is not an art - but it is no science either.

In political leadership circles, there is a saying - "The best way for one to become a leader is to identify a bunch of people walking in a particular direction and then walk in front of them"

The same logic can be applied in the marketplace: Identify the market needs and provide them with a product that meets the need.

This idea sounds so simple, yet for most companies - it is very difficult to implement. It doesn't mean that the company leaders cannot identify the market needs. They surely can. But they cannot quantify the market opportunities - and thus spend endless cycles waiting, watching and trying to quantify the opportunity - even when the competition runs ahead.

For example, given the current high oil prices - customers are demanding lower cost transport options, yet leading car manufacturers: GM, Ford, Toyota, Volkswagen, Nissan-Renant are still pondering over electric cars. On the other hand, Tata Motors is working its way on two alternative cars: An electric car & an Air car.

In software arena too there are plenty of examples. IBM completely missed the ERP market opportunity to SAP; DEC lost the PC opportunity to IBM; SAP lost the CRM market opportunity to Siebel; Microsoft lost the Internet search engine business to Google.
Similarly, a decade ago, Toyota was able to speed past Chrysler, Ford & GM with its hybrid car technology. While the Big three decided to wait & watch. Now GM & Ford are desperately trying to play catch-up in the hybrid car market.

Also see: Toyota will beat GM to the plugin electric hybrid

Why do incumbents stumble so badly?
Managers at incumbent companies see the emerging opportunity - but are almost always constrained by the existing management policies, current product lines, current product priorities and above all, constrained by lack of verifiable data - to make the correct decisions on emerging technologies.

It is not that managers do not see the market trends - they do. But in large companies, all decisions are based on numerical data. In case of demands for new products, such data is hard to come by and in absence of such researched data, managers are forced not to make any decision - and instead they opt to wait and watch.

In addition to lack of market data, managers will have to justify their investment decision on new products based on the existing "hurdle" rate. The current hurdle rate used for investment decisions are based on the current business and current products, and it has no relevance for new business lines, yet company managers (& investors) insist on using the current hurdle rates. This prevents companies from investing in new product opportunities. For example, Digital Corp - which was the market leader in Mini computers had all the right components to succeed in the PC market: it had the technology; engineering expertise; and market knowledge, yet in the end the company made a decision not to enter the PC business - because any business which has less than 40% margins is not a business to be in.

How Can Product Managers Overcome this?

When it comes to new product introductions - Product managers should be the ones taking the lead and evangelizing the entire organization. That also puts the onus to prove that the new products are commercially viable - i.e., the new product meets or beats the current hurdle rate.

Not surprisingly, product managers often stumble at this challenge.

Since there are no solid numbers one can rely on, Product managers will have to be creative and have to come up with other means to promote & propagate the need for this new product. In my experience, I have used product Opportunity Gap model to evangelize new product introductions.

Product Opportunity Gap Model (POG)

Identification of the market opportunities is at the core of this model.

A market opportunity exists when there is a gap between what is currently available on the market and the possibility for new or significantly improved products. A product successfully fills a product opportunity gap only when it meets the conscious and unconscious expectations of consumer and is perceived as useful, usable and desirable. Successful identification of a market opportunity is a combination of art & science. It requires a constant monitoring of factors in three major areas:

1. Business
2. Economic
3. Technology

Changes in the "BET" factors create a need for new products.

Product Opportunity Gap model puts the facts infront all stake holders and make them think how to fill the gaps in the existing products. Identifying product gaps will lead to product extensions and new product introductions.

As you can see Product opportunity gap varies from organization to organization. Identifying the product opportunity gap and positioning your product as the one which fills the gap.

POG Business Case for TATA electric cars:
Always start with listing the business factors affecting the existing product lines.
Business Factors:

  • Sustained High Oil prices
  • Global warming & pollution concerns
  • Lack of competition in this market
  • Inter city commute uses
  • Similar products currently in the market

Economic Factors:

  • High Inflation
  • Relative Cost Advantage of electricity Vs Petrol/Gasoline
  • Existing Electric Infrastructure

Technology Factors:

  • High charge capacity batteries (Lithium Ion Batteries are now available)
  • Efficient motors & Generators (dynamic breaks)
  • Light weight technologies (leverage learning's from Nano project)
  • Low maintenance ( Car maintenance is much lower in an electric car)

BET factors show that there is a need for electric cars in Indian markets. All the long term trend lines points to the market need, so at this point the audience would be convinced about the need for electric cars.

At this point, product manager should ask a budget for prototype development and market study. Developing a prototype will help in identifying the real costs, benefits and thus build a first cut financial model for the new range of electric cars.

A good advantage of "BET" model is that it makes people think about all factors that are driving the need for a new product. Stakeholders can be made aware of the existing trends in the business environment - and let them make a decision.

Closing Thoughts

Developing breakthrough products is a tough. The traditional rules of building financial models and projections do not work when it comes to developing new products. Therefore one should concentrate on evangelism within the company to build a need for new products. Product Opportunity Gap model is a tool for evangelism - and it brings all the points on to the table. At this point, the product manager’s job faces the moment of truth. If the stake holders agree to pursue the product opportunity internally, then product manager must then take charge and drive the project. Alternatively, stakeholders may prefer to launch a special purpose vechile (SPV) or a separate company to pursue this new opportunity. If that’s the case, product manager has done his job successfully and it is time to hand over the reigns to someone else. If the stakeholders shoot down the idea, then product manager still has opportunity to continue evangelize within the company and influence the stakeholders.

1 comment:

Denou said...

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