Elements of a Product Strategy
Product Strategy, is nothing more than strategy applied to the scope of a product.
But what seems so simple is accompanied by two traps that cause frustration and hinder growth:
- Many people do not know what strategy means. Including executives and product managers.
- Business strategy is often confused with product strategy
In this post we will see what is a product strategy, what are the elements of a winning product strategy and tools to design and document a product strategy.
Product Strategy in Context
- The investment portfolio for the next 3 years – Business Strategy
- We sell online or with a sales force – Product Strategy
- Low-end, disruptive, differentiating or efficiency strategy – Business Strategy
- Subscription or transactional revenue model – Product Strategy
- Geographic area – Business Strategy
- Cloud or on-site – Product Strategy
- Move to an adjacent market – Business Strategy
Business Strategy vs Product Strategy
In an organization there are two fundamental levels of strategy, business strategy and product strategy, which we must learn to differentiate, since this separation is often a source of frustration.
- Business strategy determines how the organization will succeed and it is the responsibility of the executive team
- Product strategy determines how the product will be successful and is the responsibility of the product manager or value stream manager.
Many companies confuse the two, and the result is well known. The executive team wants to focus on the business strategy, but they are forced to make very low level decisions, for example, in which projects and even specific functionalities to invest, solve dependencies and often design details or product content.
On the other hand, product managers do not understand the reasons behind the decisions that directly affect their products, they feel that the strategy is limiting or that there are people making decisions that would be theirs to make.
When we participate in a strategic planning session and ask executives and product managers what the business strategy or product strategy is, we generally get two types of responses:
- Looks of bewilderment, doubt and concern
- Growth objectives, vision and mission statements or five-year financial plans
Business strategy consists of understanding the context and the challenges your organization faces, designing a guiding policy and determining the main activities and investments that must be made. From there, everything else is product strategy.
Product strategy consists of determining what product to create, for what customers, with what value proposition and how to make it reach the market and face competition.
Everybody is Product
Real Lean Organizations organize themselves in value streams (products or product lines) with a person in charge of the value stream called Chief Engineer, Value Stream Manager or Product Manager. The Value Stream is autonomous and reports directly to the CEO or the Director of the corresponding Business Unit.
Value Streams must include all the functions necessary to get the product to the customer, including HR, Sales, Marketing. Each Value Stream is like a small company with authority over P&L.
In this context, the Value Stream Manager is solely responsible for the success of the product and we avoid the conflicting separation between “business” and “product”.
Therefore, there is no marketing strategy or sales strategy, everything remains within the product strategy and is the responsibility of the product manager.
The executive team should only make the highest level strategic decisions that affect the future of the organization. Product teams must be autonomous organizations within the parent organization with the capacity to make any decision that affects the future of their product within the strategic lines and restrictions set by Management.
While the executive team may believe that something is a great business opportunity, they still don’t know if you can successfully pursue this opportunity. Maybe it will cost you too much to build it. Customers may not value it enough to pay it. It may be too complicated for users. This is where product strategy and especially product discovery come into play.
The executive team maintains an investment portfolio, and the company can and should adjust that combination as competition and markets evolve.
Business strategy and investment portfolio planning provide a budget and a set of business metrics. The product organization lives within that budget to find as effectively as possible the best ways to achieve those business metrics.
And, of course, not all businesses will resonate with customers, so a large part of the business strategy is knowing when to continue investing and when to stop and invest elsewhere.
A business strategy describes how a company wants to achieve its overall aspiration and create value for its customers, employees and shareholders. It establishes how the company will succeed, while the product strategy describes how a product will achieve success, as illustrated in the following image.
When the company is small the business strategy is almost equal to the product strategy. As the company grows, the traditional approach is to separate business people from product people, and separate responsibilities between them.
Unlike many product experts, we believe that most of the strategy must belong to the product manager responsible for a product and the business strategy must belong to the executive team. There should be no one in the middle. This prevents misunderstandings.
This is Lean’s approach. There is the Value Stream Manager or Product Manager who is responsible for everything in a product. Including Sales, Marketing, HR, Partners, Customer Service and Technology.
Problems arise when an opinion on the product strategy is given to people who are not responsible for product development. For example, Sales, Marketing or Business Managers.
The business strategy provides the company with the basis for making the right investment decisions. This includes determining whether a new product idea should be pursued and how much money should be spent on an existing product. At the same time, it offers the product manager the context necessary to make the right strategic decisions about the product, for example, the market that your product should serve and the strategic objectives that it must meet.
Imagine the case of a company in the food consumption sector. Its business strategy may involve focusing on low-calorie healthy eating for small merchants of healthy products and chains such as Veritas, as its executive team has determined that there is an opportunity due to population consumption trends and current supply .
Within these guidelines, product managers will define their product strategies focusing on two fundamental aspects:
- Where to play – Which clients represent our objective?
- How to win – Value proposition and business model
Elements of a Product Strategy
Below we describe the basic elements of a product strategy:
- CHALLENGE – What are the challenges, problems or obstacles your product faces? Identify the challenges and make a diagnosis. To have an adequate diagnosis, we need to understand the context, the strengths and trends in the market, the market situation where we want to access and the strengths and weaknesses of our organization.
- MARKET – Where will you play? Describe the areas in which the product will compete to fulfil your aspiration. Who is the target customer? Do you intend to address existing markets or create new markets (also called blue oceans)? What distribution channels will you need?
- WIN – How are you going to win? What is your competitive advantage? For example, better costs (low prices), differentiation (higher value products and services) or focus (specialized markets). To answer this question, you must understand the strengths and weaknesses of your organization, your product and the competition you face.
- CAPABILITIES – What capabilities should you have? What do you need to be really good at? What will you do to multiply your competitive advantage?
- ACTIVITIES – What management systems are necessary? What processes and structures are necessary to develop the appropriate capacities and increase the strategic options of your organization
Document your Product Strategy
We can use this canvas to document the elements of our product strategy.
In the first half of the template we document the Challenge, the Current Situation and the Diagnosis.
In the second half, we indicate the objectives with their respective success criteria (OKRs) and the four basic questions that we have reviewed in the previous section.
Blue Ocean Strategy
There are several ways to design a winning product strategy. The first thing is to remember that the elements of a product strategy are: a challenge, a diagnosis, a guiding policy, an action plan and short-term objectives.
Recall also that a successful strategy will use our strengths to exploit the weaknesses of the competition, for example, generating asymmetric costs.
The challenge may be, for example, how to generate a new market space, how to generate a differentiated proposal in an established market or how to enter a market with a low-cost strategy.
In this last section we will explain how to generate a new market space free of competition while establishing an unattainable competitive advantage position. What is also known as innovation of new markets or blue ocean strategy.
Cirque du Soleil
Cirque du Soleil’s strategy is a paradigmatic case of blue ocean strategy.
In less than twenty years since its creation, Cirque du Soleil generated a level of income that world leaders in the circus sector took more than a hundred years to obtain.
What makes this growth even more amazing is that it was achieved in a sector of declining activity, and it was not done at the cost of stealing customers from an increasingly smaller circus sector, which had historically addressed children:
- Cirque du Soleil did not compete with the companies established in the sector but created a new market space without opposition in which competition was irrelevant.
- They focused on a new segment: adult clients who were willing to pay a high price for an unprecedented entertainment experience.
To understand how they got it, let’s see some important concepts and then end up seeing the strategy of Cirque du Soleil.
Key Principles of the Blue Ocean Strategy
- Competition should not occupy the center of strategic thinking. Too many companies allow the competition to direct their strategies. Which causes competition, not the client, to be at the core of the strategy. On the other hand, the companies that differentiate from competitors aim to offer a spectacular leap in value that makes the competition irrelevant.
- The sector structure is flexible and can be moulded. The field of strategy has long taken for granted that the structure of the activity sectors is an immovable fact. In this case, the strategy becomes a zero-sum game in which the profit of one company represents a loss for another, since companies are bound by the existing market space. What is the sector of Cirque du Soleil? Is it the circus? Or maybe the theater? Or something more generic like entertainment?
- Strategic creativity can be systematically released. Think of the Ford T model, Starbucks, or Salesforce. There are common strategic guidelines behind the creation of successful blue oceans.
Red Ocean vs Blue Ocean
In red oceans, sectoral boundaries are defined and accepted and the competitive rules of the game are known. Companies try to surpass their rivals to capture a greater part of the existing demand.
As the market space becomes saturated, the profitability and growth prospects are reduced. The products become generic (commodities) and the competition to death stains the red ocean with blood.
Instead, blue oceans are defined by unexploited market spaces, demand creation, and the opportunity for highly profitable growth.
Although some of the blue oceans are created well beyond the boundaries of existing activity sectors, most of them arise from the interior of red oceans through the expansion of the borders of existing activity sectors, as Cirque du Soleil did.
In blue oceans, competition does not matter because the rules of the game have not yet been established.
The Four Actions Framework
To achieve value innovation, the Blue Ocean Strategy proposes an analytical tool called the Four Action Framework. The four elements of a blue ocean product strategy.
These four key questions challenge the strategic logic of an industry and the established business models:
- Which of the factors that the industry takes for granted should be eliminated?
- What factors should be reduced well below the industry standard?
- What factors should be raised well above the industry standard?
- What factors should be created and that the industry has never offered?
The fundamental equation here is to reduce the cost and increase the value.
Think of Uber or AirBnB:
- Reduce costs: they do not have accommodation.
- Increase value: allows you to travel anywhere safely and quickly
Think of Cirque du Soleil:
- Reduce cost: get rid of animals and bright stars
- Increase value: import theater, gymnastics and musical concepts.
The Strategic Dashboard of Cirque du Soleil
The strategic dashboard is the visualization tool that allows us to compare the value curves of the different actors in a market, industry or sector.
A visual way to quickly determine if we are in a blue ocean or a red ocean, where we compare all the elements of our product strategy.