Boost ROI: Tie Product Management to Growth

Boost Your ROI: Tie Product Management to Growth Goals

The Challenge: Disappointing Returns on Product Investments

We have 8 new product lines to move to market in the next 3 years and a bunch of additional early stage ideas coming from product engineering. We need to prioritize our resource allocation with market-backed guidance. – B2B Head of Product Programs

Our business model has always been based on a product strategy; whatever the salesperson sold, we would then tell manufacturing to make it. This cluttered up our manufacturing systems. – B2B Manufacturing Executive

The quotes above represent the common pitfalls we see our clients face when trying to rationalize and gain control over their product investments. We categorize these pitfalls into two overarching categories:

  1. Design Domination – Product engineering, R&D, or other technical functions drive innovation and develop interesting new products or incremental feature enhancements.
  2. Sales Domination – New product ideas regularly come into the company from the sales team. In turn, the product engineering teams develop products and solutions based on these new ideas[1].

Whether the pitfall falls under Design Domination or Sales Domination, either can lead to a complicated, inefficient, highly varied product portfolio which may not even address customer needs.

  1. Design Domination leads to a proliferation of products and SKUs with many bells and whistles, many technological enhancements, and interesting features. However, this can lead to products brought to market which do not address any specific customer needs or even latent, unrecognized needs. Products do not create economic value for customers. The result is a new or enhanced product that fails to drive the promised ROI.
  2. Sales Domination also leads to a proliferation of products and SKUs with the added challenge of scaling these custom innovations to serve more than one customer. It becomes very costly to be everything to everyone, and the potential market for each new product is limited due to the specific idiosyncrasies of each important customer. While specific customer needs are addressed, these needs are often not shared across broader segments of the marketplace. Ultimately ROI falls short of targets.

Both types of pitfalls lead to a product portfolio that 1) does not address a broad set of customer needs and 2) contains too much variety and customization to be efficiently managed. Both types of pitfalls also deliver disappointing returns on product investments.

Related Reading – A Market-driven Framework: Aligning Product Development & Markets

The Solution: Interface with Key Functions to Address Critical Questions

To avoid these pitfalls, we recommend considering the following questions…

  • What are the overarching strategic goals for the company? How does product strategy and product management fit into these strategic goals?
  • How do we expect current, enhanced, and new innovative products to contribute to achieving our growth goals?
  • Which products will not be contributors to achieving growth goals and should be sunset and/or cannibalized with new products?
  • What does voice of the customer tell us about unmet and even latent, unrecognized needs that could be addressed with enhanced or new products?
  • What new or evolving technologies are available to us or are in development that can be leveraged in enhanced or new products?
  • How will we position the products in our portfolio against competitive offerings? What is our differentiating value proposition?
  • What are the critical actions and steps required for commercialization of enhanced or new products to ensure faster time to market and greater peak sales?

Given this set of questions, we see that product portfolio management must intersect with critical functions across a B2B organization to address these questions:

The product portfolio management function must be able to intersect with each of these functions to gather inputs and direction and formulate a path forward for the product portfolio. It must have defined interfaces with these functions, and clear roles, responsibilities, and handoffs. This will result in a disciplined, market-backed product portfolio management approach which will drive enhanced ROI. Interfaces with other functions such as operations (for capacity planning and supply chain) and finance (for ROI evaluations) are important as well, but we have focused on the critical functions indicated above to address the key questions.

Case Study: Components Supplier to Commercial Vehicle OEM

We recently worked with a commercial vehicle OEM Tier 1 supplier that had disappointing product investment results. They launched their first, “next generation” component in over several years and were very excited about the potential results.  Actual results fell far short of expectations, and the “next generation” product was sunset after a short life. The company took a significant loss.

We diagnosed the problem using several of the questions listed earlier and found that the failure was due to Design Domination, as product engineering pushed forward a technologically advanced, next generation design that was expected to address customer problems. Unfortunately, the benefits this product provided were not validated in the marketplace. The assumed value proposition focused on better fuel economy and easier drivability, but customers’ concerns about significantly higher acquisition costs were overlooked. The incremental improvement in fuel economy was not significant enough to overcome the higher up-front expense. In addition, commercialization of the new product was inconsistent; there was no design collaboration with key OEMs, the market was not seeded with a few lead customer OEMs, and there were no coordinated steps for an impactful launch.

To help our client avoid disappointing product investment results going forward, we created a product management system designed to connect the supplier’s product management to the ambitious growth goals the company had set for itself. The system established clearly defined interfaces across functions and contained specific stage-gates such as criteria for prioritizing new product ideas and technologies, confirmation of customer needs, concept testing, and commercialization steps. It also included processes for developing products that address their customers’ needs quickly and efficiently (a win for their customers) resulting in differentiated value and enhanced ROI from product investments (a win for the supplier).

[1] Atlee Valentine Pope and Bruce B. Karr, A Market-driven Framework: Aligning Product Development and Markets, Blue Canyon Partners, Inc. © 2014.

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