I recently read a book, Product Strategy for High-Tech Companies by Michael McGrath that I found to be well-written and very informative about the challenges and approaches of creating a product strategy. The book addresses some very key questions:
- What role does strategic vision play in the creation of a product strategy?
- Is being first to market a true advantage, or is it better to be a fast follower?
- How do the dynamics of competition and product strategy change as markets and products mature?
- When should a company replace an existing product?
- How do I create a successful product line?
What role does strategic vision play in the creation of a product strategy?
One problem shows up with many strategic visions. Using an example from the book, could you align a product strategy to this strategic direction?
“Our strategy is to develop products that truly fulfill customer needs by exploiting our skills and abilities to the maximum level in order to provide a maximum profit to our shareholders. We will do this with high-quality products that provide a substantial competitive advantage. And while achieving this, we will be supportive of our community and our employees.”
Product Strategy for High-Tech Companies points out – rightly so – that this statement does not provide any direction at all in producing a product strategy, observing that, “it can be applied to any type of business: supercomputers, soap, or insurance.”
The book recommends that companies create a core strategic vision (CSV). A good CSV “…provides the destination and the general direction from where you currently stand. It supplies the context for product strategy and guides those developing the product strategy by telling them where the company wants to go, how it expects to get there, and why it believes it can be successful.” In addition, a good CSV must be complete, answering three questions:
- Where do we want to go?
- How will we get there?
- Why will we be successful?
Product Strategy for High-Tech Companies makes the observation that there is a difference between being first to market – where a company is hailed as the innovator – and becoming the market leader. Whether you are a leader or a follower, being successful requires having the requisite core competencies for the market. If you have the core competencies, you can be a follower and jump into a market when the timing is right. Here’s an example offered to illustrate the point:
“Using its Betamax format, Sony had first-to-market advantages with an 18-month head start in the home VCR market. Competitors JVC and Matsushita followed, but they introduced a different and incompatible format: VHS. Betamax offered superior picture and audio quality, while VHS was less expensive and had a longer recording time. The longer recording time turned out to be the vector of differentiation preferred.
“The VHS-based competitors had more time to understand the market before they finalized their designs. When VCR technology was introduced, nobody was sure whether customers would use it for viewing prerecorded tapes, recording TV programs, or watching home movies. As customers showed a preference for recording TV programs, playing time became a more important vector of differentiation than quality.”
How do the dynamics of competition and product strategy change as markets and products mature?
McGrath outlines the general conditions present during a growth phase of a market versus a market that reaches maturity as he discusses vectors of differentiation:
“As a market grows, products become more clearly differentiated. Their qualities become known. Customers classify products into various categories, and market share starts to correlate to the relative importance of the vectors of differentiation. When a particular vector of differentiation is less attractive to customers, the product is typically discounted or discontinued.
“As a market matures, it becomes relatively undifferentiated. Product characteristics preferred overwhelmingly by customers become requirements that every product must have. As a result, most products tend to be similar, and ‘soft differentiators,’ such as service and price, become more important bases for competition.”
In case you are wondering, yes, you can establish new vectors of differentiation…
“Sometimes a market can be redifferentiated after it reaches maturity by establishing new differentiation vectors that are important to customers. This shifts the basis of competition away from price and back to differentiation. Even a very mature market can be redifferentiated by applying new technology.”
When should a company replace an existing product?
Replacing a product – cannibalization – can be good or bad. As the book points out, “The latter takes place when companies inadvertently consume their own profits.” Put another way, you don’t want to kill a product before its time, but you don’t want to wait so long that you provide your competition the opportunity to seize the market.
The book makes a general point that, “Market cannibalization typically benefits the attacker rather than the defender, since the attacker has little to lose.” Cannibalization is thus a strategy suitable for another company to attack an entrenched market leader.
However, a related observation made by the book that is quite pertinent is, “Regular cannibalization by the technology leader is successful when the underlying technology continuously advances. When it does, the technology leader can pace the market by establishing regular product life cycles.” My takeaway is that the choice of leapfrogging yourself technology-wise is highly dependent upon the industry you are in, its competitive landscape, and whether you are seeking to establish yourself as a market leader or fast follower.
How do I create a successful product line?
The book provides some excellent, sound advice on this topic: Develop product lines by leveraging a common product platform. “The differentiation in a product platform provides the constant theme woven throughout the product line built upon it, with individual products providing variations on the theme.”
A product platform is not a product. ”It is a collection of the common elements, especially the underlying defining technology, implemented across a range of products. A product platform strategy is the foundation of product strategy, especially in high-technology companies that have multiple products related by common technology. It defines the cost structure, capabilities, and differentiation of the resulting products. By separating product platform strategy from product line and individual product strategy, a company can concentrate on its most important strategic issues.”
The benefits of a product platform strategy are also clearly articulated:
“A platform strategy enables products to be deployed rapidly and consistently. A platform strategy leverages the cost of developing individual products and can introduce a commonality that reduces manufacturing costs.”
In addition, the book offers some insight on the tradeoffs between a product platform strategy and product strategy targeting individual products:
“Developing a platform approach to product strategy requires more discipline than simply developing the first product in a product line, without much thought to subsequent products. Conversely, setting product strategy at the individual product level dilutes focus, diffusing senior management's attention across all products. It also diminishes the leverage gained from using a common platform as a foundation and can create confusion about individual products.”
Overall, I found Product Strategy for High-Tech Companies to be well-written and an insightful read. It covers a lot of ground – much more than I’ve outlined here – making it in-depth and practical, and definitely valuable for anyone running a technology business. If you are involved with product strategy in a technology company, this book is a must read!