Tuesday, September 03, 2013

5 Ways Companies Make Product Decisions

In the last blog entry, we reviewed the four problems that companies face, or are trying to overcome, as they make product decisions.  Now we'll look at the ways that most companies make their product decisions.

Companies that develop, market, and sell products and solutions make strategic and ongoing tactical decisions.  They decide what features to include in their products, what messages they will use to communicate the value of their products, what marketing tactics they will use, what prospective customers they will target, and many day-to-day choices. Whether or not these decisions are deliberate or ad hoc, most companies use some combination of the following ways of making product decisions.

(A downloadable "map" that summarizes the product decision landscape is included at the end of this article.)

Customer Wants
Product decisions based on feature requests, focus groups, and what prospects and customers say they want.


Companies are selling products to make money by creating happy customers.  With the “customer wants” model of making product decisions, you reach out to prospective and existing customers, since they’re the ones who will ultimately be buying your product.  If you are able to deliver what prospects want, they are much more likely to buy your product.

To gain insight into what they want, companies listen to what prospects say during sales and customer support calls, tally up feature requests, monitor support and discussion forums, and conduct focus groups and surveys.  A conversation with a customer might include explicitly asking her what she thinks of a particular feature idea, or she might offer her own feature ideas.

Pros:
  1. Incorporates direct feedback from prospects and customers rather than speculation from inside the company about what they may want.
  2. Can lead to prospects becoming customers once you’ve implemented the requested features.
Cons:
  1. Customers are experts on their own situations and challenges but don't know what they want, so you end up implementing features that don't provide value.
  2. Research shows that customers' hypothetical predictions about what they would buy are not reliable.

Deal Driven
Product decisions driven by the next big deal in the sales pipeline.


The ultimate measure of a successful product is how much money it makes. At any particular time, sales may be working on a deal that could bring in a large amount of revenue for the company.  The prospect in such a deal often has particular needs that the product could address with some additional development.  In the deal-driven approach to product decisions, the needs of prospects in these major deals drive the product decisions and priorities.




Pros:
  1. Increases the likelihood that revenue-producing deals will convert.
  2. Ties product decisions and priorities to revenue potential.
Cons:
  1. Leads to scattered, incoherent value propositions for the product.
  2. Causes abrupt swings in product direction, eroding the morale of the product team.

Intuition
Product decisions based on common sense and what's cool.



Disruptive and innovative products often come from visionaries who incorporate cool technologies and have an intuitive sense for what consumers want.  Executives and members of the product team are themselves consumers and thus have their own personal opinions about the most effective ways to market and sell a product. Developers on top of the newest technologies see how they can apply the technologies to implement innovative product features.  Since everyone in the company is a potential user of the product, they all chime in on what the best design and user interface is.  In many organizations, these sorts of intuitions drive product decisions.

Pros:
  1. Anticipates needs that prospects don't yet realize they have.
  2. Leverages internal knowledge and avoids expensive market research.
Cons:
  1. Effective marketing often defies common sense. Despite the fact that we're all consumers, most members of the product team probably haven't studied marketing principles.
  2. Personal preferences and intuition often don't reflect those of the target market.

Industry Experience
Product decisions based on prior industry experience and accumulated wisdom.



Some companies rely on employees with prior experience in a domain or industry to guide product decisions.  Experience provides wisdom about a market and what works and doesn't work in an industry.  Based on industry background, such as knowledge of the competitive landscape, customer needs, and existing technologies and practices, members of the product team make judgments about what features to include in the product and how to market and sell it.



Pros:
  1. Reduces or eliminates the learning curve for understanding the customers, technology, competition, and needs in an industry.
  2. Brings industry connections and relationships that sales and development can leverage.
Cons:
  1. May inhibit innovation and outside-the-box thinking. Most companies emphasizing industry experience in their hiring practices do not, as a general rule, innovate well.
  2. Provides no guidance for tackling risks and unknowns outside the prior industry experience.

Left Brain
Product decisions based on analyses such as Kano and A/B testing and documented as detailed product specifications.



To take the intuition and guesswork out of making product decisions, team members with a left-brained bent employ a variety of rigorous approaches and analytical tools to determine and document product priorities and marketing tactics.

For example, a member of the team may maintain a spreadsheet with candidate market problems to solve, or with all the proposed enhancements to the product, and rate them on various criteria.  They base product decisions on the items with the highest ratings.  Some more sophisticated product managers analyze customer preferences using Kano analysis, rating features in terms of the extent to which they evoke surprise and delight, satisfaction, dissatisfaction, indifference, or an erosion of overall perceived value.

In some cases, business analysts, product managers, or product owners will then compose detailed product specifications.  Often, the individuals with analytical instincts will go far beyond writing epics and the basic user stories, and will delve into interaction design.

For determining the most effective marketing tactics, the team may use A/B tests and other data, seeing which ones work best in practice.

Pros:
  1. Brings transparency and rigor into the process of making product decisions.
  2. Distills disparate data into actionable information. 
Cons:
  1. Can lead to products with incoherent and scattered value propositions.
  2. Ignores timeless marketing principles.
  3. Biased to product decisions with available data and to tactical alternatives that are easiest to measure.


12 comments:

Steve Johnson said...

This nicely summarizes the pros and cons of different techniques for decision-making.

There are many examples of companies who have used intuition or deal-driven methods--Apple and Microsoft come to mind.

Some firms use only one approach. Most firms _ought_ to use more.

Bruce McCarthy said...

I agree with Steve this is a good summary of the various means teams use - and I appreciate the pros and cons, but I would not weigh each of these equally.

Maybe I'm just too left-brained, but I would recommend starting with agreeing with your management team on what the business goals for the product are (revenue, market share, renewals, etc.), then analyze every proposed bit of work against those goals.

The other approaches, including responding to deals, granting customer requests and going with your gut should, IMO, be the reality check, minor course correction or garnish on the plate - not the drivers of strategy.

If you believe in the left-brained, goal-driven approach, I've got a presentation on prioritization from last year's ProductCamp Boston you may like on Slideshare at http://www.slideshare.net/ProductCampBoston/prioritization-301-advanced-roadmapping-class-bruce-mccarthy

Magnus Billgren said...

Great summary.
Oftenly we of course combine the different ones. We often work with creating insights which would be similar to industry experience and then combine it firstly with analysis and then add intuition and deals. To rely one perspective will almost always fail. What I do miss is a strategic aligmnment. We often work with customers such as Ericsson, Wurth, Volvoa Trucks, (>USD 10 billion) companies. Then the strategic direction has a huge impact on the direction for products. The worst misstake to make is let the left side rule. Then we let the model be above the human brain. Th edecisions must always be away from the excel sheet.

Roger Cauvin said...

Thanks, Steve, for the additional thoughts and the help with the content of the blog entry itself.

Bruce, I do agree that the left-brained approach is very useful (if not essential). To keep your eyes on the ball, you have to align the analyses with larger goals, as you emphasized in your great set of slides. I mentioned in my conclusion that all of these approaches have shortcomings if they don't incorporate timeless marketing principles, ruthlessly maintain focus, and orient features and messaging around solving market problems. Have you ever observed an organization that applied left-brained methods but was stuck in the weeds?

Magnus, interesting view that "decisions must always be away from the Excel sheet". What do you see as the dangers of using spreadsheets to drive product decisions?

Bruce McCarthy said...

It is, of course, a balancing act. If you never help sales with a feature for that big deal, never listen to your big customer requests, and never trust your gut, you do risk an uninspired product that people don't want to sell.

And, yes, I have seen situations where people were slaves to their spreadsheet and missed the forest for the trees. I usually see this, though, when a PM is keeping a spreadsheet of requests from customers and sales without first getting alignment with executives on what the strategic goals of the product are.

In the absence of explicit goals, the default often becomes just give people what they ask for. This may or may not align with where the product needs to go in the next phase of its life.

I do want to say, though, that I agree with the spirit of Magnus' comment when he said we shouldn't "let the model be above the human brain." The best-crafted and aligned spreadsheet model is only an aid to decision-making. In the end, the people around the table have to make the decisions.

Roger Cauvin said...

Bruce, sometimes executives need product management to provide guidance on what the strategy should be. In those cases, it doesn't work to start by eliciting the strategy from executives and align activities to the strategic goals.

Indeed, product management can play a key role in providing information on the market opportunity that drives the strategic goals. For example, whether or not maximizing renewals should be a goal depends on the nature of the market, which is something product management can elucidate.

Moreover, many executives aren't familiar with, or overlook, marketing principles such as those outlined in Ries and Trout's THE 22 IMMUTABLE LAWS OF MARKETING. Executives and product managers who ignore these principles run the risk of making poor strategic decisions that doom the entire business to failure.

Bruce McCarthy said...

Great points, Roger. I agree that product management can and often should drive strategy.

When I said "alignment," I meant that it's important the PM get execs on board with their strategy. The PM may not get the time to see their strategy through if the executive team doesn't believe in it.

Jennifer Doctor said...

Great piece, especially the highlighting of the pros and cons. I am, unfortunately, familiar with several of these decision models and can attest to the truth you speak (write).

I’d be curious to hear what you feel would be the model that would be the most difficult to recover from, not necessarily the worst model for the business, but the hardest to recover. In my opinion – and this is only mine – I think the industry experience model you put forth would be the hardest to bring about change. Why? Because it requires a larger culture of change to happen, an understanding that knowledge can be taught, learned and shared. If innovation – the desire and ability to change how something is done – is being sought, these cultures will be the hardest since they keep looking for the same and repeating what has been done .

It’s my opinion, but curious what other thoughts are out there.

Roger Cauvin said...

Jennifer, you raise a key consideration about the culture of making product decisions and how difficult it can be to change.

In the end, it seems mostly to be a function of people and not which method a company currently uses.

I do agree, however, that a culture of driving product decisions based on industry experience can be difficult to change when the personalities involved are too comfortable with existing industry thinking and practices.

The deal driven approach sometimes results from short-term financial pressures from investors. The people inside the company who are answering to these investors may resist a change to the deal driven approach and the hope for relief from these pressures.

Jennifer Doctor said...

I agree that it may be a function of people and not the product decision methodology.

But, I believe that any change in an organization, whether it's how you make a decision or with whom you interact, is a function of the culture.

If you don't foster a culture of change - you won't achieve a culture of innovation. (And, it won't matter how you make your product decisions.)

Roger Cauvin said...

Bruce, yes, and in many cases, product management can drive the alignment, not by asking executives what the goals should be, but by understanding executive pain points and then working with executives and the team to craft a straw man set of product metrics that indicate product decisions are addressing those pain points.

Trung Nguyen said...

This is a very nice summary of what goes through the mind of a Product Manager when trying to work out the next feature or new product