Systematic Genesis and Obsolescence-A Product Management Mantra

Product Managers can't sit on their tails even when they believe they're winning the goodwill of the market. In this respect, Product Management might be the second most thankless job in industry after that of an operations manager, where even if you make the production numbers for the month, upper management and executives shift their focus to the next period and cast doubt on the manager's ability to hit the numbers for that period. Both these jobs are a treadmill where accomplishments are made and forgotten.

In the "Building Product Value-Guidance for Product Managers" blog-post I listed several truths of product management and offered a framework of enabling capabilities for building product value. In this post I want to focus on the most basic truth of Product Management:

Truth #1

Product Managers must be willing to cannibalize old products with new products. If managers aren't willing to give up on old products, competitors will make the products obsolete for the manager.

Sustaining and Disruptive Innovations
In product management (products are bundles of goods and services), there are two ways to characterize innovations made to products: sustaining and disruptive [1]. The sustaining innovations utilize a single genetic code for their products to which incremental changes are made to yield performance improvements. Alternatively, disruptive technologies utilize a completely different genetic code that produces a slightly different value proposition to the customers' fundamental needs. Ironically, disruptive technologies often yield products that perform worse, at least in the near-term, to the incumbent products, but over time may actually dethrone those products due to performance/cost advantanges.

Businesses can fail for many reasons, such as poor execution of plans, poor plans, poor leadership, poor processes, and even bad luck. But Christensen [1] showed that businesses can fail even when they do the right things from a traditional management theory standpoint. Many businesses invested aggressively in new technologies, listen to their customers, and did market research only to lose their leadership position to another business that was shrugged off as a niche player. One of the most recent examples of a disruptive business that was shrugged off might be NetFlix, who swiftly dethroned Blockbuster with a new way to deliver home entertainment.

Systematic Genesis and Obsolescence

Businesses that were able succeed in the face of disruptive innovations did several things right [1]:

1. They funded disruptive technology projects when they could align customers with the innovations.
2. They scaled disruptive innovation projects so that staff could get excited and demonstrate small wins.
3. They planned to fail early and inexpensively and made it organizationally acceptable to do so.
4. They developed new markets for their technology rather than go head to head with sustaining technologies.

One of the best examples of success through cannibalization is how Hewlett-Packard developed and introduced ink-jet technology. In the mid-1980's the laser jet technology dethroned the dot-matrix printers and HP developed the leading market position. Even though ink-jet printers were slower, resolution poorer, and the cost per page was higher; evidence was there that the printers themselves were cheaper to manufacture. To investigate the opportunity, HP created a separate organization to take responsibility for making ink-jet printers a successful business opportunity. Now HP is the major player in the ink-jet printer market.

Avoiding the Innovator's Dilemma

The Innovator's Dilemma, as put by Christensen [1], is that "logical, competent decisions of management that are critical to the success of their companies are also the reasons why they lose their positions of leadership."So should product managers throw their hands up in the air and regress to a shoot-from-the-hip management style? My position is that the innovator's dilemma doesn't have to be a dilemma at all because those "logical and competent decisions" would have been dismissed with the proper use of Value Driven Product Management tools.

Value Driven Product Management (VDPM) is the organization, coordination, and execution of activities focused on growing the net-value of products. One of the core enabling capabilities of VDPM is the ability to quantify the critical value metrics as depicted in the chart below as they are the key to managing the fundamental metrics of product value, product cost, and pace of innovation.

VDPM advocates the planned obsolescence of products by including disruptive technological innovation in the product plan. As shown in the figure below, net-value improvements begins with innovations that lead to product performance improvements that yield product value gains. Although searching for process innovations should always be sought to reduce costs, they generally lag the product performance curves. Nevertheless, when net-product value improvements are coming primarily from process innovations, businesses should begin investing in projects to identify new product architectures that have the potential to produce either more net-value (as shown in the figure) or to add a product to the portfolio that addresses an underdeveloped market.

VDPM tools are used to measure the fundamental metrics of product value, product cost, and pace of innovation. All three metrics can be shown in the S-curve figure above and can be used for predicting product obsolesce and the need for a new technological architecture (sometimes referred to as a platform). The VDPM not only measure the current state, but can be used to detect product value opportunities and forecast market performance (predictive analytics) to make sure incremental profit is not left on the table.



[1] Christensen, C.M. (1997). The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail. Harvard Business School Press. Boston, MA.

B2B Value Capture: Shattering the Commodity Perception

Lost Opportunity in the B2B Sale
Many suppliers make the mistake of believing they are selling only their core products in a B2B sale and use this as the basis for negotiating price. In today's world of complex products that contain multiple sub-systems, it is often the case that unknown interactions produce new performance issues or yield unintended consequences. What the supplier must do is unbundle the core product which might be interchangeable from the competition, from the supplementary services that are often given away without limit to the customer.

Value in Supplementary Services
Supplementary services are often seen as very valuable by the customer and could be used as the attributes of difference (differentiators) that could be used to capture more value in a B2B sale. The authors of "Value Merchants" (see link below) offer several examples of supplementary services that could be used to capture more value:

Services

• Fulfillment: availability assurance, emergency delivery, installation, training, maintenance, disposal/recycling
• Technical: specification, testing and analysis, troubleshooting, problem solving, calibration, customer productivity improvement

Programs

• Economic: terms and conditions--deals, discounts, allowances, rebates/bonuses; guaranteed cost savings
• Relationship: advice and consulting, design, process engineering, product and process design, analysis of cost and performance, joint marketing research, co-marketing and co-promotion.

Systems

• Supply Chain: order management intranet, automated replenishment and vendor-managed inventory, enterprise resource planning, computerized maintenance management
• Efficacy: information and design assistance intranet, expert systems, integrated logistics management, asset management

Think Naked Solutions and Supplementary Services

A naked solution is the basic out-of-the-box product and the supplementary services are the extra services that can be offered to make the customer's life more easy. Some customers won't need supplementary services, so don't give them and charge a lower price than the competition who still have these services bundled into their offer. Don't force customers to pay for services they don't need.

Before you can decouple supplementary services from the naked solutions, the supplier needs to unbundle the value and costs. The following table gives some direction on what to do next:

As you can see, we want to drive supplementary services to become options and let the customer decide what they value for themselves. What could be better than giving the customer what they want, for a price they're willing to pay, for a price that is profitable for the supplier?

Further Reading:

"Value Merchants" by Anderson, Kumar and Narus