03. Juli 2019
It seems like the natural thing to do: successful products are milked for profit and more radical product developments are kept lean.
This type of product management used to work when the world didn't turn as fast as it does today and when the customer didn't have as much influence. However, maximizing the efficiency of traditional line organizations is no longer a guarantee of success – it becomes a dead weight. In a world that is less and less predictable, you achieve competitiveness primarily through customer centricity and adaptability. Those who do not liberate themselves from the dead weight will be overtaken.
Most companies are built like a well-oiled machine and initially appear to be successful – the dead weight is not easily recognizable. But if you look closer, you’ll see that it is a machine that has been optimized for economies of scale, a reductionist structure. In the competitive market, it is a viable option if – and only if – the market environment is projectable and demand can be satisfied with limited product variation and few distribution channels - i.e. conditions from the last century.
We observe that most companies see the challenge of higher volatility and truly want to change but mostly don’t dare to jump far enough away from the well-oiled machine. One of the most persistent and hindering remnants is the desire for control.
"The machine has always worked. Let’s just extend its controls and mechanisms so that it can react to even more factors."
However, business leaders often fail to see that they don’t control a complicated project or program anymore; they try to control a complex, multi-silo challenge with traditional means. This way, program managers blow up status reports, specialist departments conduct siloed transformation projects, and the company suffocates in technical debt and complex legacy systems.
Currently, we observe many of our clients going down this path and strongly advise them to change their leadership culture from reductionist instincts (“controlling the machine”) to “letting go”. We have seen: if you truly want customer centricity, stop managing your products. Start introducing adaptability by recalibrating these three cogs in your machine:
1. Product Teams Instead of Line Managers
Classic line product managers are struggling with organizational handovers. They usually work in a matrix organization with professionals from expert departments. You might assume that with all these experts involved, their day should be filled with a series of inspired conversations and Eureka moments. However, their daily job is rather characterized by defensive meetings. Why?
A blast from the past: In the Tayloristic machine, you would take new product requirements apart, bundle them into homogeneous batches, and allocate them to homogeneous departments. In a low volatility world, this guaranteed process efficiency and cost reduction – the main driver of company success then. Hence, homogeneous expert departments wanted to keep any volatility or cost drivers outside of their domain. They increased the number of forms that requestors had to complete as well as the number of use cases that had to be considered before they would start their safe-guarded and therewith efficient work.
In those companies, a product manager who simply wants to test a new product feature, is overloaded with specifications and hurdles by various departments before the machine even starts to hum. By the time it does, a competing start-up may well have already tested three features on the market.
This is the core of the cultural problem: for the large majority of employees, success is measured by departmental success, not by product success or time-to-market.
To counteract, we suggest this fairly simple, purely organizational tweak: all experts who spend most of their working time supporting or developing a certain product should be released from their line management function and become members of an interdisciplinary product team. With product goals, and not department goals, they will need to identify themselves with the success of the product and learn how to let go of previous hurdles: their quest becomes how to specify as little as necessary for the product instead of having as much as possible specified for the department.
2. A New Investment Approach in the Budget Process
When budgeting for products, most business leaders have been conditioned to respond to historical needs of investors and capital market requirements. They ask product teams to specify the budget of a product down to the penny according to its specified scope for a year or more. However, thereby they create a false accuracy and act irrationally. It seems they trust their teams to project the exact scope for the year ahead, despite being fully aware that almost no scope will be delivered exactly as planned. At the same time, they don't seem to trust the same team enough to define and adapt the product’s scope throughout the year. Why? Their irrational behavior is not based on the lack of trust, but on pressures from the outdated budget process that developed around the board’s and shareholders’ needs to receive an “exact” estimation of what they will get for their invested money.
But the core definition of the what they will get needs to change. It shouldn’t be based on the question: "Which product features will I get exactly, when and for what cost?" because its answer is not a good indicator of monetary return. It should rather be: "How much budget should I invest in order to achieve a certain value return?” (outcome-based budgeting). Give product teams a capped budget and the freedom to invest it themselves in whatever way necessary to achieve the previously defined value return. Ironically, this approach feels risky but instead actually reduces risk and offers potentially more return: two months of fake accuracy specification can be avoided, antiquated thinking can be overcome, and risks are identified much earlier through rapid testing and customer-centric hypothesis validation. If the board puts a clear vision and OKRs in place by which product teams are collectively measured on product success – including RoI – the team is no longer afraid of losing a milestone budget or of tedious project resubmittal. Rather, the team will be afraid not to change the scope and miss the product targets.
3. Transfer More Line Management Activities to the Product Team
The last stage of changes is the holy grail for large organizations: fostering a start-up like product team that can leverage the large organization’s scalability. When starting up these kind of product teams, it doesn't help a team if it's overloaded with two dozen experts from the outset – even if it was well-intentioned (e.g. following recommendation 1 from above). The overloaded team would be stuck in crowded, highly opinionated prioritization and planning meetings with little output. To avoid “line management thinking” to creep in, start your teams small and scale through organic splitting into several interdisciplinary feature teams (not component teams). Once these teams have formed with some stability and created some output, don’t do big handovers with high transaction costs into the run department of your corporation. You’d be back in the tayloristic machine of production lines. Product teams, as fluid as they are, are your new line organization.
Gradually bring DevOps, 2nd level support or online marketing staff into the new structure. It will make them reach out of their comfort zone to feet-on-ground work, close to the product – in fact, they would be involved in each product increment – marketable or not. You may ask: “but wouldn’t we just lose all economies of scale of expert departments?” Not necessarily. Departments such as DevOps or online marketing should not be dissolved, but turned into a knowledge and infrastructure sharing circle. Its delegated experts, now part of product teams, still meet to design overarching projects for efficiency and knowledge increase. But you will see how their exchange will be enriched with practical experience.
Benefit from a cultural change of letting go!
Products and services are the main vehicles of value and income, the core business of most companies. Do not set departmental annual targets but sharpen product visions and make product teams responsible. Let go of previous control mechanisms in the right places and enable cultural change so that your organization does not remain a static machine, but fosters adaptive, customer-centric product development.