By Koen Harbers, Martin Andreev & Matthijs Breeuwsma
There is little doubt that few businesses function, let alone flourish, without digital technology supporting them. The positive impact of fintech on profitability in the banking sector is well-established. The automotive industry has been rocked by Tesla’s “over-the-air updates”. The energy sector is trying to keep up with the demands placed on its capabilities to support a wide array of EV charging solutions. The pharmaceutical industry has launched its own version of Industry 4.0 with its vision for Pharma 4.0. No surprise - digitalization tops the list of transformation priorities everywhere.
Yet, for all this strategic attention, apart from the so-called pure players and notable exceptions, most businesses struggle to truly grasp the organizational implications of this digital transformation. The project mindset is still dominant, as witnessed by sluggish and inadequate budgeting systems and the remaining separation of ‘Business’ from ‘IT’ in organizational design. In the words of one Product Director we spoke to, “After years of transformation with good results, strategically we still seem to miss the point that digital technology is not just a key competitive advantage or key enabler to our business. It has become an integral part of it. Without continuous investment, there would be no more business.” He went on to say that changes to such a core capability should not be managed as an exception, i.e., managed as a set of projects. It should be accepted that change is the rule, driven by continuous changes in technology, competitive pressure, and customer behavior. Digital technology should be fully managed as a product with strong business involvement of all disciplines. And we agree: assigning a few business Product Owners to guide some agile squads is only a very humble start.
Yet what are some of the best practices around? This article will provide insights on the four areas that drive a product-led organization.
Four areas of product-led organizations: we are way beyond product development
In the early days of Digital Product Management, all focus went into guiding the development of innovative solutions and bringing these to the market. Offline processes found their counterparts online, quirky apps were launched, and the first comprehensive decision support tools found their use in the hands of employees. Today, even ‘traditional’ industries sell online almost exclusively (think telcos, consumer insurance, etc.), and data is becoming the new oil. The absence of a solid digital strategy and execution vehicle is now a liability for future survival. Taking care of the digital solutions that are business-critical goes beyond stacking features upon features. Digital solutions need to be managed just like any other product line. Development - the continuous evolution of the tech solutions - is only a part of it, as the graphical representation below shows.
As the figure above shows, in addition to development, digital product organizations need:
- A strong understanding of the business and customer needs translated into a clear product vision
- A product strategy based on a focused set of goals, guiding choices ranging from product design to addressing go-to market concerns
- An equal focus on product discovery and continuous innovation processes
- Critical support of product operations to ensure streamlined product processes, and close the feedback loop
To many companies, the above requires a shift in mindset. We are talking about a product culture where leadership acknowledges the value of empowered multi-skilled product teams, and where the traditional siloes, whilst still important, take a backseat.
Product vision & strategy: defining a North Star, and following up on it
From such an overall ambition, it is about outlining the plan and defining intermediate goals that can be cascaded over organizational units and even individual teams. Yet, communicating such goals by effectively connecting strategy to execution is precisely where most companies struggle. What has been observed at Highberg is that many organizations have an incoherent product strategy, or worse still, it is non-existent. What many product leaders fail to understand is that product strategy is not about launching projects or prioritizing hundreds of features and asking development teams to implement them. It starts with a solid understanding of customers, users, and other stakeholders to define the right value proposition. Next, a good product strategy connects the dots between the product vision, the company objectives and the various product teams in the organization. It creates focus on what is critically important for the organization right now based on a very few yet impactful set of business objectives. As Richard Rumelt put it, “Good strategy works by focusing energy and resources on one, or a very few, pivotal objectives whose accomplishment will lead to a cascade of favorable outcomes” . There is broad acknowledgment that the impact of such an approach affects the strategic planning as well as the budgeting process.
To illustrate the above, we turn to a company developing and selling energy grid software. The demands placed on the sector by the energy transition are such that the needs of their customers – energy companies – are increasingly volatile. To remain responsive, we advised them to move away from a top-down, prescriptive, and programmatic approach to strategy. They now emphasize alignment and collaboration between units, use an outcome-oriented system of objectives and key results to guide developments and reflect on these at least quarterly at the highest level of the organization.
Product development: Continuous product discovery as the missing piece to make the most of your lean/agile investment
Many organizations have been putting significant efforts into improving (agile) delivery practices and methods. Yet, many organizations struggle to make prioritization choices and need to learn how to allocate scarce resources in the most effective way possible.
In addition, a large number of companies remain frustrated by the amount of waste, inconsistent level of innovation, and the slow pace in achieving actual business results. Therefore we encourage a 'sense and respond' approach in which organizations are poised for continuous learning to tackle constant change and uncertainty. We tend to stress the dual nature of product development, promoting a ‘Continuous product discovery and delivery’ model (also known as Dual Track Agile, a term initially coined by Jeff Patton ), in which product discovery and delivery are two separate work streams, running in parallel continuously.
At Highberg, we believe product discovery is often missing to make the most of your lean/agile investment. In today’s competitive landscape, delivering something is simply not good enough. Organizations can no longer afford to deliver shiny, but wrong solutions at the risk of getting overtaken by the competitors who got it right. The goal in product discovery is to learn fast in the cheapest possible way (via prototyping and experimentation). To achieve this goal, it is essential for Product Management to form close and ongoing (new) collaborations with Engineering, Product/UX Design, Product Marketing, and other critical disciplines. These alliances are critical for the collection of feedback and use cases from various channels and different personas, and help to discover the right solution (e.g., product idea or a feature) that is valuable, usable, feasible, viable and ethical.
For a good example on the product development process of a leading organization, we can look at one of our clients in the electric mobility industry. The company typically applies a ‘continuous product discovery and delivery’ approach with a major focus on discovery. The product teams in the company (usually led by a Product Manager) engage in a discovery process for (major) new opportunities, aiming to produce a validated product backlog as output. They then use the outcome of the discovery process to prioritize and decide what specific solution(s) to build (see Figure 1 for a summary of the product development steps). Their product development process reinforces a strong position of the company in R&D and in developing flexible and scalable electric vehicle charging solutions.
Product operations: Do we really need it?
As the digital footprint for an organization grows, so does the responsibility for the Product Management function. Product-led organizations aim to benefit from the tremendous amount of data at their disposal, foster direct and continuous customer dialogue and professionalize their delivery process. Already balancing an expanding number of tasks, managing an increasing stakeholder field and an increasing tooling landscape to perform, it is easy to see Product Managers quickly becoming overwhelmed. To keep the pressure placed on them manageable this results in the emergence of support functions.
A Dutch bank built a community with the mission to support its product organization to deliver more customer-centric solutions. Part of their responsibility was to promote employees’ product mindset by adding customer-centric KPIs and coaching the teams to apply design thinking techniques consistently. This operational side is often called product operations, or in short ProductOps, and consists of people with key specialist skills like Data Analysts, Performance Measurement Coaches and Tooling Experts (see ‘Product Operations’ section in Figure 1). For some organizations, customer insights, customer onboarding and customer service are also a part of it. Their combined task: support the Product Management function to discover, develop and maintain a digital product portfolio to deliver increasing customer value. Just as DevOps was originally about empowering engineers to accelerate their code into production, ProductOps is about empowering product managers and product teams to do exceptional work and deliver customer value.
Product organization: Mind the essentials!
Product vision, strategy, development, operations: all this has the power to substantially increase company performance if executed well. But that ‘if’ is largely dependent on having the right product culture which we will simplify to the right product team structure, the right leadership and talent, plus a broader set of principles that promote the right set of behaviors (see ‘Product organization essentials’ section in Figure 1).
For a solid product structure, we take inspiration from one of our clients in high-tech engineering. This company builds one of the most complex hardware systems imaginable: thousands of engineers come together to design, test, and ship a single machine. To manage this, their organizational design – the ‘org chart’ - reflects the modular design of the machine. Each department and its sub-units own a specific part of the system. Strongly defined interfaces between them allow intentional focus and autonomy for each without risking integration failures. Equally important, each unit is empowered to take full accountability for the performance of a module and any combination of units for the interplay between them.
Culture is certainly influenced by company structure and ultimately it is peoples’ attitudes that make or break it. For our last example, we turn to a leading online retailer in Northern Europe. Like the high-tech engineering company, they also applied a strict customer-centric product logic to their organizational structure. They also opted for a 2-in-the-box leadership – one Head of Product and one Head of Engineering – for each of the newly formed departments. But in supporting them in their aspiration to be recognized for product leadership, our focus quickly turned to the desired behaviors, attributes, and values of their broader Product Management community. It taught us how the ambition to exemplify product leadership shifts organizational thinking. It didn’t take long to understand that this was primarily a shift in culture, with investment in people profiles and strong community-building.
And with that we have come full circle. A true product-led organization has the ability to drive tremendous value for your business. But there is an even more important point. Such an organization manages to attract the right profiles – customer-oriented and business-minded – to communicate that value to even the highest ranks in the organization. In doing so, they start a virtuous cycle and create a lasting impact on your business that no project business case will be able to capture.
To sum up, we would like to conclude with the following key takeaways:
- To build a customer-centric organization and become product-led, organizations need to invest in the Product Management function.
- Such capabilities go way beyond improved guidance for development teams but should touch all aspects of the organization.
- In product vision and strategy formulation, outcome-oriented goals create focus and replace the detailed but output-oriented projects or feature-lists with implications for budgeting and planning systems.
- In the product development cycle, a necessary shift in effort spent on product discovery forges new alliances between Product-, Design-, Marketing-, Experimental IT (R&D) and Innovation disciplines.
- Product operations (ProductOps) is growing in popularity as the need for gathering insights- and data-driven decisions grows.
- A structure of logical product clusters and empowered product teams, with the right leadership and product mindset will continue to form the foundation and start a virtuous cycle.
 Chhaidar, A., Abdelhedi, M., & Abdelkafi, I. (2022). The Effect of Financial Technology Investment Level on European Banks’ Profitability. Journal of the Knowledge Economy, 1-23.
 Rumelt, R. P. (2017). Good strategy, bad strategy: The difference and why it matters.