EXECUTIVE SUMMARY

For many years, leading manufacturers have been reorienting product management from inward-looking, tactical execution to strategy and coordination. Today, new technologies, changing global value chains, and cost and speed to market are raising the stakes for product management to bring even greater influence and impact to the bottom line.

A set of six common strategy gaps in product management get in the way and contribute to a “strategy divide,” leaking revenue and profit. While many organizations sense that strategy gaps have a cost to the business, few quantify them. Manufacturers Alliance and Maximal partnered on research that set out to do just that, drilling into a widespread challenge with an often-overlooked financial impact: we sized the “typical” cost of delays in product launches and extensions. In so doing, we also clarify a path forward to strengthen performance on other gaps and narrow the strategy divide.

What was unearthed about product delays? For starters, they are both remarkably common and very costly in terms of direct costs, foregone revenue and resource reallocation. They are also often the tip of an iceberg in that they signal other troubling—and potentially costly—strategic gaps. (The inverse is also true of the data: lower product manager self-assessment on strategic activities appears to raise the likelihood of delays.) These are among the key findings in this report.

The findings imply that, amid reactive “firefighting” and the tyranny of the day-to-day operations, product managers must continue to elevate their role to drive business impact. They must refocus on strategy and bring discipline to managing the product lifecycle so as not to sacrifice planning and the time needed to prune the portfolio. This report aspires to help manufacturers close the strategy divide by placing a spotlight on six gaps to look out for and outlining how product managers can excel by embracing a role and skill set defined by the best of both business and marketing management.

INTRODUCTION: LOOKING OUTWARD FOR PROFITABLE GROWTH

Product managers in manufacturing companies are entering an exciting era. The product manager role is evolving. For the past 20 years, we have seen the role change from tactical—focused internally, overseeing projects, price lists, and supporting existing products—to one of coordination, with an emphasis on understanding markets and customers in addition to managing the day-to-day. In the last five years, the evolution of the role has accelerated as manufacturers recognize that product management is strategic to the business. What’s driving the change?

• Higher expectations in the business. With increased competitive intensity and increasingly sophisticated customers, companies are being challenged to find alternative methods to gain a competitive advantage in their markets, drive growth, and improve profits. Organizations are reassessing the role of product managers to meet these challenges by engaging product managers in a more strategic way.
• Shortcomings are evident. Unfortunately, when it comes to product strategy, many companies find a disparity between what they want and what they get. What organizations frequently get are strategies that remain product-centric (inside-out versus outside in) leading to products that are poorly positioned or lack differentiation. We call this the Product Strategy Divide.

What is Product Management’s strategic role?

Product managers and project managers play different roles. While the former takes a broad external view of how to develop, launch, and rationalize products, the latter typically take a narrower, internal-oriented view of how to execute products on time. Although Manufacturers Alliance finds that distinct roles for product and project management might be difficult to achieve on resource-constrained teams, the separation appears to have a positive impact. Product managers are better positioned to build strategic skills and confidence of P&L leaders to delegate responsibility for prioritizing the product portfolio.

Our studies have found that product management has an expanding influence in facilitating customer voice initiatives and market-driven innovation while at the same time managing more complex, expanding product portfolios. This makes excellence in product management critical, yet it is difficult to achieve and sustain. Not all product managers are equipped to manage both growth and profitability strategically.

Still, product management has decades of history fueling profitable business growth. The function increasingly helps manufacturers identify and capitalize on market trends. As prior Manufacturers Alliance research has shown, hallmarks of strategic product management functions are:

• Visibility with leadership in driving strategic growth and profitability decisions.
• Discipline in setting standard business processes, particularly around market-driven innovation, lifecycle management, and rationalization.
• Development of a strong talent bench with skills are closely aligned to business priorities.

Product managers confirm today that the strategic activities in their role remain relevant and important to business growth. In a survey of product managers and product development leaders at mid- and large-sized manufacturers—half of whom have ten years or more experience at their company—a majority rate several strategic areas high on the importance to their role.

Activities of Managing/Overseeing Product Portfolios Rates as Very or Extremely Important

What is the Product Strategy Divide?

Despite advances in product management as a function, a product strategy divide commonly occurs when strategy is conducted as a series of separate events rather than a cohesive set of activities. It widens when product line objectives fail to align with the organization’s business objectives. The divide worsens further when product strategy is not supported by a thorough understanding of market segment needs.

We identified six key gaps contributing to the product strategy divide:

1. Planning and Execution
2. Portfolio Management
3. Market Analysis
4. Product Lifecycle
5. Strategy Formulation
6. Strategy Alignment

CONFRONTING THE PRODUCT STRATEGY DIVIDE

A product strategy divide creates considerable management challenges including significant costs to the business and higher risks:

• Significant costs. The impacts of the divide manifest in longer development cycles, increased development costs, product proliferation, and inefficient use of resources. The result is reduced revenue, lower profit margins, and loss of market share.
• Higher risks. A divide leaves the organization vulnerable to competition and commoditization, including from being left behind due to technological change and other forces.

An understanding of the principles of product portfolio management is foundational to diagnosing, confronting, and narrowing the strategy divide. Common symptoms include:

• Longer development cycles
• Bloated product lines
• Product proliferation
• Old and obsolete product inventory that is costly and difficult to manufacture

Common Profit Leaks Across the Product Management Lifecycle

• Urgency for action. Many organizations acknowledge that there is a cost associated with strategy gaps, but few organizations have quantified them or used them to drive change in the business.

As management guru Peter Drucker said, “you can’t manage what you can’t measure.” This adage may not apply in all cases, but it is instructive to shine a light on an under-examined problem. New insight makes the product strategy divide real by quantifying potential hard costs that companies incur when gaps cause delays.

SIZING THE DIVIDE: SPOTLIGHT ON DELAYS

Among several sources of profit leaks, management of product launches and product enhancements stand out as recurring product management responsibilities and a fitting example and starting point for improvement efforts.

Estimates are that more than half of a company’s current sales come from new products introduced in the market within the previous five years. With so much at stake, it is concerning to acknowledge how often delays occur. We call this a planning and execution gap.

As one product manager in our study acknowledged: “launching on time is difficult…during a product extension the success rate is higher. You can’t foresee technical speedbumps.” (But, can you plan for them?) Roughly half of new products are delayed, as are two in five product enhancements. Causes are known: inadequate scope and product requirements, inconsistent processes, technical challenges, overestimation of technology readiness, and supplier delays. Some product management leaders cite early-stage pitfalls—“we need help with customer needs and product creation, marketing input, front end stuff”—while others point to challenges occurring with prototyping and after.

Paradoxically, advancement in product management discipline could be raising the number of delays. “Most companies are trying to shorten the product cycle time, which means that if there is any problem, then every problem has a potential to impact the launch on time,” explains one product development leader at an industrial equipment manufacturer. “Schedules are like forecasts; they’re always wrong. If you add revenue or budget, that revenue is at risk because of unknown issues.”

In fact, another product manager at a large manufacturer cautions that placing “schedule ahead of quality does not do any good because it does not put any dollars in the bank.” In other words, delays often occur for valid and necessary reasons and save on cost in the long run.

Even so, product managers should not overlook delays in their financial calculus and the larger challenge of the strategy divide. We find that even more discounted than the incidence of delays is the actual cost to the organization, on a recurring basis, both in terms of hard costs as well as opportunity cost of foregone revenue and resource reallocation. It is important to recognize that the justification for one-off delays can coexist with generalizable data insights to inform better decision-making in the future.

To quantify costs, and size the divide, we used our survey of product managers to collect data from large manufacturers. Below are the critical measures and assumptions that factor into our estimates: inputs into cost and foregone revenue.

When applying survey data to estimate these measures and model out cost, we come to a striking finding: the “typical” cost of delays are high and not easily dismissed.

The typical product manager in our survey sample—working on two product launches in a year—incurs an incremental $330,000 in run rate of expenses, which includes the other employees working on the product. This is for a 2-month delay in a 15-month cycle overall—again, on average. Beyond direct costs, foregone revenue rises over $2 million considering the time that products are out of market based on approximations of first-year revenue. Depending on the nature of the manufactured products and business, these costs might be overstated or understated. (We note that this number may vary most by manufacturing subindustry, for example, industrial equipment manufacturers versus others.)

Product managers should consider these cost estimates carefully. Even more, we find that product delays are also frequently symptomatic of a product manager’s lower performance against several strategic activities that each have their own implications for business performance. In other words, there may be ripple effects from delays.

More accurately, it is likely a shortcoming in these strategic activities that have a ripple effect with delays. A correlation is not causation, but the delays and deficits with specific strategic activities do tend to co-present. This suggests a product management discipline problem is a possible root cause in delays.

Product Managers Who Self-Assess as "Excellent" on Strategic Activities by Incidence of a Recent Product Launch Delay

Product managers are experienced professionals who generally rate themselves “good” (though not “excellent”) on the set of defined strategic areas. However, we caution that good is not good enough when it comes to the strategy divide and today’s changing competitive marketplace.

A second critical gap among those who face launch delays is in the broader area of portfolio management, including balancing lifecycle stages, rationalizing products, and planning. In addition, fewer than one in three product managers rate themselves as excelling across each of the strategic areas we tested, with a particular gap in market analysis. There is reason for heightened concern in the low score on segment profile and analysis because this is where an understanding of customer needs, wants, and unmet needs are achieved.

Product Managers Who Self-Assess as "Excellent" on Strategic Activities

Low or average performance in segment profiling and analysis limits opportunities to add or create value and gain competitive advantage.

Given the middling self-assessment on performance, a majority of product managers generate 80% of revenue from less than 30% of product SKUs, signaling an enduring product lifecycle gap.  More precisely, 45% of portfolio managers see 80% of their revenue being generated by less than 20% of their product SKUs. This percentage is likely even higher: 1 in 8 are “unsure” and do not know the answer to this question.

Percentage of the Total Number of Product SKUs Accounting for 80% of the Revenue Generated by Product Manager's Product Portfolio

The four mentioned gaps (bolded) and other common strategy formulation and alignment challenges complete the six identified gaps in product management that appear across manufacturers, contributing to the strategy divide. Maximal’s experience with product managers in manufacturing provides additional color on how these gaps typically manifest and what to watch out for:

Recognizing 6 Common Gaps That Cause the Divide

1. Planning and Execution – Requirements for all stakeholders to effectively execute strategies are incomplete or unclear. Risk and contingency planning is incomplete or omitted.
2. Portfolio Management – Lacking the “big picture,” product managers are more tactical, reactive, and transactional.
3. Market Analysis – Product managers under-utilize market segmentation and alternative segmentation methods to uncover new ways to add or create value.
4. Product Lifecycle – Product managers fail to adapt and modify market strategies for existing products in the later stages of the lifecycle (growth, maturity, and decline).
5. Strategy Formulation – Strategies are formulated with a focus on a single P (usually Product or Price, missing the other three-to-six P’s, depending on your marketing strategy). All elements of product strategy are not thoroughly examined, and rationalization plans are overlooked.
6. Strategy Alignment – Processes for strategy evaluation are inconsistent, strategic assessment of product portfolios is inadequate, forecasts and investment analysis are incomplete. Product line strategies are not always in concert with corporate strategic planning.

Not every product manager or manufacturer has gaps in these areas, nor do all gaps need to be present to raise concern about a strategy divide affecting the bottom line. But many organizations will have at least one gap in spades. And the more gaps an organization has, the wider the divide. What can product managers do to reduce the strategy divide and improve performance?

TIPS ON CLOSING THE STRATEGY DIVIDE

Continued advancement of the product management discipline is the key to success. Leaders should embrace a strategic role in its breadth and depth. In particular, we see leaders who take entrepreneurial approaches and apply both business manager and marketing manager skills reducing the divide.

Strategic Role of the Product Manager

Deploying the Strategies to Close the Divide

1. Planning and Execution – Be fanatical planners. Write your plan and use it as your guide to vet any and all new ideas. Pay attention to detail, be complete in your analysis, clear in your assessments, and transparent with your assumptions. Be clear about the risks and thoughtful with contingency planning. Be willing to make appropriate trade-offs. Ensure all stakeholders are included. Operate by intention not impulse.
2. Portfolio Management – Be strategic and forward-thinking. Strategic, forward-thinking product managers see a vision, develop roadmaps for products and markets, and use them to direct product development activities as well as manage existing and mature products throughout the lifecycle.
3. Market Analysis – Be market-focused. Good product managers are skilled marketers, able to see and respond to unmet or under-served needs in the marketplace. Get out and interact with customers. Keep your eyes and ears focused externally—on the marketplace—constantly searching for opportunities and openings that allow you to stay ahead of your competitors. Use alternative segmentation to uncover new or unmet needs. Understand the markets and applications to make better recommendations for solutions that are further differentiated and better positioned against the competition.
4. Product Lifecycle – Be courageous innovators. Innovative product managers see their product lines as opportunities to attack weaknesses and voids in the market throughout the lifecycle. They are even willing to attack their company’s own products to protect market share or open new market channels and customer segments. Continually assess the viability of your existing products. Look for ways to leverage your existing product offerings to adapt to changing market needs. Challenge yourself to rationalize your product mix and reposition products within the product portfolio.
5. Strategy Formulation – Be multi-dimensional. Use all your strategy levers. Incorporate all four P’s of the marketing mix (product, price, place, and promotion) to develop more comprehensive strategies. Focus additional attention to strategies for products in the growth and maturity stages to maximize revenue and profitability. Formulate product rationalization strategies concurrently with new product strategies. Challenge yourself to create and assess your strategies from the customer’s point of view, ensuring that they are effectively targeted and aligned with customer needs and perceived value.
6. Strategy alignment – Be entrepreneurial. A business owner within the business. Be an active participant in the strategic planning process. Develop a strategic plan for your business that is informed by the direction of the organization and your understanding of the markets. Align your strategy thinking with that of the business. Consistently evaluate your business like a CEO.

ABOUT THE 2019 PRODUCT MANAGEMENT SURVEY

• 55 product managers and leaders in product development and management in manufacturing
• Large and mid-size manufacturers
• Typical company with 5,000 employees (median)
• Typically 30% of business outside U.S. (median)
• Variety of subsectors with largest group in machinery manufacturing (20%)​

ABOUT MAXIMAL

Maximal is a consulting and training firm specializing in product management. The firm was founded in 1998 by Greg DiCillo and Ray Wymer with the stated purpose of helping Industrial, B2B companies enhance the effectiveness of their product management organizations.

We are skilled product management practitioners with experience managing product lines, product managers, and business segments. For over 20 years we have trained Industrial, B2B Product Managers in global companies in a broad spectrum of industries helping them achieve superior results through the application of a disciplined methodology for strategic marketing and product management aligned with corporate processes, systems, resources, and goals. The result is consistent and repeatable processes that help companies improve their product and market success.

Visit us at maximalpm.com.