Software Development

Why Product People Should Care About Business Strategy

As product people, we can be very fond of the products we manage. While it’s good to care about them, we must not forget that they are a means to an end: Products only exist to create value for their users and the business. It is therefore important that your product helps your company move forward and supports the overall business strategy, as I discuss in this article.

Business Strategy vs. Product Strategy

A business strategy describes how a company wants to achieve its overall aspiration and create value for its users, employees, and shareholders. It’s distinct from the product strategy: The business strategy states how the company will be successful, whereas the product strategy describes how a product will achieve success, as the following picture illustrates.

The business strategy provides the company with the basis for making the right investment decisions. This includes determining if a new product idea should be pursued and how much money should be spent on an existing product. At the same time, it offers you, the person in charge of the product, the necessary context to make the right strategic product decisions, for example, the market your product should serve and the business goals it should meet. It is therefore a key input for any product discovery work.

Unfortunately, it’s not uncommon in my experience that organisations don’t have a business strategy, or that the strategy is not communicated. Statements like we want to grow, increase our profit margin, or gain more market share are not business strategies. Achieving growth is a business imperative; increasing margins and market share are goals that might be part of a business strategy. On their own, they are not enough.

Elements of an Effective Business Strategy

What does an effective business strategy look like?

What is your winning aspiration? Why does your organisation exist? What is the company’s vision? State the purpose of the organisation that provides continued guidance and helps identify the right strategic objectives. Think, for instance, of Google’s vision “to organise the world’s information and make it universally accessible and useful”.

Where will you play? Clearly describe the areas in which the company will compete to fulfil its aspiration. Who should benefit from your offerings? Do you intend, for instance, to address existing markets? Or do you aim to create new markets (also called blue oceans). Which geographies or regions do you want to address? Which product categories and channels will you require? Note that answering this question requires making tough choices—saying yes to some options, and explicitly discarding others.

How will you win? What is your competitive advantage? For example, cost leadership (low prices), differentiation (uniquely desirable products and services), or focus (niche markets)—three options originally suggested by Michael Porter. Answering this question requires you to understand the strengths and weaknesses of your business and the competition you face.

What capabilities must be in place? What do you need to be really good at? Which new products or services do you require? Which existing products you should enhance, and which offerings you should remove? In other words, decide how you should adjust your product portfolio thereby creating the context to allow the product people to make the right strategic choices for their individual products.

Which management systems are required? Which processes and structures are necessary to build the appropriate capabilities and reinforce your organisation’s strategic choices? This might involve creating or strengthening a product management organisation and hiring or developing product people who have the right skills to professionally manage digital products.

Note that there is no perfect business strategy—just like there is no perfect product strategy. Instead, strategy is about increasing the chances of being successful. Bear in mind that strategy is not fixed: as the market and competition change, your business and product strategies have to evolve. It is therefore important that you regularly review the business strategy, as well as the product strategy—biannual reviews for the former, and quarterly reviews for the latter, as a rule of thumb.

Ownership of Business and Product Strategy

Who’s responsible for ensuring that an effective business strategy exists? The answer is simple in my mind: executive management. The leadership team of any company must lead the effort to create, review, and adjust the business strategy.

But things are different when it comes to product strategy. Product management should be in charge of the product portfolio and make the necessary product strategy decisions—within the context established by the business strategy. This requires that the product people know the business strategy, have the appropriate decision-making authority, trust, and support, as well as the right knowledge and skills, as the picture below shows.

Regrettably, the division of labour shown above is not always used. I have worked even with mid-sized companies, where the leadership team was firmly in charge of product strategy; the product people were largely left to manage the product backlogs and write user stories. While there is usually a reason for this setup—for example, the founders are still in charge and find it hard to let go, or the product people lack the right skills and experience—I find that it risks turning the leadership team into a bottleneck thereby limiting the company’s growth opportunities. It often has a negative impact on morale in product management too—few product people enjoy being solely a backlog manager and not being able to shape the key product decisions.

While I believe that is helpful to have the right roles and responsibilities in place, business and product success relies on an effective collaboration between executive/senior and product management. As a product person, you should contribute to the business strategy. You often hold key insights into markets, competition, and trends. You are therefore able to help answer the five strategy questions discussed earlier, and in particular determine the necessary product portfolio adjustments. Similarly, the leadership team may be able to help make the right portfolio decisions and probably wants to understand how the product portfolio executes the business strategy, which business goals the individual products support, and which KPIs will be used to measure their performance.

If you currently don’t have a business strategy available, I would encourage you to collaborate with management to create one. Without it, you risk making wrong or suboptimal product decisions instead of achieving product success.

Published on Java Code Geeks with permission by Roman Pichler, partner at our JCG program. See the original article here: Why Product People Should Care About Business Strategy

Opinions expressed by Java Code Geeks contributors are their own.

Roman Pichler

Roman is an agile product management expert. He helps companies create new products by providing consulting and training services, and he is the founder of Pichler Consulting.
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