Strategic digital product management: exploration

Image by Joshua Woroniecki from Pixabay
Image by Joshua Woroniecki from Pixabay

Product management consists of multiple dimensions and so far, we’ve discussed the underlying principles as well as the scopes. The third dimension concerns the activities of a product manager or the activities conducted as part of product management by anyone in the company. These activities can be structured in many different ways; here, we’ll divide them into exploration, strategy and execution, and we’re going to start with exploration.

Exploration is concerned with investigating unknown areas of functionality that may, potentially, be relevant for the offering in focus or the company as a whole. In this activity, we aim to identify new, currently unknown, functionality, learn more about it, evaluate its relevance and decide whether it’s a candidate for inclusion in the strategy activities.

In many ways, exploration is, by its very nature, a highly inefficient activity. Most of the new areas that are explored will result in a decision to not pursue them further, making all the work leading up to that decision waste. Or, at least, perceived as being waste.

Although we’ve focused on the functionality and features of the product, it’s important to remember that there are several aspects to consider. In addition to the performance of the product itself, we can look at the product system around it, including complementing systems and services.

Next to the offering, we can also focus on what Doblin in its “10 types of innovation” model refers to as “configuration.” This includes the business model, the ecosystem in which the offering is deployed, the process, ways of working and tools, and, finally, the organizational setup. Although some might consider them to be outside of the purview of product management, I take the position that the product manager is the ‘mini-CEO’ of the offering and should either be in charge of these aspects or have a strong say in them.

That means that product management is concerned with exploring alternative business models, experimenting with repositioning the offering in the ecosystem, trying out alternative ways of working and tools, and finally testing alternative organizational structures for maximizing efficiency and effectiveness. As we discussed earlier, the goal of product management is to maximize the ROI of R&D investments, which may mean maximizing revenue through alternative business models and better positioning in the ecosystem and decreasing cost by more effective ways of working, tooling and organizational structures.

The third area in the 10 types of innovation model is concerned with experience. This includes the customer experience, brand, channel and service surrounding the offering. As some allude to, the offering is what you pay for, but customer value is what the customer feels once leaving the store with the product. In a more general context, customer experience, brand, channel and service are all concerned with creating customer value connected to the product and product system.

The point I’m trying to get across is that there’s a lot more beyond the product itself that needs to be explored. In fact, research by Doblin suggests that investment in product performance, including new features and functionality, has the lowest return on investment. Instead, the other areas, especially related to the business model, the customer experience and services, tend to have a much higher ROI. Hence, anyone working with product management needs to seriously explore these areas as well.

One of the key challenges is to conduct non-destructive experiments. Many easily feel that conducting an experiment with an alternative business model, go-to-market strategy or position in the ecosystem needs to be permanent as the experiment may upset customers and partners. Or, also very common, an experiment is highly appreciated by one key customer who refuses to accept the experiment being shut down and tries to cajole the company into keeping the functionality alive just for them.

As an example, many companies want to build a direct connection with end customers to simplify the continuous delivery of new value through DevOps and get data back from these customers more easily. This will typically upset the partners who today are in between the company and the end customers. Many companies respond with either a categorical rejection of these kinds of experiments or they jump in with a hail-mary approach, burning the ships behind them.

The solution is, of course, to find niches where these experiments can be conducted with limited downside and bring partners into the experiment as they also need to experiment with new positions in the ecosystem. Such a niche can be a particular market segment that’s not that important for the company but may still provide significant learnings. Or we can run an experiment in a particular country or geography, preferably one that isn’t critical for the business.

A second misconception is that many companies seek to always experiment with their most valuable and most critical customers. This is the right approach when we’re looking to provide sustaining innovations, typically in terms of new functionality, to our offerings. However, in the case of more radical, Horizon 3 innovations, we want to take the other extreme: we seek to engage the customers on the edge of our business. The weird, quirky and not very profitable ones. The reason is twofold. First, an experiment that’s unsuccessful and damages the customer relation is much easier to accept if the customer wasn’t that important to begin with. Second, your core customers are already happy with the offering and there’s no reason to upset the apple cart. Instead, we’re looking to make the customers on the edge core as this allows us to significantly grow revenue from them if we’re successful. It allows us to expand our customer base.

As a related challenge, it’s important to remember that although sustaining innovations have a rather predictable bell curve of return, returns on radical innovation follow a power function, meaning that the vast majority of experiments fail, but the few that are successful have such outsized results that these justify the total investment in radical innovations several times over. Many companies that are used to sustaining innovation fail to realize this and shut down radical innovation experiments after a few tries due to the lack of success.

The activities in product management can be categorized into exploration, strategy and execution activities. Exploration isn’t just concerned with identifying new functionality to be included in the offering but should cover all aspects, including business model, ecosystem positioning, customer experience and services. Although this may easily be experienced as very inefficient, it’s a critical activity if we seek to avoid sinking into the morass of commoditization. As Frank Borman so beautifully said: “Exploration really is the essence of the human spirit.”

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