I have an important and timely message for product and innovation managers. It’s specifically for those who work in big companies. And I base the message on a fact I’ve seen validated repeatedly over my career.
Here’s the fact:
Growing markets forgive mistakes and declining markets revive and amplify mistakes.
And here’s the message:
Many managers are about to experience a new world. It’s because the Covid economy stopped growth in many, if not the majority, of our markets. And some markets are already in sharp decline. This situation will lay bare the mistakes companies made over the last decade.
Growth Forgives Mistakes
Economists are quick to point out that since the last recession, growth had little to do with productivity gains. They argue tax cuts and low interest rates gave us a major lift. Our competence and coherent actions weren’t the only drivers behind great product management results. It turns out, many products were pulled to success by a government boost.
This last decade’s economic lift helped many of our new products. But unfortunately, it also helped companies to skip over their mistakes and hide the mess they created within their product lines. Growth forgives these mistakes. But, now in our Covid economy, we’ve lost the growth. And declining markets exacerbate the product line mistakes that were forgiven.
We’re about to see those product line messes show their ugliness. To paraphrase Warren Buffett, when the tide goes out, you see who’s been swimming without a bathing suit. And for us, when markets decline we get to see whose product line is a mess.
The reason I’m calling out this crisis is to give managers and leaders a heads-up. It’s to help those responsible for the enormous corrective actions to begin their work as soon as possible. Your company’s well-being and your career may depend on making the right moves now.
So how do you know you’ve got product line challenges? There are several signs, and you need to keep an eye out for each. But you may learn that if you see these road posts pop up when you’re not looking, an effective counter-response may be difficult. You may have run out of time. The best course forward is to deconstruct your product line to reveal impending issues. And it’s to do this before problems mount.
But first, allow me to point out three road signs of bad product line journeys. Then I’ll share how to take apart and analyze your line and be timely with practical corrective actions.
Signs of Things to Come
Here’s one sign. It’s when a product line’s total sales decline, but contribution margins decline faster. Yet how could that be if the contribution margin is the revenue less the variable costs? It means that your variable costs weren’t as variable as you thought. It happens when there are many product variants within the line. We refer to such product lines as having high complexity.
The complexity overhead was hiding in the variable costs. So long as sales were rising, increased complexity didn’t matter. But when markets shrink, those hidden expenses pop out. And they can wipe out a product line’s value.
One mistake is common to the product line complexity cost problem. It’s when a company has focused diligently and repeatedly on satisfying every customer in every market. In B2B markets, many companies view product development as an extension of their selling process. If a salesperson can sell it, developers should make it. Some refer to it as “engineered to order.”
And in consumer markets, managers can get caught up expanding their product line to include every flavor, size, and color. SKUs can seem out of control.
When you discuss this with salespeople and marketers, you’ll hear their heartfelt mantra: The customer is always right. And no one can argue this principle, especially when markets are growing.
But when markets decline, the complexity mistake becomes the problem you never knew you had.
Fixing a Hole
The recourse to the complexity cost problem is to remove extraneous products. But besides annoying your customers, there’s another big issue you’ll need to address. It’s that even after pruning products and reducing the costs, there’s much more work to be done.
You’ll find when product lines get stripped of complexity they often have two big problems. First, they may lack leverage. And second, the organization may not align with a new stripped-down approach.
During the growth period, the game was to gain “leverage” by building out variety. And your organization was set up to deliver “the customer is always right complexity.” Every function from supply chain and engineering to marketing and sales worked to make this happen. To solve the complexity problem, you also must rebuild the leverage and realign the functions. These are tough jobs.
Before I explain the approach to carry out corrective actions, allow me to explore two other road signs of product line problems during market declines. And each sign may pop up on its own or alongside the others.
Needs and Attributes
When markets decline, consider how customer needs, wants, and economic sensitivity take on a sharper edge. You lose sales because the features of one or more of your products don’t match a customer’s newly sharpened needs. Or the match isn’t as good as the customer perceives they’ll gain from a competitive alternative. This mismatch can be difficult to overcome. It takes more than energizing a sales force or lowering prices. And it’s impossible to “lean” your way out of an attribute mismatch. Yet these poor tactics become the choice for many senior executives.
The better recourse is to change the affected product’s attribute set, or change out the product entirely. Both responses take time and money. And when there are several affected products, you’ll see what I mean by calling out the hidden product line mess.
Autonomy and Alignment
And here’s a third sign that you have potential problems. It’s when each function in your organization has its own movement underway to tackle our new Covid experience. These activities may include digitalization, transformations, and lean initiatives.
The problem isn’t the activity but the autonomy of the functions. The independence allows movement without alignment. And when you multiply the movement by the size and influence of the function, you may spot a few notable forces. Often such activities may work counter to the product line changes you’d like to make. Not only is this frustrating, but it can kill a business.
Regaining alignment is a major undertaking. And doing this remotely through zoom meetings, without informal hallway, lunchtime, and coffee pot discussions can prove to be a daunting task. But it may also be a job that’s crucial to your product line’s survival.
More than MacGyver
At the beginning of the Covid-lockdowns, most companies quickly moved to a survival mode by carrying out layoffs, furloughs, and salary cuts. Companies built cash buffers by readying lines of credit and accepting government handouts. And every organization showed resiliency and MacGyver-like ingenuity to overcome the early problems. But for many companies and product line managers, resiliency and ingenuity won’t be enough to correct their product line mess.
Product managers and innovators are about to see a host of outcomes from mistakes their companies have made over the last decade. It’ll be like a game of whack-a-mole, turned up to full speed.
Fortunately, the government has pushed the pause button for many businesses. Cash has flooded equity markets, the Federal Reserve is buying corporate bonds, and the Treasury Department has pushed free money to small businesses and individuals. But this new economic juice provides only temporary support. We pray the actions have given us enough time for our businesses to re-secure a footing within our markets. To a degree, it has. But for many of us, the new footing falls short of where we stood in the pre-Covid world. And that’s not good news.
It’s Messy – Put on Big Boots
While the economic reprieve remains, you must marshal the resources to figure out how your company can overcome your soon to be seen product line mess. Understand that the road signs will be there, but don’t wait for them to come into view. Your job is to deconstruct your product line purposely to understand impending problems. You must recognize the cause of the issues and plan their mitigation. And then there’s the hard work. Your whole organization must work collaboratively and deliberately to fix the mess.
There’s a key to deconstructing an existing product line and planning its path forward. It requires managers to embrace a Systems Thinking view of product lines. It’s to build a skill to take apart a product line system to see its parts and forces. Analyzing the interplay of these parts and forces will show you what’s gone right and what’s gone wrong. I know that embracing systems thinking sounds like techno mumbo-jumbo. But it works. And almost any manager with a head on her shoulder can do it.
Involve, Don’t Devolve
In large companies, many people must contribute to the work and learn from the outcomes. Don’t assume a few smart people can get the job done overnight. I’m sure they’d come up with wonderfully insightful fodder. But the big problem is that work done in isolation and without cross-organizational involvement is not likely to be actionable. And as a result, the work won’t help.
The job demands involvement across functions and up-and-down a company’s hierarchy. The involvement is crucial because it enables people to translate their understanding into actions. More importantly, it sets up guideposts for decisions and workflows specific to the corrective actions.
Pivot to Success
It’s correct to think of the needed actions as falling on a continuum from small tweaks to significant pivots. And for some companies, the change may even call for a complete business model redo.
Viewing your product line through a Systems Thinking lens helps enormously. It allows you to see how the product line parts and forces must change, or the whole system must pivot. Doing this correctly with a systems view is crucial for three reasons.
- It’s teachable;
- It’s easily communicated, and
- It’s effective.
Taking apart, analyzing, and rebuilding (deconstructing and reconstructing) an existing product line is a unique job. And it differs from creating a new product line. That’s because existing product lines are closely tied to the lifeblood of a business. Existing lines are woven into cultures, formed into organizational structures, and linked to fixed overhead.
Smart managers creating new product lines will seek to separate their work from their company’s culture, structure, and overhead. But when you change or pivot an existing product line, the independent path defeats the purpose. You need to engage the organization, not divest the line.
Its Time To Act, Not Contemplate
We’re about to see many product line changes and pivots. And nearly every company will need to examine and consider such moves. Rapid decline of markets have forced every leadership team to explore a response. The question is whether your management team sees the challenge and the best recourse. The biggest job in front of all of us is to make sure they do.
To learn more about Product Lines and Systems Thinking and to take needed actions, please visit:
- The Optimist and Pessimist COVID Problem HERE
And as always, please feel free to contact me.
– Paul O’Connor