Can you fix it by next summer?
The COVID economy hasn’t messed up all product lines. But I’m stunned by how many well-known companies have serious problems. And most customers and shareholders have yet to see the messes. But discussions inside the companies are getting rough.
Count your blessings if your product line continues performing splendidly. Please keep pushing ahead because our economy needs your good performance to help lift the COVID weight. But if the situation is not so rosy for your product line, please continue reading.
Product Line Problems
I spelled out common problems for product lines in a previous blog, HERE. It boils down to being forgiven for mistakes by growth over a decade-plus. It may surprise you, but growth enabled companies to be successful with product combinations that were not stellar. It’s not that each product wasn’t successful; it’s that their combination didn’t push the whole product line. When you strip away the growth, you may continue the praises for some individual products. But the full product line’s performance may be lacking.
Please don’t get me wrong. I’m not all gloom and doom. New growth is around the corner. But our big issue is that it will be a few more years before we get back to a pre-COVID economy. And that amount of time is far too long for many product lines to endure.
Fixing The Hole
The most common recourse to the COVID-induced shortfall is to lower overhead. And that usually means going lean and laying off people. That’s all great, except for the people who get laid off. It helps companies keep earnings steady even with top-line revenue dropping noticeably.
Check out a few first and second quarter financial reports. For many companies, you’ll see top-line revenue dropping from 10% to 40% year over year, while earnings stay flat or drop a few percentage points. The product line mess shows up in the top-line revenue drop. And a much smaller decline in earnings reflects the headcount reduction.
Unfortunately, down-sizing does nothing to fix product lines. Sure, companies still deliver those products customers continue to buy. But the product lines were expected to deliver more, and that’s a problem. Today’s total customer-demand differs from what it was before COVID. This leaves many product lines with shortfalls on one product or another.
Product Line Pivots
After down-sizing, you’ll still have the same product line. And that product line will still have the issues created during the pre-COVID growth years. Plus, you’ll see that reducing headcount may aggravate the problem. Unfortunately, a lower headcount also means you have fewer people to help correct the product line mess.
The big question is whether your company can fix the mess and do it quickly enough. And the most important job is to judge what needs to be done to be timely.
What must be done?
How are you going to do it?
These questions shouldn’t be answered independently. The doing part must be calculated into detailing the change. If you can’t carry out the change successfully, then it may not be the best for your company. And when your back is up against the wall, it’s probably not a good time to have stretch goals.
The change needed to fix most product line messes will fall somewhere between a notable strategy move to a significant pivot. To figure this out, consider the three main drivers of a product line’s performance: Leverage, Internal Support, and Customer Need Matching.
Product Line Leverage
Let’s start with leverage. The lack of leverage is the most prevalent cause of our COVID induced product line messes. During the growth years, many companies created, developed, and launched products while following a “single-product” mindset. Each product was to stand on its own. Growing markets allowed companies to do this without creating leverage across products.
Cross-product leverage comes from scale, design reuse, and customer familiarity. There are many ways to get each. The key is that leverage boosts a product line’s performance. It enables product variants to be developed faster and at lower cost.
But creating leverage demands a different and unique way of thinking. It’s to plan out multiple products and to make them work together as a system. This mindset differs from the one-off product thinking that created the product line mess. The truly great news is that results are superior to those that companies get with an old-school single-product mindset.
If you wish to fix a product line mess caused by a lack of leverage, you must recast how your company thinks, invests, and works. That’s a big job. And before you start, you should figure out if your organization has the ability and dedication to get it done. If not, consider how you can onboard the ability and build the needed determination.
The second performance driver is Internal Support. I often refer to this as Chain-Link Alignment. It’s where each function within your company is a link in a performance chain, and a weak link handicaps the whole chain.
Alignment happens when all functions that support a product line streamline their collective work to boost the line. But the alliance must include all functions, from operations to sales and from finance to IT.
Consider the lack of alignment. For example, a change to a product line’s mix may no longer match a sales force structure. Or perhaps manufacturing was set up for high product customization, but market demand shifted to low-cost generic formats. These are misalignments that harm the line’s performance.
The third performance driver is crucial. Matching your products’ attributes to customer needs is essential to stellar product line performance. If a mismatch occurs, your line’s performance will sink.
Unfortunately, in the COVID economy, there’s a good chance your customer’s needs have changed. And for some products within a line, the mismatch may be significant.
Push on sales and marketing as you may, you’ll be hard-pressed to make up for a mismatch. You must either remake the product or shift it to a new segment where its attributes better fit customer needs. Unfortunately, you probably won’t find new segments the size of those you sold into before COVID.
Correcting the mismatch issue poses some difficult choices. Do you revamp the old products, or do you develop new products? Do you seek to gain leverage, or do you stick with one-off development? And perhaps the biggest challenge is to find out whether customer needs will be stable or change again in the post COVID world.
But how much time do you have to make needed product line changes? This question is critical. But let me ask, if you had one full year let’s say to the summer of 2021, what could you carry out? What top-line revenue impact might come about with possible changes?
If you’re serious about the need for notable product line changes or pivots, you’ll most likely need support from your organization’s Finance Chain-Link. It’s where low-interest rates and near-free money play a role. Money buys time and pays for the resources to get the job done.
Top management at some companies may see the COVID challenge as only a cash flow headache, although severe. But this view is a big mistake. It does nothing to address the future of the firm’s product lines. Viewing the problem only from a cash flow lens will worsen a product line’s problems. It works to minimize customer satisfaction and expose the line to your competitor’s moves. And if you’re leadership has this mindset, I’d encourage you to brush off your resume.
Less Mess, Less Stress
My question about fixing your line by next summer is rhetorical. It’s to get you to think whether you can get it done. The answer, no doubt, will depend on the mess and your company’s conviction to clean it up.
Nonetheless, I encourage you to figure out if you have a product line mess and to scope the work required to fix it. Then pose the question to your colleagues: Can we fix the mess by next summer?
Want to explore this topic more? No problem. Send me a note or give me a call. I’ll answer any question and I’ll let you know when I don’t have an answer.