Of course, implementing this level of financial transparency can be expensive and complex at some companies, but the benefits outweigh the costs in the long run. Information technology—specifically new enterprise resource planning and product life-cycle management tools that provide insight into the profitability of individual products—can help companies gather this essential data.
“I personally think transparency about costs has made us a better company,” says a vice president of research at a multiline food company. A few years ago, the company made a detailed assessment of the costs and profitability of its individual products. “Now we know, ‘well, if that margin doesn’t [increase], we may have to make a choice of whether or not we really want to be in that business.’” This transparency is essential if strong-form product management is to have the maximal impact.
3. Implement product-first decision-making processes. Strong-form product managers must have substantially broadened decision rights and increased accountability for performance and results. They should be at the head of the table when it comes to product launches, channel strategies, pricing, and many other decisions—a “first among equals” status that helps them frame the trade-offs and come up with answers that will contribute the most long-term value to the enterprise. It should be the product manager who generates the product road maps and resolves conflicts among functions.
For example, Toyota’s development of the Prius was helped by an approach that gave the product’s chief engineer—in effect, Prius’s strong-form manager—broad decision rights. Although the automaker’s rivals had access to comparable innovations, technology, and supply chains, Toyota’s decision-making process was an order of magnitude faster. As a result, Toyota introduced its first hybrid car in 1997, two years ahead of rivals. That speed-to-market has been decisive: Toyota still has a 50 percent share of the North American hybrid market today.
In a strong-form system, product managers are responsible for weighing inputs from the functions against the ultimate goal of enhancing long-term enterprise value. It becomes their job to ensure that the product portfolio is coherent with the corporate strategy. A product manager’s leadership status among several influential functional heads means he or she effectively has the final say in most critical decisions. The product manager also plays a key role in implementing strategy by deciding which product attributes to develop and preserve, what services to include, and what price points to hit. The product manager at a low-cost manufacturer knows it is his or her job to nix new, too-costly features proposed by R&D that are nice but unnecessary. At a company that distinguishes itself through the experiences it provides, a strong-form product manager resists lifetime cost-savings initiatives proposed by operations if those cost savings would jeopardize the characteristics of a product that make a customer prefer it.
4. Establish deep customer connections. At strong-form companies, it falls to product managers to translate customer insights into product improvements and new products. This is very different from the customer connections that are made at companies that conduct product management more conventionally. Sales and marketing, not product management, may decide which new features get added at functionally run companies—increasing the risk that the product changes may be tactical, as opposed to being implemented with long-term profitability in mind. Likewise, at a conventionally managed company, R&D may unilaterally push new technology to market. This increases the risk of a failed launch if the technology does not fit with customer priorities, as was the case with the Iridium satellite phone system.
Closer connections to end-users enable strong-form product managers to effectively manage complexity and to deliver the right products and feature sets, performing better than the competition. It’s worth noting that product-line complexity is not always bad. It depends on what has led to the complexity and whether it is creating value. But it can often be detrimental, for example, when companies fail to retire aging products that have a declining number of customers, or when they push so many products into the market that they overwhelm or confuse customers. The strong-form product manager distinguishes necessary from unnecessary complexity—and this includes technologies the company is investing in and supporting across the portfolio. The objective is to find the sweet spot of having a differentiated market position while not letting costs get out of control, and permitting only the complexity the customer will pay for.