Productizing Is Not Just a Strategy. It Is an Organizational Transformation.
To play at a high level, these companies have to undergo significant organizational transformation.
“It was like we were moving from being a world-class tennis player to becoming a world-class soccer team. It was a significant change.”
This is how one Head of Product recently described the magnitude of the transformation his B2B services organization undertook as they moved to ‘productize’ their services.
It’s an apt metaphor. For most organizations, shifting from providing customized services delivered via people to providing standardized services or products, often using technology, is a business model transformation. The transformation can be comparable to putting Serena Williams on the US Women’s National Soccer Team: it requires new roles, new teammates, and learning to score points as a collaborative unit, as opposed to via one-on-one play.
For this leader’s organization, productizing was a whole new sport. Now exclusively a software and data products company, the organization’s leaders planned to fully sunset its high-achieving, high-performing consulting business. Retooling a firm built for consulting into a software company meant managing significant change across the organization, from transitioning talent into new roles or out of the organization to setting and teaching new behaviors to redesigning reporting lines and governance processes. The company may have the same name today, but it has transformed functionally.
This firm succeeded in making this change, thanks to smart efforts by leaders to manage the existing organization. While not all companies will choose to sunset services, instead planning to productize services and/or sell products alongside services, some level of organizational change is inevitable. In this article, I relate how these leaders manage this change by:
- Describing five levers that leaders can pull to create a product-friendly organization
- Discussing three common archetypes for organizational change that we have seen successful B2B services firms employ
Five Levers For Creating a Product-Friendly Organization
In my last article, I described the impact of culture, or the tacit set of behaviors that govern how we work, for productizing services firms. When a services organization adopts a productization strategy, employees must practice behaviors that encourage discovery, speed, abundance thinking, and collaboration–many of the cultural values that digital product competitors have ingrained in their organizations from the outset. In short, these organizations practice behaviors that help them overcome fears such as the fear of innovation failure, fear of cannibalization, and the fear of saying ‘no’ to clients: product friendly cultures are fearless.
Setting a clear, compelling, and realistic vision for the product strategy is essential for making savvy business decisions and managing change. The best vision statements articulate why the organization is pursuing product strategy and should include a big-picture vision for how the product will impact customers' lives and a strong business case that can help bring existing employees on board. For example:
“We will help mid-size companies protect their intellectual property using the same tactics that previously only the largest companies could afford by creating a suite of high-quality do-it-yourself IP protection support tools. We will grow revenue by selling $30m in products to this new market segment by 2025.”
Once a vision is articulated, it’s time to teach the company to build the team. This starts with defining new roles, responsibilities, and product decision-making processes. Depending on the organization’s productization maturity and vision, organizational models might follow a centralized, decentralized, or hybrid structure.
The most successful organizations don’t stop with new roles and reporting lines; they also create governance structures to realize the vision. The formalized process for regularly reviewing the product portfolio (aka Product Reviews/Product Councils/Product Boards) and making executive decisions about which new product ideas to fund, the direction of product roadmaps, and which products to sunset, governance makes a new org structure functional, and provides an opportunity for modeling and encouraging fearless behaviors.
Leadership should expect turnover–sometimes a lot of turnovers–as part of pursuing a productization strategy: even when an organization is developing and selling products alongside services, there will be staff who struggle to adopt a more standardized approach with clients. This is ok–as my colleague put it, “there is no way to make this transition if you don’t have the right people in the right roles.” Leaders will also need to make new hires for product management and product development skills.
People-related practices – like incentives, performance measures, goal setting, and operational freedom – can also influence organizational change by promoting and rewarding product friendly behaviors. Productizing services firms are wise to use these practices as a means of rewarding experimentation, collaboration, and learning, as opposed to penalizing failure.
3 Common Archetypes For Creating a Product-Friendly Organization: Pros and Cons
The most successful firms will make strides in every category–culture, vision, org structure, governance, talent, and people practices–but most organizations begin by focusing on one area over the others. Each has clear benefits and risks: leaders can choose a strategy by gaining an understanding of their organization’s readiness to productize.
Many organizations choose to hire a pacesetter (or, typically, a group of pacesetters), bringing on new talent and/or making an acquisition of a product company to ‘disrupt’ the current culture and set a new pace.
For example, this approach was taken by one consulting firm we worked with seeking to develop a digital product line of business quickly. They undertook an abrupt and widespread hiring campaign that brought a number of new employees from a digital-first competitor into the firm. This hiring spree helped the firm gain needed skills and adopt speed and discovery as cultural values, immediately changing the development pace. But this change was painful: even after buying the talent and capability, the firm struggles to integrate the new digital products into their services lines of business because the new talent does not have relationships with the services leaders or a deep enough understanding of the services business.
- Pros - As their name suggests, Pacesetters can help make change fast.
- Cons - Pacesetters may suffer organ rejection precisely because they move fast.
Incubate Product As a Separate Organization
Another approach we have seen work is to develop products within an entirely separate organization or line of business. In this scenario, the separate organization will likely be spun off as its own company.
One IT consulting firm developed and launched a highly successful new software product taking this approach. This organization has its own developers (outsourced), its own sales team, its own customer success team, and its own CEO. Leadership sought to preserve the entrepreneurial spirit of its parent consulting company while creating a new culture that highly values discovery. To create a product-friendly organization, they give employees almost unlimited autonomy over their time and resist standardized playbooks to encourage employees to approach problems differently.
- Pros - Creating a new organization from the ground up limits the amount of change management that needs to occur–which can translate into a faster time to market.
- Cons - If products will be sold alongside or bundled with services, this strategy makes it harder to use the current sales channel. Supporting dedicated IT, sales, and marketing teams will also make the strategy more expensive in the near term.
Create a Movement
We have also seen product friendly organizations emerge within firms that focus on the vision and behaviors first, evangelizing the productization strategy across the organization to build inclusion and buy-in for other changes–to org structure, governance, and talent down the road.
For one HR consulting firm, setting a product vision was essential for determining an organizational structure that would launch successful products and teach cultural values across the organization. At the outset, the executive team set a clear and realistic vision for the product strategy and then defined the team structure, recruitment priorities, and governance processes in response. They elevated the achievements of a group of passionate enthusiasts who delivered a few modest wins early on: those wins were powerful in demonstrating the efficacy of the product strategy to nonparticipants, helping the movement gain steam.
- Pros: Creating a movement invites everyone into the change and taps into emotion, which can ultimately build buy-in across the organization.
- Cons: Creating a movement can take time, putting companies at risk of losing a competitive advantage. And if not fully aligned themselves, senior leadership can undermine a movement regardless of its velocity through the rest of the organization.
Some organizations may want to make a full transition from playing tennis to soccer, while others want to develop the flexibility to play both sports. Thankfully, there are many ways to transform an organization to execute a successful product strategy, serving customers by bringing competitive, scalable products to market. Contact Nicole Merrill to learn more about how Vecteris can help identify the most effective change management strategy for your organization.