I don’t think I am alone in this, but 2019 feels like a lifetime ago. It was August of that year that we first introduced our Product Innovation Quotient, a tool to help organizations assess their product innovation capabilities. Since then, our thinking has evolved—and so has the assessment.
Today, we have a more robust assessment that is still simple to complete and understand—and digital. We’ve renamed it the Product Innovation Maturity Diagnostic. You can take the assessment on our website. We’ll send you the results via email once your scores are calculated by our team.
A Model for Product Innovation
Modern product innovation and management is an organization-wide competency – not a single person’s job.
With this in mind, we created an organization-wide model - what we call the Productize Pathway - for how to develop and bring products to market successfully. It encompasses activities from data analysis, market research, finance, product development, sales and marketing.
We've created the Vecteris Product Innovation Maturity Diagnostic to measure your competencies across the six phases of the Productize Pathway:
Few teams are strong across all phases of the Productize Pathway. Knowing ahead of time where you may need help (either in resources or in training) will help save you time and money allowing you to reach success faster.
We designed the Product Innovation Maturity Diagnostic to walk you through each stage, outline best practices and help you determine which areas you should focus on improving first.
Productize: The Ultimate Guide to Turning Professional Services into Scalable Products
When the world shut down a year ago, business began to slow for many professional services firms. For many, the slowdown created an opportunity – or urgent need – to try to productize their services as a strategy to grow scalably, improve valuations, and fend off new digital-first competitors.
Since I’ve seen many firms waste a lot of money unsuccessfully trying to productize, I used the slowdown to write a book explaining why. Admittedly, I did not fully appreciate the herculean task in front of me but fast forward a year and, amazingly, the book is finished—it is ready to publish in a few short weeks.
Why Productization Often Fails
My thesis is that firms often fail to successfully productize for two reasons. First, they tend to massively underestimate how difficult it is to add a product business model alongside a services business model. Second, they do not recognize how hard it is to develop successful new products, even in the best conditions (new product failure rates are estimated to be somewhere between 40-70%).
New product development and commercialization are often outside of their core skills, processes, and mindsets for companies that deliver highly customized services. Productizing services typically requires organizations to think differently about how they work and create value for their customers. This change does not come easily.
I wrote Productize: The Ultimate Guide to Turning Professional Services into Scalable Products to fill a gap in the marketplace for professional services organizations that want to innovate and develop more scalable—often tech-enabled—products. It is backed by over twenty years of experience building productized consulting, training, information services, and data services businesses.
Seven Deadly Productization Mistakes – and How to Avoid Them
The book first outlines the "Seven Deadly Productization Mistakes" made when pursuing a product strategy and then provides the blueprint for overcoming each of these missteps. It is designed to be a practical playbook for any professional services business leader who wants to accelerate growth successfully.
Productize includes real-life case studies and stories featuring professional services leaders who have successfully led their organizations to create more scalable services and products. It also includes more than two dozen tools and templates to help teams implement the tactics so they don't have to start from scratch.
In this book, readers will learn:
The book will be available now on Amazon.
Imagine you run a marketing consulting firm. The firm has a market intelligence database and data analysis methodology that it uses as part of its highly customized consulting engagements. It’s pretty lucrative.
But you are finding that it’s hard to grow. The problem is the firm can only grow revenue as fast as it can add and train staff (especially if you want to maintain the quality of service you are known for in the industry). Adding people is slow and expensive.
But, your firm could grow its revenue and improve its profit margin by offering that database and data analysis as a “product” for companies to subscribe to and access through a self-service portal. You could package the database and data analysis methodology into a product to be sold alongside the less scalable customized service of your consultants’ time.
This is not a hypothetical example. This is a company we recently worked with to help productize their services and productization is an increasingly popular strategy for many business services firms (consulting firms, agencies, other professional services).
What do we mean by product? For Vecteris clients, a product is a scalable, often tech-enabled, tool or program that can be standardized, packaged and sold. Just like a tube of toothpaste that you might buy at a store, a product has a name, a predefined set of features and benefits, and a set price. For example, content (e.g., research report, book), an event (e.g., training course, conference), software that automates a process or algorithm, or a unique data set.
It helps to understand the different flavors of productization available to business services firms. Here is a simple framework that I developed to map out how an organization that provides customized services could evolve to also provide scalable products:
As an organization moves from customized services in the lower left, to products-as-a-service in the upper right, the use of technology tends to increase (the X axis) as do the benefits (the Y axis). For example, improved gross margins, better revenue visibility, and increased company valuation.
Consider this data point:
"Consultancies, law firms, ad agencies, and other professional services firms struggle to nudge their gross margins above 40% as they achieve scale. Contrast that with product companies like Google and Adobe, which don’t have to deal with the same cost structure and which enjoy gross margins of 60% to 90%." -Mohanbir Sawhney (HBR, September 2016)
It is important to note that organizations do not have to move through each phase, but many organizations do follow this progression.
Defining the Product Innovation Ladder Phases
Starting in the lower left, customized services are human-resource intensive, knowledge-led services. Customized services can be lucrative but they are hard to scale because it requires additional people to serve additional clients. It’s very “hands-on” and key-person dependent. The consultant or partner or principal or account director tends to be what clients are buying.
The next rung, productized services, are human-resource intensive but they are standardized so that all customers receive the same experience at the same price. The service is broken down into its core components, which are sold as a defined package of services, such as the marketing example above. Productized services still require additional people to scale, but should require fewer both to sell and to deliver.
For example, WP Curve (later bought by GoDaddy) productized WordPress consulting by offering a package of website building or website fixing services. Instead of working one-on-one with a consultant to build or repair a company’s website, customers buy the package of services they need (at a fixed price) and the WP Curve team goes off to build or repair the site on their own.
The next move up the Product Innovation Ladder is to products. Here, organizations move away from offering human-powered services to products that don’t require humans to deliver the value. The list of potential products here is almost endless but common ones that our clients develop are books, asynchronous training courses, data files or syndicated research reports.
For example, one of our clients, lean strategy consulting firm The Garage Group (TGG), recently launched a series of syndicated reports. They noticed that many clients were commissioning market research on similar topics. TGG decided to create syndicated research reports that could be used by multiple companies, reducing the cost and research time for their clients.
At the top of the Product Innovation Ladder is products-as-a-service. This is where a product is delivered on an ongoing basis, through a model such as a subscription.Using the industry trends report example, instead of the customer buying just one report, a customer pays a subscription fee to access a series of reports or supplemental data to complement the reports. The service is the ongoing supply of information to the customer and the product is the standardized information itself. Many services firms are developing subscription-based technology platforms that are designed to be consumed alongside their traditional consulting services.
For example, Accenture’s AIP+ service blends traditional consulting with a collection of artificial intelligence (AI) technologies. AIP+ is a cloud-based platform through which Accenture’s clients can install AI tools and applications from a network of partner vendors, effectively offering “AI as a service.” By partnering with technology vendors, Accenture benefits from being able to offer AI as a service without having to invest in the engineering resources to develop those technologies in-house. Similarly, Accenture’s technology partners gain access to new clients and markets without having to sell their services themselves.
Are You Ready for Productization?
Before pursuing a productization strategy, I highly recommend assessing your organization's product innovation and launch capabilities by taking our Product Innovation Maturity Diagnostic. Our Product Innovation Maturity Diagnostic will help you better understand your team's product innovation strengths and weaknesses and identify the capabilities you’ll need to successfully pursue a productization strategy. Feel free to reach out to explore how Vecteris can help you identify your productization opportunities and next steps.
Note: This is an update on one of our earlier blogs. You’ll see some of the same ideas there, but we’ve expanded on them in this blog. That said, we shared some strategies about how you might approach productization that you might find useful to consider. Read more here.
For better or for worse, 2020 has shown us how important innovation is as a core competency. Most organizations have had to engage in some type of new product innovation—whether that be creating entirely new products or features to meet more urgent customer needs or innovating existing products to be delivered virtually.
Unfortunately, most organizations are finding they don’t have the skills, processes or even the culture to successfully innovate. Here are the top 7 mistakes my team and I see companies making:
We recently released a white paper that explores each mistake and shares how to avoid making them. You can download the full white paper here. Here is a short summary:
Mistake #1: Focusing on Processes Before People
Organizations that fail to develop successful new products typically don’t fail because their leader isn’t a visionary. It’s not that the team isn't creative or smart. It's often because, as humans, we tend to favor the routine, the known, and the comfortable. Innovation takes us outside our comfort zones into uncharted territory. It almost always requires new skills, significant behavior change, and even new organizational structures.
Unfortunately, I see many organizations underinvest in making sure they have the right behaviors and skills to support new product innovation. It starts with the leadership team modeling behaviors, such as embracing experimentation, getting comfortable with hypotheses instead of formal strategies, and encouraging diversity of thought.
For digital product innovation, the leadership team will also need to develop new skills, such as increasing their technical acumen. The organization likely needs to invest in bringing in new skills such as UI/UX design, engineering, analytics, product management, product marketing, and perhaps even a different sales approach.
Mistake #2: Starting Too Big or Too Perfect
Many organizations lose money on new product development and/or get lapped by competitors because they take too long to build and launch a product. Worse, they invest too much in a product with poor market fit. These organizations often use long waterfall development processes with “stage gates” to advance to the next level of investment. It can take many months, if not years, before they start receiving real market feedback on their ideas.
Successful product innovators adopt a more rapid, experimental approach to product development that is deliberately structured as a “build, measure, learn loop” built off of Eric Ries’s Lean Start-up principles. We:
The point is that our products do not have to be perfect to go to market. They should be good. They just don’t have to be done. We release the version that will delight customers enough to try it, then learn from what happens when they put it to work.
Mistake #3: Aligning to Favor Existing Business, Rather Than New Products
Alignment is an incredibly important component of successfully executing a product innovation strategy. A lack of alignment between shareholders on the investment required to build and launch new products is a recipe for failure. Additionally, a lack of alignment between organizational leaders on performance measures to evaluate success will doom products before they can launch.
Many new business ventures or product launches fail because organizations use the same metrics and processes to assess and manage new product launches that they use for their existing products and services. This often means new product launches get killed too early because they generate less revenue, lower profit margins, and use more resources as they go through the launch process and fail to “compete” for focus and funding with existing products and services.
Mistake #4: Developing Products that Don’t Solve an Urgent & Expensive Customer Problem
The number one mistake I see companies make is developing a new product that does not solve an urgent and expensive customer problem. Sometimes it happens when an organization falls in love with new technology and jumps to developing a product that uses the technology. Or an organization gets so focused on leveraging existing intellectual property and they forget to ask if customers really need or want it. Other times our client’s product team thinks they have identified an urgent and expensive customer problem. But it’s really only a frequently cited problem.
In all of these cases, money is wasted developing and launching new products that not enough customers will buy. Product development needs to start with uncovering the urgent and expensive problem customers can turn to us to solve. Upfront market research that captures the voice of the customers will save countless hours developing a non-viable product.
Mistake # 5: Designing and Developing in a Vacuum
Even if we take the time to conduct upfront market research to identify the urgent and expensive problems of attractive customer segments, many organizations still design and develop in isolation. Potential buyers or users don’t see the product until it is beautifully finished. When we design and develop products in a vacuum we risk missing features that the customers want and need to successfully use the product.
The most successful companies take a co-creation approach both to design and to development. Co-creation is simply involving people outside the product team in the development and ideation of a product. This includes ideating with employees outside of the core team, with customers, and with developers during the design phase.
Mistake #6: Fear of Cannibalization Hinders Sales & Marketing
Another hindrance to good product innovation is the tendency to protect what we already have. Many organizations run away from products that they fear might cannibalize revenue from existing products or services.
However, if we don't risk disrupting ourselves, someone else will. The faster pace of change, enabled by technology and the increased access to capital, have substantially increased the number of competitors most companies have, especially, digitally disruptive competitors. When we protect what we have, we run the risk of one of them making those sacred products and services obsolete.
Businesses that are willing to risk cannibalizing at least some of their existing revenue streams are more likely to survive. Many executives get caught up in the fear that more scalable (often less expensive) products will detract from, or worse destroy, their existing business. In truth, new products cannibalizing our existing businesses is the best-case scenario. Sooner or later, our revenue will erode from competitors if we aren’t willing to risk business as usual.
Mistake #7: Stopping at the MVP
“Build, measure, learn loops” are only helpful if we commit to iterating on our product based on what we have learned. This is hard for organizations who have a history of long R&D cycles or that are not used to staffing post-launch teams to learn what the market likes or dislikes so they can make the product better.
The most successful innovators form hypotheses, measure what they are learning against those hypotheses, develop new hypotheses about the next stage of growth, and reserve investment dollars and people to make the product better. A Build, Measure, Learn approach to product innovation is only valuable when we make changes based on what we learn. That means we need to accept that we will have made some mistakes, listen to customers when they point out those mistakes and fix them in our next product iteration.
The Vecteris Product Innovation Pathway
Vecteris uses a new product innovation method that is designed to help organizations avoid the top seven innovation mistakes. It accelerates product innovation efforts, brings more customer-focus and it helps organizations evolve their culture to be more innovation-friendly.
As I mentioned, you can download the full white paper here. We take a much deeper look at each of the mistakes and we also include tactics to avoid them. Or please reach out to me at email@example.com to talk through product innovation challenges you might be facing.
In this incredibly dynamic and rapidly changing environment, innovation is more complicated, but it is also vitally important for our organizations. For example, this year many of us have had to significantly accelerate digital transformation of our services, our products, and our delivery channels. We found that if we don’t continue to innovate, we risk disruption or obsolescence.
Being very deliberate about funding and resourcing is a critical part of successful innovation. This includes deciding how much to invest in incremental vs. transformational innovation and which ideas to fund. As we finalize our 2021 budgets, I want to share the tactics I’ve seen work well in making these decisions. These include:
Here is a little more detail on each:
1. Separate existing product improvement opportunities from new product investment decisions and create different budgets for each
Evaluating innovation investment decisions as part of existing “operational” budgets rarely works because new products almost always lose out to investment in existing products and services. This is because new products have less certainty and are less likely to have meaningful revenue (and even less profit) in the near term.
We recommend creating a separate budget for new product development. The size of the budget typically depends on the amount of digital disruption a company is facing. It’s important to note that research studies have found no relationship between the size of innovation budget and innovation success. What matters is how effectively we spend our budgets. That’s why we also recommend establishing an independent “product innovation board” to review and govern the new product development budget. The group should receive regular updates about new product development and launch progress and make go or no-go decisions on additional investment.
2. Score investment opportunities using a clear set of criteria
The leadership team will need to agree on the criteria to use to evaluate each idea and agree on the definition for each. Typical criteria include metrics such as revenue potential (near-term and longer-term), payback period, and the ability to attract new customers. Whatever metrics we choose, we all have to agree and work from the same definition of each. For example, if one of the metrics is "ability to implement", how is this assessed? Time to implement? Level of change required? Number of new capabilities needed? All of the above?
These prioritization frameworks can be as complicated or as simple as we want. I’ll share two prioritization methods that we’ve seen work well for our clients.
Revenue, Confidence & Effort
For organizations that are just getting started, we recommend a straightforward framework evaluating new product ideas or incremental innovations for existing products. Many organizations that we work with use a simple method looking at Revenue, Confidence and Effort. (This is a variation of the product management RICE method, which looks at Reach, Impact, Confidence, and Effort.)
We calculate a score for each idea and then rank, prioritize, or kill them based on their score.
Bespoke Prioritization Frameworks
We can build more complex scoring models too. For example, we recently coached one company through a new product prioritization exercise and we started with a very long list of potential evaluation criteria. We then narrowed the list down to the most critical and weighted each metric. For example, ability to land new customers was weighted more highly than payback period. We also created a two-step process that first eliminated ideas that didn’t meet a set of must-haves or "litmus tests" such as the market size before scoring ideas.
Criteria can include anything important to our business goals, for example, new customer acquisition, margin improvement, revenue growth, etc. Some organizations give each criterion a weight because some are more important than others. As always, the leadership team needs to be aligned on how the criteria are defined for this to work well.
3. Look at the totality of ideas to ensure there is a strategically balanced mix of “easy wins” and longer-term transformational ideas
After scoring each idea, it’s useful to visualize the portfolio of options to see where the best options are and to see if we have a well-balanced portfolio. Deciding ahead of time how you want to balance your new product investment portfolio across different categories is akin to deciding how to allocate your personal investment portfolio across various asset classes. Less risk-averse? Have more small-cap or emerging market equities. More risk-averse? Allocate more of your portfolio to bonds and dividend-generating large-cap equities.
For example, one organization plotted the ideas on a matrix with complexity along one axis and business value along the other. 2021 revenue impact, a third dimension, was represented by the size of the bubble:
Ideas that have low business value and high complexity are “Deprioritized.” Ones with high value and low complexity are “Easy Wins.” They are immediately pursued, as are the “Strategic Initiatives” with a longer payoff period due to their higher complexity.
The leadership team must agree on what percentage of new product development should be “Easy Wins” ideas and what percentage should be “Strategic Initiatives.”
Another way to think about portfolio allocation is to look across three innovation categories: Endemic, Peripheral, and Leveraged. Endemic ideas are innovations in existing products or services. Peripheral are ones that are adjacent to existing services. Leveraged or Transformational are entirely outside the core business and often require the most time and are the most disruptive.
Again, the leadership team needs to decide what percentage of the new product development budget will be spent on Endemic ideas versus Peripheral versus Leveraged/ Transformational. Recent benchmarking research from KPMG found that the best innovators are spending more of their innovation budgets on transformational innovation than less successful innovators. In fact, the most successful innovators allocate 37% of their portfolio to transformational/leveraged innovation.
4. Revisit the assumptions we’ve used to make these decisions at least quarterly, and re-prioritize as needed
We also want to establish a regular cadence of reviewing the progress of our new product ideas and reallocating resources based on new information. As we learn more about the market, and the product development requirements, our potential and complexity scores will change. We recommend meeting monthly to review the portfolio when you are getting started and quarterly after you have an established portfolio of both existing and new products you are managing.
Ask for Help Even when following the four steps, we might need some outside facilitation and expertise. Vecteris offers an Innovation Portfolio Assessment to help identify and score new product ideas. Our clients find that it helps to have an external facilitator help kill some sacred cows and ensure the team sticks to a disciplined prioritization process.
Please feel free to email me to learn more.
I confess that I laughed when I saw this cartoon on LinkedIn the other day:
Certainly, the current crisis is accelerating digital transformation and innovation in nearly every business sector.
Telehealth is a great example. While there has been an increase in the use of telemedicine over the years, public health officials are pushing hospital systems and personal physicians to rapidly adopt it as part of their standard operating. In fact, the new $2 trillion stimulus package that was signed into law recently included Medicare waivers for telehealth services for the first time ever.
The phrase 'digital transformation' is incredibly broad and, in my opinion, over-used, but it typically includes three parts:
1. Operations: Using technology, and the data generated by digitization, to adapt to labor shifts, improve performance and cut costs. Examples include using new digital tools to facilitate remote work and collaborate with colleagues, manufacturing automation to take the place of labor, and use of Internet of Things (IOT) technology to take the place of in-person inspections.
2. Delivery: Using technology to change how goods and services are delivered to customers. Examples include eCommerce, eLearning, telehealth and virtual conferences. The Girl Boss Rally, for example, typically hosts about 1,300 people in LA each year. In less than 24 hours of announcing that this year's event would be digital, the company recorded 13,000 RSVPs.
3. New products: Using technology (or the data generated by digitization) to create new products and services. For example, we have many clients in the professional services industry who are trying to develop new products that are scalable and have more recurring revenue. Typically these are some type of “As-a-Service” type product such as a customized training company building learning experience platforms that are sold as subscriptions or marketing intelligence companies building self-serve predictive analytics tools.
The good news is that digital transformation and innovation actually can be easier in times of crisis. You can read more about that in another recent blog I wrote, Innovating in a Crisis. The short version is that we are our most creative when faced with constraints and uncertainty, when we have a burning platform to change processes, and when we can kill sacred cows that may be impeding progress.
The bad news is that research suggests most digital transformations and innovations fail to meet expectations because of a lack of strategic alignment, poor coordination and a lack of measurement. Gary Pisano’s article, The Hard Truth About Innovative Cultures, summarizes it best: “Creativity can be messy. It needs discipline and management.”
The work we do at Vecteris focuses on helping companies with digital transformation as it relates to revenue - new products and delivery innovations. However, the research suggests that the lessons we have learned also apply to digital transformation for operations.
Here are the key ingredients we have found will help organizations successfully accelerate their digital transformations in today's environment.
1. Identifying the right problem to be solved.
This is the time to go slow in order to go fast. This means taking the time to talk to customers so we can understand their urgent and expensive problems and, most importantly, the root causes of those problems.
A big part of this is understanding the difference between a minor annoyance or a real pain point. For example, in a recent Voice of the Customer engagement for one client, we spoke with many customers who cited ‘feeling lonely’ while on out-of-town work assignments as a problem that our client could potentially fix. However, as we dug deeper, we realized that this problem was not as painful as other problems, such as job assignment uncertainty or better temporary housing options. We recommended focusing our client’s innovation efforts on solving those problems first and think about addressing loneliness later.
The point is not to stay anchored to a particular solution or ‘surface-level’ problem. When we identify the most urgent and expensive underlying customer problem, it opens the door for a real business opportunity.
2. Quickly, but smartly, evaluate whether to build/buy/partner/not pursue
Once we know the urgent and expensive problem to solve, we need to evaluate whether it makes sense for us to build the solution, or if we should find an outside partner to help or if we should abandon the idea altogether.
This decision point is especially critical if we’re already behind in digital transformation compared to our traditional competitors or if we have a number of new digital pure plays in our market.
We need to understand:
If the answer is no to any of these, we shouldn’t start building. We either find a partner or shelve the idea.
Our teams need to be laser-focused right now and if we skip the business case evaluation phase we risk diluting focus on efforts with a low ROI. Even worse, we could set ourselves up for failure because we will be under-resourced.
Pick a few immediate digital transformation priorities and say no to everything else.
3. Designing smart 'test and learn' experiments.
Successful digital transformations embrace the use of Minimum Viable Product (MVP). The MVP is a version of your product (or your product idea) with the right balance of features to satisfy early customers and provide learning back to the development team about how the product needs to be enhanced or changed. An MVP is not a smaller, cheaper version of your final product. It allows you to test your product in real life with real people in order to validate the product’s core value. MVP tests are designed to answer technical questions about the product, prove or disprove hypotheses, and gain a feel for the viability of the product in the market.
There are many good MVP examples out there (you can find some in another Vecteris blog). One that works well in a virtual world is 'sell-then-build'. It is aptly named. First, you sell the product concept. Then, you build the actual product. We like sell-then-build approaches that use a “landing page,” directing potential customers through advertising and email marketing. That landing page is a marketing tool that allows for testing the product against market expectations and demand.
This is the idea behind Kickstarter, which we’re all likely familiar with by now. It’s a platform for sell-then-build products for creative types. The designs range from world-changing to downright wacky. For example, one woman raised over $1400, three times her goal, to create 100 little birds out of wire and felt. Who knew that there was a market for wire and felt birds? This woman does, and she learned it without first spending a dime on wire or felt.
The point of an MVP, test-and-learn approach is to create a version of our product that lets us:
4. Developing digitally fluent employees.
Digital fluency is a combination of understanding and appropriately using technology. In the simplest example, digital fluency is knowing when to use a chat program, email, or Zoom to best communicate with a remote colleague.
But to accelerate our digital transformations, we also need to make sure we have the right talent. In my experience, this almost always requires new blood. Even if we are under a hiring freeze, it is important to understand that creating a successful digital transformation and leading innovation takes specialized capabilities. Recent McKinsey interviews with digital transformation leaders found a common theme about talent: “a single digital star can lift your organization higher than a team of the next-best workers.” You may need to make a hiring freeze exception and take advantage of the great talent out there right now.
Likewise, hiring for 'learning agility' is important for long-term success. Technology is evolving quickly, so we need employees who are comfortable with self-directed learning and acquiring the skills they need to stay relevant.
5. Practicing good technology hygiene on data compatibility, technical consistency, and cybersecurity.
We should not overlook the need for security in all aspects of our digital transformations. Look at what happened to Zoom with the rise of Zoombombing and the discovery that Zoom for iOS was secretly sending user data to Facebook.
Cybersecurity has to be a top priority or we risk losing our customer’s trust. For example, according to a 2017 study, 65 percent of online shoppers who have had their personal information stolen will never return to the site where it was compromised.
Good technology hygiene doesn’t end with security. It also includes data compatibility and technology consistency. A great place to start is to make sure that your organization has developed an enterprise architecture. Enterprise architecture is commonly defined as the "process by which organizations standardize and organize IT infrastructure to support business goals." Typically, if I work with an organization that has competing applications (e.g., multiple CRMs or multiple team collaboration tools), systems that do not talk each other, and no framework for making decisions about new technology, it is a sign they do not have an enterprise architecture. The lack of an enterprise architecture is not only expensive but also highly inefficient and likely inflexible.
6. Shifting the culture and our mindsets.
A recent McKinsey study of leading innovators and digital transformers found failure to be a key to success. It’s essential to “make failure a virtue and core to your culture.” I love to remind my clients of the famous quote by Reid Hoffman, the founder of LinkedIn:
“If you are not embarrassed by the first version of your product, you've launched too late.”This quote is so important because the best way to see if a product idea is a good idea is to see if the market will buy or use it. This means adopting a test and learn methodology, as discussed in point three above, as well as becoming comfortable releasing products before they are 100% finished.
Take online education leader, Khan Academy. At Khan, the team prioritizes getting their online courses launched on their site, over getting the most perfect version of the courses out there. Their target market, namely students, are craving knowledge. So, Khan delivers a good course (that is still well-built on the tech side), but with lots of room for improvement. Then, they listen to what their users tell them about their experience with the course. That way their next iteration delivers what the users actually want and need.
This not only requires a shift in culture but we've also found that leaders need to shift their mindset. We like to call this the fearless innovator mindset.
Getting comfortable with failure is a good example of being fearless. It’s related to one of the four most important things I’ve learned about what it takes to be a fearless innovator, letting go of perfectionism. Other practices that can help us adopt a fearless innovator mindset are:
Such a small, powerful, and, sometimes, frightening word. It's a word most of us hate to hear and that we don't say enough. “No," however, can be our sanity and productivity savior in our personal and professional lives when used well.
In our businesses, “No” can free up resources to pursue longer-term growth. Requests for product customization (a.k.a. one-off-work), for example, is a significant resource drain for product development teams. In fact, reducing custom development requests is the largest challenge for companies that are migrating from customized solutions to more standardized products.
Customization is often promised by well-meaning sales or account management teams that don’t fully understand a more scalable product strategy. However, if your development team is spending all of its time on custom requests, it will never have the time to make your scalable products successful.
“Simplicity boils down to two steps:
Identify the essential. Eliminate the rest.”
– Leo Babauta, Zen Habits
That leaves a lot of CEOs asking: “What can I do to reduce the amount of customized work my product development team is doing?”
I’d argue that the smartest strategy would be to correctly identify customer needs before developing new products (read our COO’s blog about how to do this), and then deliver on what gives 80% of your customers, 80% of what they need. But even when we’ve identified the product features that meet the largest customer need, we still might find ourselves with customization requests, again, typically coming from well-meaning staff who do not embrace the new scalable product strategy.
One of our clients has solved the problem of customized development requests, and they did so in less than nine months. Here’s their story.
Case Study: Reducing Customization
After decades of success selling services that were often heavily customized, our client decided they needed to build more scalable, technology-based products to effectively compete in a changing market. They did not have new investment dollars to fund building more scalable products, so they diverted their existing product development teams away from customized work toward building the more scalable products.
The shift started, first, with the CEO and the Head of Sales, announcing the strategy change at the annual sales kick-off. Knowing that they could not flip a switch and completely stop custom work for clients, they also created a way for the sales and account management team to request an exception on behalf of a client. This came in the form of a “help desk ticket” that was first reviewed by the product team and ultimately decided upon by the Head of Sales and the CEO, if necessary.
When completing this customized work request ticket, the submitter had to outline a super simple business case:
Once our client started implementing this process, many requests that may have been fulfilled before were automatically dismissed because of a lack of a positive ROI. It’s a lot easier to assess the value of a customization when it is spelled out in front of you in black and white.
The big help, especially for sales team engagement, was that it wasn’t the product development team saying, "no,” rather it was the leadership team, including the Head of Sales, saying “no.”
Additionally, the executive team and sales leadership could turn to the salesperson and say, “go look for something more profitable.” Even if the immediate request was denied, the door was open for a viable solution.
Our client started with a goal of no more than 25% of total product development teams’ effort being spent on client custom projects. In January of this year, they were at about 40%. In the last three months, the average was about 15-20%. That is a 50% decline!
Saying "no" to clients isn't always easy, which is why putting a process together to build the case for "no" is essential. We like our client's strategy to reduce customization because it allows for thoughtful consideration of the impact on the company's scalability and revenue goals.
What other strategies have you tried to reduce custom development requests? And how successful would you say they were? What do you think of this approach?