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Product Management is Risk Management

I was re-reading Clayton Christensen’s The Innovator’s Solution the other day and a statistic he mentioned in Chapter 3 stuck with me:

“More than 60 percent of all new product development efforts are scuttled before they ever reach the market. Of the 40 percent that do see the light of day, 40 percent fail to become profitable and are withdrawn from the market.”

If you do the math, 76% of all new product development (NPD) efforts fail to make it to market or become profitable. This data astounds me, yet time after time I see similar statistics.

Companies waste a lot of resources and effort for little or no return.

This rate of failure should not be acceptable, regardless of the size of the company.

To navigate through an economic crisis caused by a global pandemic, and emerge stronger, not even a failure rate of 50% is acceptable.

So if a company wants to navigate the crisis and emerge stronger, what should they do?

How can they minimize their failure rate?

They need to manage their risks properly with strong and effective product management.

Risk Management as Product Management

While an executive at GE, one of the core pillars of the management philosophy they instilled was the concept of "risk management." Mitigate risk through your strategies and decisions, and through that “maximize the realization of opportunities” (Wikipedia definition of risk management).

From a risk management point of view the challenge with NPD is:

  • How do you maximize the percent of NPD efforts that make it to market?

  • How do you maximize the percent of products that make it to market that become profitable?

  • How do you maximize the profits of these products?

Translating this into a product management lens, the challenge is:

How do you make sure you prioritize the best opportunities in your product strategy and roadmap?

Those opportunities that optimize the combination of market potential and best odds for success given the current situation.

How do you empower your product development organization to deliver the right product for the right market segments and personas?

Involve your design and development teams in the product management process. Collaborate with them and provide the context they need to truly understand the wants and needs of personas you are targeting. The context to deliver a solution that resonates with the customer.

How do you empower your marketing and sales organizations to maximize their ability to identify, qualify, and close the right customers?

Again, involve your marketing and sales team in the product management process. Collaborate with them and provide the context they need to target and engage with your personas. The context of true understanding of the persona’s wants and needs and your value proposition.

Do these three things well and you will increase the percent of opportunities that make it to market. You will increase the success rate of these opportunities in the market. And you will maximize customer value and in turn maximize your price and margins.

This approach works regardless of where you are in the product lifecycle. In this article, I will focus on new products and new markets. Opportunities where a more formal business planning process may be prudent.

Opportunity Management at The Front End of the Product Management Process

Start with an opportunity management process to ensure you focus your innovation and growth efforts on the right opportunities.

A great quote which I find relevant to opportunity management:

“The general who wins the battle makes many calculations in his temple before the battle is fought. The general who loses makes but few calculations beforehand.”— Sun Tzu

Every organization needs to do the “calculations” as part of its product management process to ensure they focus on the right opportunities.

The opportunities that optimize market potential and odds for success.

The opportunities that align with the company’s strategic focus – market segments, solution areas, differentiation, and strategic goals.

The opportunities that create the most value for customers, the market, and the organization.

Do this through an outside-in/market-focused approach to product management with objective scoring of opportunities and a transparent method for prioritization. This helps you decide which opportunities to focus on, which opportunities to pass on, and which in-flight opportunities and/or existing products is it time to sunset.

A Gated Approach to the Product Management Process

A gated approach to the product management process is critical. Especially in the front-end, where innovation happens.

Your organization needs to be in the market to discover and build a pipeline of opportunities. Opportunities where value could be delivered to the market and to your organization.

Screen and prioritize the opportunities to determine which ones to move forward to fully understand and scope.

Truly understand market segmentation, attributes of your target personas, pain points, and the market’s appetite for a solution.

Validate solution concepts while building a business case.

Gain insight from the market and prospective customers as to how your solution concept and approach to value delivery aligns with their needs, wants, and expectations.

Gated Approach to the Front-End of the Product Management Process

The Gates/Screens become the application of risk management.

The Idea Screen at Gate 1 ensures that only the opportunities that best align with corporate strategy, and with the best potential, move forward. I recommend that companies focus on only two or three opportunities at a time. Only what you can fully resource. Create and manage a ranked pipeline for all of the opportunities you discover.

The Opportunity Screen at Gate 2 makes sure you truly understand the opportunity in the sense of market segmentation, attributes of your target personas, pain points, and potential value. Only move forward with those opportunities where the market has interest and is ready.

The Investment Screen at Gate 3 is where your final business case is made. Leverage your learnings through the validation of product concepts in the market. Understand the necessary investment and resource requirements to successfully deliver a solution. Only allocate resources to the opportunities that have the highest chance of success and profitability.

Through this front-end of the product management process, focus your resources on the right opportunities. The opportunities that have the best chance for success. The opportunities that maximize the return on investment individually and in aggregate.

The front-end of product management is risk management. When you do it well you increase the success rate and profitability of your initiatives.

When you increase the success rate and profitability of your initiatives, you give your company its best chance to navigate this economic crisis and emerge stronger.


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