Strategies to Grow Product Value
What you can learn from some old school strategy models
There are some things you need to know because they help you make sense of life, because they explain the assumptions and foundational ideas in your working world and because they are just useful.
I grew up with a management consultant father who launched into the latest McKinsey & Co theory every time I had a question about how the world worked. While these models are older than Lean Startup Canvas or Blue Ocean Strategy or Jobs to Be Done, they still have value in looking at the bigger picture of where your business, and therefore your product, is going.
As a product manager, you need to grow the value of your product, and the strategy models in this article will help you understand the strategic choices that best help that.
‘S’ Curve
This model basically describes how innovations to deliver better value are introduced over time, and the tradeoffs an incumbent supplier must make to remain on the best performing industry value curve.
The animated GIF below demonstrates the main ideas of the model.
There is some good marketing theory underlying this, but it is basically built upon the Bass Diffusion Model and deals with concerns of the Diffusion of Innovations. Clayton Christensen wrote about this in his book The Innovator’s Dilemma, he referenced the ‘S’ Curve and the need for the incumbent to try to innovate in an atmosphere where the focus on their current value curve makes it hard for them to justify the jump to the new (currently less valuable) value curve. This is the innovator’s dilemma named in the book title.
New entrants can focus on a different, under-served part of the market and end up creating a better value offer that eventually attracts the incumbent’s target market as well. The curves are usually less extreme (less Bell curve-like) than my graph suggests, but the point is about understanding that just because you have maximised the value of your particular value curve doesn’t mean there isn’t a more valuable value curve out there.
A great example of this is portable music. Starting with personal transistor radios (streaming music!) they quickly became more personal when cassette tapes made personal music recording possible. Then when the Walkman was introduced by Sony it was groundbreaking — personal stereo music for everyone, with the music of your choice. A market leader in cassette technologies would have been surprised to see their value eclipsed by digital technology as iPods took off, and then general MP3 players, only to have the mobile phone beat both of these in terms of convenience and choice — ultimately it would seem that streaming music, with payment moderated by a platform provider (e.g. Spotify), was even more relevant, and gives the user access to their music both in personal ways (headphones, earbuds) but also in public ways (Bluetooth speakers, Chromecast devices). No incumbent in the portable cassette technology space made the move into music streaming, although Sony at least is still in the mobile phone space.
How to use it? Know where on the innovation value curve your product is, is it mature, potentially facing a decline, or just starting out and in need of protection while it grows? Use that analysis to understand whether you should be investing to mature your current offer, or whether it’s time to look for where the value curve for your industry is moving.
Ansoff Matrix
The next tool is an Ansoff Matrix, actually, a ‘modified’ nine-box one. This helps us map out the ways we can change our markets/customers and our products/assets. It looks at where we want to play (markets) versus how we expect to win (products). Like many of these sort of matrices, it simply compares two variables against each other in order to map out options.
Developed in the 1950s by H. Igor Ansoff the matrix helps you consider whether you are selecting an innovation that grows your product capabilities and/or your market reach. It is surprising how often good ideas from founders fall into the bottom-left box of Market Penetration and only offer small growth opportunities — but they are the least risky. On the other hand, a lot of product managers get caught up in the ‘what if’ ideas of Diversification, but as the matrix shows, this is where you have both the least amount of existing product assets and the least amount of customer and market knowledge.
Innovation Ambition Matrix
The Monitor Group developed its own take on the Ansoff Matrix with the Innovation Ambition Matrix which they wrote about in the 2012 Harvard Business Review article Managing Your Innovation Portfolio. This can be mapped over the Modified Ansoff Matrix to give another view of the types of innovative changes that can be considered and how ambitious they were.
The Monitor Group were looking to foster discussion on how much emphasis an organisation should put on each type of innovation ambition, and their HBR article also compares the investment ratios between Core, Adjacent and Transformational innovations across different types of industries. Their article is well worth reading as it covers skills required, how to integrate innovations into existing efforts, how to fund different types of innovation and the sorts of metrics management should use to assess them.
The Innovation Ambition Matrix offers no inherent prescription. Its power lies in the two exercises it facilitates. First, it gives managers a framework for surveying all the initiatives the business has under way: How many are being pursued in each realm, and how much investment is going to each type of innovation? Second, it gives managers a way to discuss the right overall ambition for the company’s innovation portfolio.
Strategic Choices Matrix
I like to put the two together and colour code the Modified Ansoff Matrix to give us some idea of the risk of ROI involved in each type of choice.
Just as the Monitor Group said, this allows for easy discussions of how we are looking to change our current offer, and whether those changes are sufficiently ambitious with regards to our growth strategy.
The Limited Diversification option is shown as the riskiest for ROI, because it requires innovating both market and product, whilst leveraging existing market relationships and product assets. This can limit your ability to achieve success because you remain beholden to existing customers, and you never quite make the jump to acquiring customers in the new market niche. Or perhaps your product choices are restricted by your legacy product assets. You discover technical debt, or architectural choices, make the product changes not as effective as they need to be. Taking a risk with both at the same time is, therefore likely to be the riskiest option of all, better to go for full Diversification which at least has the advantage of no legacy baggage.
At the other extreme the Market Development and Product Development options should theoretically give the best return because they involve development risk in one dimension whilst using tried and true market knowledge or product assets in the other. In practice, these often lead to partial diversification as new market niches or product features become necessary to grow the product or market value.
Of course, you also need to question where you are on the ‘S’ value curve for your industry. An immature product offer may need to grow value by Product Extension whilst a more mature one may just need to increase market penetration with the existing offer. A mature product offer at the top of its value curve may need to diversify either product or market focus in order to grow.
Summary
These two frameworks can help you question whether you are on the right value curve, and how to grow along your current value curve. There are many other factors you need to consider when building out your product strategy. Competitors, major trends, capability, regulation, risk mitigation and many others need to be considered, but these models can help you understand whether you are going to get the growth you expect from the changes you are making.
If you’re a little confused about all the strategy frameworks out there, then the HBR article Navigating the Dozens of Different Strategy Options is a good place to start — the Ansoff Matrix is a Classical framework, whilst the ‘S’ Curve is a Shaping framework.
At the end of the day, any model or framework is a simplification of the complexities of your business context. They are designed to help you reason about, and collaborate on the right moves for your business, and should be informed by the best data you can give it. Find the ones that make sense for your style of business, at your stage of business.
