Breakthrough or miss dear? What product-centric design can teach us
A maker of handheld scanners and laptops, eager to make its mark against larger, more established competitors, has come up with a strategy: design a new device that will delight customers like no competitor can. To guide this quest, the company’s executives and sales team sought out the voice of the customer, asking, “What could we bring you that no one else does?”
Customers responded with a wish list (e.g., a much larger screen, similar to an iPhone Pro) that company executives, trusting in the gospel of customer-centricity, adopted as their cue sheet. road to business success. Their excitement grew as they designed and engineered a device they believed would transform their industry by delivering everything customers say they want, but currently couldn’t.
As you’ve probably guessed by now, that’s not how this story ends.
Building this complex and revolutionary device required expensive custom components and specialized capabilities that the company’s existing supply network could not provide. Undeterred, he sought out new vendors with (literally and figuratively) the right stuff. However, the company soon realized that qualified suppliers were not particularly interested in working for a relatively small player in an industry outside of their target market. As such, the new essential suppliers demanded higher prices. Expensive additional investments were required to increase the company’s manufacturing capabilities.
The company worked its way through these and other hurdles to successfully launch production, only to learn that customers weren’t happy with some of the features they said they wanted. The large screen, for example, made the device too big and difficult to use. Three years of sustained and passionate effort left the company at an impasse. No significant revenue was realized from the “breakthrough” product.
Product-centric is not a dirty word
The moral of this cautionary tale? Balance. After decades of management oracles extolling the virtues of customer focus, customer focus is now so deeply embedded in corporate ethics that any other perspective can be considered heresy. We absolutely believe that businesses should be customer-focused, but that doesn’t make product orientation a dirty word. In fact, to realize your true business potential, your passion for customer service must be balanced with reasoned considerations of what is best for your customers. and your business, especially in the long term. After all, if you allow crucial decisions to be too blinded by passion, you may soon no longer be there to serve customers.
Product orientation is a form of realism. Your business makes money selling products, and product experiences are how most customers benefit from all of your efforts. Additionally, the products you manufacture shape your operations, which largely determines how prepared you are to deal with chronic supply shortages, delivery disruptions, sudden spikes in demand, and more. logistical challenges.
For all these reasons and more, we believe that products should put customers at the center of your efforts to optimize every aspect of your business (see Figure 1).
This product-centric perspective grew out of our work in the Product Excellence and Renewal Lab (PERLab), where we often conduct teardowns with customers to uncover the hidden value potential of their products. These back-end explorations open up new insights that go far beyond the product itself, helping customers rethink how and where products are made, purchased, and shipped, as well as how each of these variables might have an impact. positive impact on the performance of the company’s overall portfolio. Even starting with a single product, one can soon envision the transformation of an entire company.
The Stick of Value: What Determines Your Margin?
The core principles behind Product-Centric Transformation (PCT) are captured in an elegant and simple model created by two Harvard Business School professors to convey what drives a company’s margin. Our adaptation of this “value stick” is shared in Figure 2.
This simplified rendering reminds us that your margin is largely determined by the difference between your customers’ willingness to pay (which has an impact on the price) and your suppliers’ willingness to sell (which determines your costs). The margin is driven by reducing costs while increasing the price.
Admittedly, this is hardly telling, but there is now such a tendency to focus on customers’ willingness to pay that one can easily forget to consider carefully (as in the brief vignette that opened this article) the willingness to sell suppliers. We believe that failure to keep full value in mind has played a role in today’s chronic shortages of essential supplies, an environment in which motivated suppliers can make a big difference.
In summary, PCT enables a multitude of levers to work together seamlessly, globally and across an entire portfolio, to optimize margin while making operations more resilient to unforeseen disruptions.
Product-centric transformation starts from the premise that it is better to create a product that is 80-90% perfect for the customer, and therefore always very competitive, while ensuring that it will also be profitable for the company and relatively simple to craft, launch, and support. By maintaining your focus on both ends of the value stick, you also design products that drive demand for other parts of your portfolio, help optimize your operations, reduce your manufacturing and supply costs, and increase your margins. on the products.
Significantly, the PCT approach replaces serial decision-making – in which design and portfolio choices are made without full consideration of their operational implications – with simultaneous decision-making involving multiple functions. Before committing to a product, you know how to make it, find it, and deliver it, connecting all the dots in advance.
The PCT approach is also forward-looking, determining answers to big questions such as “What kinds of technologies are we currently using that could be supplanted in the next five years?” and “Where are our best platform opportunities, including across multiple regions or business units?” Additionally, it seeks exponential value gain via global optimization, as opposed to local optimization and a single product that often yields sub-optimal results across the entire portfolio. As such, product-centric transformation is typically a CEO-sponsored strategic initiative guided by ambitious goals and C-suite strategic priorities defined in consultation with the board.
Margin Growth Case Study
Anything that qualifies as “transformation” should produce great results. Product-centric transformation lives up to that billing. Example: A PCT program for a $5 billion home building products manufacturer improved the company’s margin by 850 basis points.
The company had recently been spun off from a much larger corporation and was still struggling to find its footing. His stock had fallen precipitously and he had gone through troubling leadership transitions. We were first invited by C Suite and the Board to help review the product portfolio for the fruits at hand at the top of the value stick – in other words, “Where is- Is there white space to increase the volume? “Where could we set more aggressive prices to increase revenue?”
The answers to these questions have proven to be complex, as the company operates in a competitive market where customer preferences change. Furthermore, we found that the product portfolio inherited from the old operating units was a permanent constraint on the growth and productivity of the company.
For example, one product line offered over 50 color choices, many of which were difficult to tell apart (in other words, “50 shades of white”). Likewise, over 100 different chip types were used, while we could identify a clear need for no more than nine. Most of these inherent inefficiencies stemmed from locally optimized siled product development. In other words, a given product can use unique components to save pennies on a $10 cost, which made perfect sense until the customer considered these choices from a business perspective. Sourcing so many different components and keeping them in stock was quite expensive. The multitude of components has also complicated engineering, making it difficult to maintain products, quickly adapt to changes triggered by component obsolescence, or apply innovations developed for one product in others.
In response, the project evolved into a more holistic approach that covered not only portfolio and pricing, but also engineering, design and supply chain. We worked with customer teams to pursue a range of portfolio, pricing, engineering, design and supply chain initiatives, all through the lens of product families. Unlike top-down data exercises defined in spreadsheets, teams pursued a wide range of improvement opportunities through the lens of individual products. They started, for example, by asking, “How should our thermostat portfolio be designed to simultaneously meet diverse customer needs, maintain a competitive edge, be cost-effectively manufactured, and be resilient to supply disruptions? ”
The result? 850 basis points gross margin growth by the third year of the program. The PCT initiative was highlighted in investor presentations, which contributed to a 300% increase in the company’s share price over two years.
Companies’ efforts to become more customer-focused have had no shortage of positives, but one glaring downside is that a passion for customer delight, unbalanced by product prospects, can create blind spots that drive companies to leave a significant margin on the table. Seeing both ends of the value stick simultaneously inspires various BUs and functions to shed siled approaches to help each other be more successful. This, in turn, produces unprecedented levels of effective coordination, efficiency and process optimization; avoids cannibalization of own wallet and other costly mistakes; and steadily increasing operating and profit margins.
Alexander Bruns and Kushal Fernandes are principals of the Product Excellence and Renewal Lab (PERLab) division of Kearney, a global strategy and management consulting firm. The authors thank Bharat Kapoor, Kearney Partner and Global Head of PERLab, for his contributions to this article.