Have you ever run into something like this?

The CEO walks into your office. He says, “We need to submit our strategic plan to the board next month. Can you canvas the senior staff and put something together?”

Or this:

It’s the weekly senior staff meeting, and you just finished outlining your recommendation for the company’s product-strategy-development process.  The vice president of engineering comments, “Look, we all pretty much know our strategy. I don’t see a need for a drawn-out process. Why can’t we just lock ourselves up in a room for a few hours and bang it out?”

Or how about this:

Your general manager advises, “Your first-pass, product strategy review is next month. Just a reminder, I only want to see a couple of slides on the market and competition. Your presentations should focus on the product roadmaps.”

If you have, your strategy-failure-alarm siren should be blaring.  All three of these situations show a total disinterest in setting product strategy based on a deep understanding of your market and competition. They indicate a view of product strategy as just documenting what the company already plans to do.  No distracting, outside influences required.

This internal perspective on product strategy development is as dangerous as barreling down the highway at eighty miles an hour with a blindfold on. It’s like saying, “I’m going to do what I’m going to do, no matter what’s going on around me.” That’s inside-out thinking and prone to disaster.

Product strategy provides the answer to the question “How will you compete?” Competing in the product strategy sense means figuring out how to serve a target group of customers better than the competition. It follows then that you need to understand the customer and the competition before you can answer the question.

The answer to the question “How will we compete?” must be preceded by answers to the externally oriented questions “What is our market environment” and “Where do I stand versus that environment and my competitors?” That sets up a three-phase, outside-in, product-strategy, development process as shown in the figure below.

Three-phase, outside-in, product-strategy, development process

Phase 1: Environment

In the first phase, the objective is to get a thorough understanding of your market environment.  Here you’ll examine the environment from your customers’ perspective as well as your own. For the customers’ environment, you’ll

  • Define the target market,
  • Understand your customers’ market and growth drivers,
  • Examine market trends and potential disruptions, and
  • Analyze your customers’ issues and challenges.

For your own environment, you’ll

  • Determine requirements for serving your target market,
  • Determine your market’s growth drivers and forecast, and
  • Examine your market’s trends and potential disruptions.

You’ll notice that the environment phase is all about the customer and what it takes to serve that customer. It is completely devoid of your strategy and products. It’s even devoid of an analysis of your competitors.

“Why don’t we jump right to competitive analysis?” you may be wondering.

Here’s why. A competitor is an alternate solution to the problem you have elected to solve for your target customer.  Competitive analysis is therefore predicated on a clear understanding of your target market and the problem you intend to solve for it. It must come after you’ve analyzed your market environment.

Phase 2: Situation

In the situation phase, you’ll examine your situation versus your market and competitive environment. You’ll

  • Analyze your historical financials and market share,
  • Determine your position versus the market requirements for serving your target customer, and
  • Analyze your capability to service your target customer versus competitors.

As the final step in the situation phase, you will review the data to determine the strategic issues that must be addressed by your strategy. Strategic issues are issues caused by conditions in the market environment or competitive landscape that will have an impact on your ability to meet your objectives. They might be things such as

  • Growth is expected to slow in your target market,
  • A major geographical shift in demand is imminent,
  • A competitor is about to put you at a disadvantage,
  • A new technology is emerging that will make yours obsolete,
  • Your customers are shifting their strategy, reducing their need for products like yours, or
  • New demands on your customers create a new, unaddressed opportunity for you.

Take note that all the above examples are externally sourced.  It’s that outside-in perspective coupled with its impact on your business that makes an issue strategic.

Phase 3: Product Strategy

With environmental and situational analysis complete, it’s time to start making product-strategy decisions. First up is deciding what you want to achieve. This has two parts.

  1. Vision
  2. Objectives

Your vision describes where you are going, how you will get there, and why you will win. Unlike specific objectives, the vision statement is directional only. It describes the vector of your strategy. For example, consider this vision statement.

We will:

  • Be the number one supplier of thin-film, deposition systems to the semiconductor market.
  • Leverage our core competency in deposition-source technologies across multiple semiconductor equipment platforms.
  • Produce the fastest deposition rates and as a result, the lowest cost of ownership for our customers.

See the table below for how this statement can be decomposed into the key components of good strategic vision.

Where we are goingWe will be the number one supplier of thin-film, deposition systems to the semiconductor market.
How we will get there.We will leverage our core competency in deposition-source technologies across multiple semiconductor equipment platforms.
Why we will winWe will produce the fastest deposition rates and as a result, the lowest cost of ownership for our customers.

Your objectives, on the other hand, describe specific milestones along the way to fulfilling your vision. These usually include specific time and performance targets on financial measures such as

  • Revenue,
  • Gross margin, and
  • Market share

With your objectives nailed down, now it’s time to attack the two sides of the product strategy coin

  • Market strategy and
  • Product strategy

These two elements are inseparable. Market strategy defines the customers that will buy your product. On the flipside, product strategy defines the products that your customers will buy. The output of market strategy is a clear definition of the market segments you will and will not target. The output of product strategy is a roadmap of products that you intend to offer over time.