If we’re a product company, who’s in charge?
Introduction
In my last blog post, I offered my own experience of looking to solve for product teams and leaders with the highest propensity for success, based on seeking an answer to one question:
“What is the primary responsibility of a product manager”?
The answer is primarily about internalising understanding and accountability for the sum total of capital (human, technical, financial etc) that is being deployed to solve for a particular need and being accountable for ensuring that the organisation sees the highest possible return for the deployment of that capital.
Based on my own experiences over the last 20 years I’ve observed that the depth and resilience of this internalisation is an important predictor of success for individual product leaders and the products and problems they solve for. However too often the trap that’s implied here is sprung, which is the oft repeated hero narrative of the lone, passionate, focused, relentless product leader who somehow manages to ensure an effective and high return on capital in spite of and not because of the organisation.
So, much as I like a good hero story from time to time, I am much more motivated and energised by building effective systems of value creation as opposed to cultivating individual heroes. Reflecting on some of the challenges I’ve seen, I believe that one of the most common barriers to accomplishing this product centric system of value creation boils down to one very common, understandable but also confusing & contentious question in an organisation.
“If we are a product led company, then who’s actually in charge here?”
I’ve seen and heard variations on this theme in many different settings. Its also tended to be about asymmetries of power as different tribes debate loudly about who really makes the difference in a company and therefore whose opinion or needs carries the most weight.
Reflecting on the innumerable debates I’ve participated in and with the benefit of hindsight, I’d suggest that if you’re familiar with or in the middle of this kind of discussion or dynamic in your organisation, then maybe it’s worth pausing for a second and recognising that this power dynamic is an internalisation of an external problem.
So by all means feel free to schedule another knock down, 3 falls or submission-based discussion about why sales or product are really in charge, however you may want to pause and reflect on the following:
The problem is really about value: where its unmet, how its created and delivered and how its monetised.
…..which reminds me of a true story.
Where do you think your salary comes from?
In a much earlier role and time, I once heard an engineer in a requirements review meeting (we’d call it backlog grooming now, but that hadn’t been invented yet!) offer an interesting view:
“If we didn’t have these customers to deal with, we’d be able to get on and build a really good product”
In fairness I believe that the comment was well intentioned but highlighted a disconnect that often runs deep in organisations large and small. The fault line typically emerges between those primarily responsible for revenue and frankly everyone else. And in many different ways I’ve heard that disconnect described as follows:
Sales are the people who make the money and everyone else are the people who spend it
In other words, you have sales/revenue generating tribes and you have everyone else. Of course, sales are the cool kids, and the other kids just to feel cooler establish their own playground hierarchies like:
Q: How many enterprise architects does it take to change a light bulb?
A: None because they need to re-evaluate the rationale for why we need light in the first place
Q: What’s the best way to pay a product manager?
A: American Express – because they both love taking credit for things
An SEO marketer walks into a bar, bars, tavern, pub, public house, Irish pub, drink, drinks, liquor, beer, alcohol…
It goes without saying that all companies need revenue – ultimately revenue solves a lot of problems as one of my old bosses liked to say. If you don’t have revenue, then you don’t have a business. So clearly sales should always be in charge? Right? Wrong? Frustratingly the answer is – it depends!
Now, at this point at least some of you (particularly those of the current or aspiring product persuasion) are likely feeling very uneasy with this. And I do understand why.
And yes, I am biased towards the view that it shouldn’t be this way (sorry sales but it really shouldn’t).
However, on a tactical basis very often it must be the case that sales are in the driving seat. In the longer term when companies fail to recognise that this should only exist as a tactical phase vs a sustained operating model, then this model starts to have long term negative consequences. To understand why this occurs so often in companies, I’ve rationalised this into 3 main forces I’ve observed which can have effects either in isolation or combination.
Monetisation and Value Creation are not the same
Businesses need revenue, profit and growth. In the long run a business must solve for all 3 of these considerations otherwise it won’t be around for very long.
Selling is hard, and good sales teams are worth everything they earn. However, and this is the key insight – in a genuinely product led company sales does not create value, they are responsible for operationalising the sale of value already created.
Why? Because if you are a product centric company then the value has already been well understood, the systems and solutions of value capture have been very well designed, delivered and validated, such that the sales function is empowered and primarily accountable to operationalise and scale the monetisation of that value.
However when I’ve encountered environments where this isn’t the case, environments where, for want of a better description, sales IS in charge, then what I’ve come to understand is that this flows from an systematic failure of the organisation to ensure that value is being created elsewhere by the product organisation. When this failure to create value occurs systematically over a period of more than a few operating quarters then a second accelerating force starts to come into play – asymmetric value exchange
Asymmetric value exchange
In a supplier/buyer relationship there are always value and power symmetries in action. Value symmetry is ultimately measured by price/cost. In other words’ value symmetry is achieved when a supplier and buyer agree on what price/cost basis a service or product can be provided and consumed.
When a service or product has clear thresholds of differentiation (because your company has effective systems of sustained and ongoing value creation), then value exchange generally remains in balance between buyer and supplier even over sustained long-term commercial relationships.
However, in the absence of sustained systems of value creation and increased commoditisation, asymmetries of value start to emerge whereby the buyer observes asymmetric power over the supplier in terms of:
a) Threat of switching
b) The cost of loyalty
c) The demand for increased levels of customisation
Confronted with increasing asymmetries of value, sales teams are forced to move from being primarily challenged to be agents of monetisation and increasingly challenged internally and externally to become agents of value creation (to address the absence of value creation internally).
Being forced to play the role of agents of value creation means that increasingly sales and commercial teams MUST call the shots to manage the threats caused by asymmetries of value in their customer relationship.
But as commercial teams, most of the options and strategies available to them are monetisation tactics not value creation strategies. So what you observe over time is a sales led set of monetisation activities which become incorrectly interpreted, institutionalised and understood as value creation activities.
As the cycle progress, monetisation as value creation builds more and more long-term debt into the system (ever more aggressive discounting, increasingly fragmented and unsustainable customisation overheads). Deal flow is replaced with ever more fraught and bespoke deal making. And at some point, companies see measurable deterioration in their competitive position, their ability to differentiate and their ability to find new ways to create long term value.
At this point the third force which I call the Contra-Cycle Phenomenon creates greater dissonance within the organisation.
The Contra-Cycle Phenomenon
The contra-cycle is my own way of rationalising behaviours and conflicts I’ve witnessed or first-hand experience of. So, what do I mean by the contra-cycle?
Contracyclical views of investment, value creation and monetisation results from the absence of designing compensating mechanisms to reconcile the two very different value cycles that product tribes and sales tribes subscribe to.
In simple terms – Sales tribes think fundamentally in value creation cycles of 12 months and generally on a zero-based budgeting cycle. While Sales tribes preach long term value, they are challenged with a monetisation harvest which follows a quarterly cycle and whose quota is reset every 12 months.
Product tribes believe that value creation is best served by 36-month cycles with sowing and harvesting in 6 monthly cycles of creation, validation, iteration and creation.
The net effect of this is that inevitably the cycles of activity that drive the sales calendar and monetisation goals are occurring in faster cycle times and often asynchronous to those that drive product value creation.
Companies with weakly coupled sales and non-sales organisations are vulnerable as each part of the organisation seeks to address that power and value asymmetry in the presence of contracyclical rhythms of value creation.
In simpler terms – value both unites and separates sales and product tribes. Both believe themselves to be driven by value creation. However, sales are driven to monetise value and product teams should be driven to create value. Because monetisation (i.e. selling) is typically measured in shorter timeframes than value creation (which is typically a multi-year perspective) any organisation which fails to build effective systems of value creation with an empowered, skilled and accountable product organisation will inevitably exhibit the behaviours of
· Monetisation AS value creation (instead of Monetisation OF created value)
· Value Asymmetry
· Contra-cyclical dynamics
So if you observe these in your organisation – maybe now’s a good time to shift from the debate about who’s in charge and instead spend more time and energy on the question of what needs to be done kick start your engines and systems of value creation.
So who’s in charge?
So, finally I guess I have to say who I think is in charge.
The answer in my view is simple:
“it’s the problem, stupid”
If you think this is a rote or simplistic answer, it’s not. Organisations that deeply internalise this as a principle will on average outperform those who don’t.
In such organisations there is extraordinary clarity about the problems at the heart of the organisations reason for existence. Such companies develop systems of value creation and in the very best of these organisations value creation is understood to be part of the entire customer experience (including the monetisation experience, something Apple understood earlier than most)
It’s on that basis, that I argue for any organisation to have an absolute conviction that it is the primary responsibility of the product leaders to optimise the return on allocated capital in service of that problem that represents the customers’ needs vs wants including ensuring there are high performing systems of value creation (product building) to support high performing systems of monetisation (marketing and selling).
If that conviction is deeply held, then any organisation that detects that its systems of value creation are compromised, and can recognise the signals of this such as the increased use of systems of monetisation to sustain value, will accept nothing less than the most effective systems of value creation possible, embodied and championed by product leaders who understand their primary responsibility as ensuring high returns for the allocated capital of the organisation they represent.
Many companies really need to talk about being product led, customer centric, market driven and so on. But too often these attributes end up being unevenly distributed across a company. Too often this manifests itself as a battle for supremacy between sales and everyone else.
The disconnect arises because one tribe (sales) is in the majority accountable ( and rightly so) for how the money comes in the door and with varying degrees of frustration and resignation, they view anything else that doesn’t help them in that goal as misdirected, misinformed or misguided.
The right kinds of product leaders can help your organisation become aligned and have that singular focus on value creation. A popular legend is that on a visit to NASA in 1962, JFK met a man sweeping a floor. When the President of the United States asked him what he was doing, he replied he was helping send a man to the moon. Singularly focused, a universal definition of the value you are looking to create.
It can quite literally take you to the moon, and back.