As product people, we can be very fond of the products we manage. While it’s good to care about them, we must not forget that they are a means to an end: Products only exist to create value for their users and the business. It is therefore important that your product helps your company move forward and supports the overall business strategy, as I discuss in this article.
Business Strategy vs. Product Strategy
A business strategy describes how a company wants to achieve its overall aspiration and create value for its users, employees, and shareholders. It’s distinct from the product strategy: The business strategy states how the company will be successful, whereas the product strategy describes how a product will achieve success, as the following picture illustrates.
The business strategy provides the company with the basis for making the right investment decisions. This includes determining if a new product idea should be pursued and how much money should be spent on an existing product. At the same time, it offers you, the person in charge of the product, the necessary context to make the right strategic product decisions, for example, the market your product should serve and the business goals it should meet. It is therefore a key input for any product discovery work.
Unfortunately, it’s not uncommon in my experience that organisations don’t have a business strategy, or that the strategy is not communicated. Statements like we want to grow, increase our profit margin, or gain more market share are not business strategies. Achieving growth is a business imperative; increasing margins and market share are goals that might be part of a business strategy. On their own, they are not enough.
Elements of an Effective Business Strategy
What does an effective business strategy look like? I find Roger Martin’s approach for creating such a strategy helpful. It involves answering the following five questions.
What is your winning aspiration? Why does your organisation exist? What is the company’s vision? State the purpose of the organisation that provides continued guidance and helps identify the right strategic objectives. Think, for instance, of Google’s vision “to organise the world’s information and make it universally accessible and useful.”
Where will you play? Clearly describe the areas in which the company will compete to fulfil its aspiration. Who should benefit from your offerings? Do you intend, for instance, to address existing markets? Or do you aim to create new markets (also called blue oceans). Which geographies or regions do you want to address? Which product categories and channels will you require? Note that answering this question requires making tough choices—saying yes to some options, and explicitly discarding others.
How will you win? What is your competitive advantage? For example, cost leadership (low prices), differentiation (uniquely desirable products and services), or focus (niche markets)—three options originally suggested by Michael Porter. Answering this question requires you to understand the strengths and weaknesses of your business and the competition you face.
What capabilities must be in place? What do you need to be really good at? Which new products or services do you require? Which existing products you should enhance, and which offerings you should remove? In other words, decide how you should adjust your product portfolio thereby creating the context to allow the product people to make the right strategic choices for their individual products.
Which management systems are required? Which processes and structures are necessary to build the appropriate capabilities and reinforce your organisation’s strategic choices? This might involve creating or strengthening a product management organisation and hiring or developing product people who have the right skills to professionally manage digital products.
Note that there is no perfect business strategy—just like there is no perfect product strategy. Instead, strategy is about increasing the chances of being successful. Bear in mind that strategy is not fixed: as the market and competition change, your business and product strategies have to evolve. It is therefore important that you regularly review the business strategy, as well as the product strategy—biannual reviews for the former, and quarterly reviews for the latter, as a rule of thumb.
Ownership of Business and Product Strategy
Who’s responsible for ensuring that an effective business strategy exists? The answer is simple in my mind: executive management. The leadership team of any company must lead the effort to create, review, and adjust the business strategy.
But things are different when it comes to product strategy. Product management should be in charge of the product portfolio and make the necessary product strategy decisions—within the context established by the business strategy. This requires that the product people know the business strategy, have the appropriate decision-making authority, trust, and support, as well as the right knowledge and skills, as the picture below shows.
Regrettably, the division of labour shown above is not always used. I have worked even with mid-sized companies, where the leadership team was firmly in charge of product strategy; the product people were largely left to manage the product backlogs and write user stories. While there is usually a reason for this setup—for example, the founders are still in charge and find it hard to let go, or the product people lack the right skills and experience—I find that it risks turning the leadership team into a bottleneck thereby limiting the company’s growth opportunities. It often has a negative impact on morale in product management too—few product people enjoy being solely a backlog manager and not being able to shape the key product decisions.
While I believe that is helpful to have the right roles and responsibilities in place, business and product success relies on an effective collaboration between executive/senior and product management. As a product person, you should contribute to the business strategy. You often hold key insights into markets, competition, and trends. You are therefore able to help answer the five strategy questions discussed earlier, and in particular determine the necessary product portfolio adjustments. Similarly, the leadership team may be able to help make the right portfolio decisions and probably wants to understand how the product portfolio executes the business strategy, which business goals the individual products support, and which KPIs will be used to measure their performance.
If you currently don’t have a business strategy available, I would encourage you to collaborate with management to create one. Without it, you risk making wrong or suboptimal product decisions instead of achieving product success.
Post a Comment or Ask a Question
Many of the books I see seem to be dedicated to product strategy. Are their any books that clearly help distinguish business strategy from product strategy? Also looking for guidance on creating an effective business strategy. I currently work in an environment where there is not separation of these concepts and you can see how it stifles innovation and growth in the products.
Hi Jim, I recommend the book I link to in article: Roger Martin, Playing to Win, Harvard Business Review Press, 2013.
Hi Roman, it is nice to see your examples of Roger Martin’s approach. What is the role of product management in the “What is your winning aspiration,” “Where will you play,” and “How will you win” steps?
Hi David, Thanks for sharing your question. I think it is great when product management is involved in setting the business strategy. For example, the head of product may be part of the leadership team and represent product management’s perspectives and interests. Additionally, the winning aspiration may guide the individual product visions, the playing fields should help choose the right markets for specific products, and the competitive advantage may influence business model and in some cases, product features. But the best advice I can give is to ask yourself if and how your product is related to the business strategy and how this strategy help you make the right strategic decisions for your product. Hope this helps!
Thanks for sharing Roman.
For a single product company, is the business strategy the same as the product strategy?
You’re welcome Ahmed and thanks for asking the question. For early-stage startups, the business and product strategy are sometimes the same. But I generally recommend to separate them as early as possible. This helps you create a clear strategy to grow the business and to develop a plan how to grow the product. Hope this helps!
Thanks, a lot Roman for your reply. This makes it much clearer.
A follow-up question: I find it hard to understand the relationship between the company’s annual (or biannual) objectives (OKRs) and its business strategy. How do they differ? And if we review the business strategy bi-annually, does this mean that our annual OKRs could be updated too?
Could you please shed some light on this topic?
You’re welcome Ahmed. If you use OKRs to capture strategic business goals, then these are likely to change whenever the business strategy changes. Hope this helps!
I am a big fan of Roger Martin’s Play to Win approach and I have found that it works equally well for product strategy as it does for business strategy. The scope of the winning aspiration is smaller but the rest of the process works well. I am curious about your perspective on using Play to Win for product strategy.
Hi Keith, Thank you for sharing your question. As the objective of a product strategy is different from a business strategy, I find that the former benefits from using a dedicated format. A product strategy serves to communicate how we intend to achieve product success; a business strategy states how we want to attain business success. But if you successfully use Roger Martin’s strategy definition for your products, then that’s great. Does this help?
Great read Roman.
I’d be interested to learn more about a) how product should be leveraged in the original setting of the business strategy; and b) what organisational set up and processes are required to make things work effectively
Thank you for sharing your feedback and your questions. They are great, and I’d really like to offer specific, helpful answers. But the how a product should be leveraged with regards to a business strategy is something you will have to work out for yourself, based on your actual business strategy and product portfolio. Take, for example, Apple’s recent change to focus on services. If your company was to adopt a similar approach, then you would have to figure out what this means for your product portfolio(s) and the individual products contained in it or them. Should some of the products be discontinued? Should they be reworked or enhanced? Will new ones have to created to support the business strategy?
A similar answer applies to your second question. Based on your business strategy and current management systems, determine how to evolve the business. In practice, this has meant for many companies to invest in a digital transformation, introduce agile practices, and establish or improve product management. Hope this helps!
Thanks for that article. It’s really hard to make decisions as a Product Owner when the management is only sharing parts of a the strategy. I read an article where the Product Owner was described as a “Team Output Manager” and in my opinion that is describing very well where the problem is. The Product Owner is not owning the product but is only making sure that the tasks the management gives are getting done.
Thanks for your comment Cornelia. I also find that product owners are not always empowered to make the necessary decisions. If that’s the case for you, then you might find my article “Boost Your Product Leadership Power” helpful.
Thanks for sharing Roman.
Having worked in a large organization, I would say that the division of labour is as clean when it comes to business stakeholders versus product managers/owners. It messy when it comes to large teams and when strict budgets are involved that revolve around “projects’ rather than products.
Thanks for your comment Eugene. I agree that project thinking instead of product-orientation makes the split hard. But I’d also add that the latter is a key prerequisite for offering successful products. See, for example, my articles What is a Digital Product? and Digital Transformation and Product Management.