From producer competition to product competition

Product approach in management: history and modernity

The first men brand

Product management owes its appearance to a marketer. In 1931, Neil McElroy worked in the marketing research department of Procter & Gamble. He analyzed the marketing processes in the company and presented the result of his research in a report that fit in 800 words. In it, he first suggested that the analysis of sales performance should include not only the evaluation of marketing tools, but also the study of feedback from dealers and direct buyers. Developing this idea, McElroy came up with the position brand man: according to Neil’s idea, this specialist’s functions included the analysis of the brand’s history, the study of customers and the territory of sales.

It was in 1930 that the first product managers took over the coordination of all (not just marketing) processes associated with the brand – from the development of new products to sales in the regions of presence.

While McElroy was a consultant at Stanford University, Bill Hewlett and David Packard, the founders of Hewlett-Packard, were exposed to his ideas. It was with HP that the next important step in the history of product management was connected. One of the principles that Hewlett and Packard professed in their company at the suggestion of McElroy was to bring the decision-making process as close as possible to the client. Hewlett-Packard introduced a new unique organizational structure: each product group in it was to become a separate organization that was responsible for the full cycle – from development, implementation and production to sales and marketing.

product of the rising sun

The product approach was not the exclusive know-how of Western civilization. An invaluable contribution to the development of the theory and practice of product management was made by Toyota, which developed its own concept – TOYOTA Production System (TPS). It was based on the “just-in-time” principle, which made it possible to build production processes based on market needs, while minimizing production costs.

The TPS system is based on a philosophy based on two practices: Kaizen and Genba.

Practice “kaizen” (“improvement”) involved the creation of a production culture aimed at continuous improvement of the company, in which all its employees should be involved. The whole process, as conceived by Toyota top managers, was laid out in the PDCA matrix:

  • Plan – Planning (development of a hypothesis)

  • Do – Implementation (conducting an experiment)

  • Check – Check (evaluation of results)

  • Act – Adjustment (eliminating the causes of deviations from the planned result, formulating a new hypothesis)

In the automotive industry, Toyota has proven that even in an industry with a long production cycle, you can quickly change the production process to meet the needs of the market. It is not surprising that in the late 2000s “kaizen” has found a second wind: this practice has become very popular in the software development industry.

The logical continuationkaizen” became the principle of “gemba” (“turning to the source”) – another important milestone in the development of a modern product approach in management. He pushed the traditional approach of American companies based on remote decision-making. The Japanese argued: if you have a problem, go to the place of the workflow, fix it in the “field” conditions, and then, having found the cause of the problem, adjust your standards and instructions so that it cannot happen again.

The eighties and nineties: getting closer to the consumer

The success of product management in the “traditional” industrial sector naturally influenced the strategy of the emerging IT segment. In the early 1980s, Inuit pioneered the product approach among consumer software developers. Its origins were Scott Cook (by the way, the former “brandman” of P & G) and Tom Proulks.

In order to better understand how consumers use the product and what problems they face, the “Follow me home” program was launched. Representatives of the company literally went to the homes of their customers and “removed” the user experience from them. As a result, one of Inuit’s successful products was Quicken, a financial software aimed not at financial experts, but at ordinary housewives. For maximum intuitive accessibility, the interface mimicked the look and feel of a paper checkbook. Thus, by understanding the “pains” of its customers, the company gained an amazingly loyal customer base and played an important role in the development of customer-centric product management.

But the real heyday of the product approach in software development began, perhaps, in the 1990s. It was a natural symbiosis. Still, in the “pre-digital” industries, changing a product based on customer feedback was still not so easy. And in relation to the IT-sphere, it turned out that product management greatly simplifies the process of adjusting the product design or adding a new “feature”.

Another thing is that the client and the development engineer need a competent translator who would be able to listen to both sides. It was for these reasons that Microsoft introduced the Program Manager feature in the early 1990s when the company began developing a new version of Excel for the Macintosh. Developers, focused on the technical side of the issue, did not care much about the usability of the product. It was Program Manager who took over the function of “consumer protection” and provided feedback from customers to “developers”. By the way, about the last. Famous Microsoft top manager Steve Ballmer was also a former P&G brand manager. Coincidence? We don’t think!

By the first half of the 2000s, most major IT giants had implemented similar product management systems. Today, it is obvious to all players in this market: no matter how brilliant visionaries are at the head of the development process, this is no longer enough to create a product that is in demand on the market. The client should have the last word.

Industries of the future: conservatism will not pass

Having experienced a particularly rapid development in the digital industry, the product approach is now increasingly used in the most conservative industrial B2B industries. This is not a tribute to fashion, but a guarantee of survival in the current turbulent times. For example, the trigger for the development of the oil and gas sector over the past two decades has been volatile energy prices. We have to radically change strategies. For example, Shell already has 47 different data-driven and artificial intelligence applications that support the company’s business.

Domestic oilmen are also actively implementing a product approach. True, taking into account the specific features characteristic of the B2B sector. For example, the product here is not the final product of the company itself, but business processes related to the exploration and production of minerals. For example, a number of factors affect the economics of drilling, such as speed, well length and well trajectory. As part of the “digital drilling rig” pilot project, one of the Russian oil companies entrusted software and hardware systems with control over all three parameters. As a result, the cost of well development decreased by 15%.

In the areas of freight transport and logistics, innovations are also being introduced, developed precisely thanks to the product approach. For example, First Freight Company (PGK) is successfully developing its product called Digital Wagon. It allows you to optimize rolling stock repair procedures based on predictive analytics. Using data from sensors installed on the railway network, “Digital Car” allows you to determine with high accuracy which of the cars should go to the client for loading, and which – for repairs. And this is not the only IT solution of Freight One, which today is successfully implementing digital products of its own design, changing the transport industry as a whole.

Started in 1931 by Neil McElroy literally on a napkin, the product approach is booming 90 years later thanks to the accumulation and availability of big data volumes. In the current ultra-competitive environment, enterprises in all sectors of the economy are forced to implement tools that allow them not only to respond flexibly and quickly to market changes, but also to predict future trends, changes in customer requests and interests with mathematical accuracy. The product approach has a great future. As technology marketing guru Regis McKenna pointed out back in the 1990s, the world has shifted from producer competition to product competition.

I will talk further about how we create digital products. If you have any questions – write in the comments, I will try to answer in more detail under the post or prepare a separate article.

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