The Evolution of Product vs. Strategy

A quick look at what split the roles that shape our world.

Find related earlier post, The Product Manager vs. The Strategist, here. Stay tuned for part III: how product managers and strategists should collaborate to create even more awesome.

Before we explore the future, let’s understand the past.

If product and strategy have the same goal — to fulfil a company’s why — why are they often separate? How did they get to be different roles?

The role of the strategist is only about 50 years old, and the product manager only 20. Yet the ideas and practices of product and business strategy have come to — formally or informally — permeate virtually every industry, market, and modern company.

A strategy-driven company focuses on how to deliver value better than competitors. A product-driven company focuses on what value to deliver, so that it is better than competitors. In the long term, both are necessary and neither is sufficient. The difference between these companies lies in what they choose to prioritise in order to compete effectively.

Every company’s focus sits somewhere on the spectrum. Some people think of product as a subset of strategy: what you deliver is part of how you create value. Some of the most successful companies today use products to create great strategies. More on this intersection in post III.

So how did we get here? Strategy dictated the rules of the business game for decades. But, at some point, product created a new playbook.

Looking at the evolution of product and strategy, a theory arises: tech startups have created a (virtually) permanent, cross-industry shift in customer expectations that favours product-driven companies.

Strategy came out of the Industrial Revolution.

Before the 21st century, there was craft. Business was run by experts and driven by specialisation. The butcher, the baker, the candlestick maker — these were craftsmen, who spent their careers becoming the best at one particular field.

Progress came slowly, often through minor improvements. Customer expectations, as a result, also changed slowly.

Iron gears turning

The Industrial Revolution changed everything: factories and assembly lines enabled mass production, dramatically reducing costs. As standards of living increased, we got mass consumption.

Growth was straightforward: make and sell more stuff. To make more stuff or sell it in new places, you needed more resources. To get more resources, you needed to buy them. Wealth was required to produce more wealth.

The birth of strategy

To win a competitive edge, companies focused on internal efficiency. They tracked and monitored employees closely to ensure smooth, quick processes.

This is what set the stage for Bruce Henderson, founder of BCG, to realise the power of strategy (according to Kiechel’s Lords of Strategy). He discovered that, for particular goods, the company he was currently working for took a loss, where his former employer made a profit. Both had the same costs, but their positions in the market were different because of the other products they sold. So they sold some of the same goods at different prices.

Bruce realised that, by looking at his competitors and his own company’s positioning, he could discover new ways to create a competitive edge. He expanded this idea to many areas of the business, looking for patterns in data that led him to causalities. He created models and frameworks that defined strategic best practices.

Eventually, strategy came to encompass a variety of ideas around the legendary 3Ps: positioning (1960s-1980s), processes (1980s-2000s), and people (2000s+).

Changing the rules of the game

Strategy meant that wealth was no longer the most important input to producing more wealth.

Intellect enabled you to outsmart your competitors with a clever how. The right patterns revealed new ways to create a competitive edge, using the same resources. Intellect could offset wealth.

Product came out of the Silicon Revolution.

Meanwhile, from the 1980s, software began to change the way we worked, consumed, and lived.

Tech companies start off traditional

Software is different than any industry before it because input and output are disproportionate. A small team of engineers can build a product that generates virtually infinite returns.

At first, while some barrier to entry remained with the high cost of computer equipment and CS education, tech companies worked just like traditional companies. They followed the same mass production mantra: more features must mean more sales. Sometimes, these features mapped to what customers needed, but solving their problems wasn’t the top priority; it was just one way, and not always the most effective one, to increase profit.

Decisions were still driven, as they always were, by sales and marketing.

But as tech matured and got cheaper and faster, the barrier to entry dropped dramatically. Any college or self-taught engineer with a few hundred hours to spare could create goods and enter the market.

You no longer needed wealth to produce more wealth, as the cost of resources became (relatively) negligible: you just needed intellect.

Garage companies

Thus was born the garage company, opening up business to a generation of minds that had no business degrees, no management books, and often no formal strategy. Many of these engineers did what engineers are trained to do — try to solve problems.

With such (relatively) low costs to create supply, everyone could enter the market — and they did. Traditional strategy started to matter less: improvements on positioning didn’t stick because markets changed so fast; improvements on processes created minimal impact because cost was already so low. Improvements on people strategy was just starting to emerge as an idea (and more on this later).

To convince a customer to switch from a stable, known brand to an unknown one, even for free, the product had to be magnitudes better than the status quo. Startups grew by effectively addressing customer needs.

This is, famously, the story of Apple’s rise. They won over Xerox and other incumbents by using technology to solve people’s existing problems in a desirable way, rather than forcing customers to adapt to technology. The iPod is a simple example, displaying song names instead of filenames.

At any point, a new entrant could steal your customers’ attention with something shinier, cheaper, or cleaner. To compete, many startups delayed monetisation. Others got creative in how they monetised — giving away products for free to make money purely off of ads, or giving away a basic version to encourage power users to pay, or turning their customers into their suppliers by creating the sharing economy.

All were driven by a powerful new idea: user acquisition was more important than profit.

The birth of modern product

Addressing customer needs requires a different skill set than developing software. Starting in the 1990s, tech companies created and empowered the role of the product manager: the ‘voice of the customer’. But the real impact of good product management didn’t become evident until startups began displacing incumbents.

As Ken Norton puts it, the PM is like a conductor — the orchestra can still make music without one, but it won’t be great, especially in the long run.

Tech changes customer expectations.

Over the past decade or so, tech companies have begun to tackle challenges in other industries, like publishing, retail, banking, and media, and fundamentally changing the way these industries work.

Traditional companies are getting displaced by product-driven startups, even when they’re not producing tech. Take Warby Parker, for example: they not only made cheap glasses accessible to the masses, but also considered what else cheap glasses enable or solve. Cheap glasses enable people to buy multiple frames, turning their glasses into an accessory. So Warby Parker is all about fashion. This also gets Warby Parker repeat sales — a winning strategy created by addressing customer needs.

As products became better suited to needs, customer expectations around change went from tolerance to reverence. Now, we crave the latest and greatest and idolise the new. We’re a generation hungry to create and consume the future.

This makes product critical to all industries. From agriculture to real estate to space travel, product-driven thinking is driving change in industries that haven’t fundamentally reconsidered their thinking in decades, or ever.

Tech startups have permanently altered customer expectations around meeting our needs — not just building stuff, but building good stuff. This is great for customers, as companies focus their efforts on improving our lives, which in turn helps their bottom line.

Defining the future of product and strategy

• Success during the Industrial Revolution was largely based on using resources efficiently.
• After the introduction of strategy, companies created competitive advantages with clever positioning or processes.
• Then came the Silicon Revolution, which dramatically lowered the required resources, and thus barrier, to enter the market.
• Tech startups’ success was largely based on ability to address customer needs. This changed our expectations across markets and industries.

As these product-driven startups mature and traditional strategy begins to matter more, and as more resource-based industries embrace product-driven thinking, we’re faced with a collision of ideas and priorities.

We’ve yet to define best practices for their intersection. Stay tuned, as the next post will explore case studies and extract some rules of play.