In a previous Trackmind post, we discussed the importance of innovation, and how to do it. However, innovation can be a double edged sword, you may be just as likely to stab yourself with it. One example of product proliferation run amok is Royal Philips. According to a HBR article, in the early 2000’s Philips was the top patent filer in Europe and amongst the top ten in the US. However, by 2011 because of their complexity, created by their diverse product offerings, revenue dropped by nearly 40%. You may be asking yourself, but product diversity is a great thing. Product diversity allows for your company to offer fresh experiences to customers, and to prevent over investment in any one product. Unfortunately the more products you offer the costs in the supply chain, sales and marketing, development, and administrative processes become less streamlined and more expensive.
These increases in overhead are also only one part of the downside of uncontrolled product diversity. The other aspect is also how product complexity makes it difficult for your customers to choose a product. Philips had over 10,000 IT applications, how could they react to changing customer demands, when managing their products was overwhelming. Philips, in response to their vast complexity, began a transformation process. They consolidated their products and began to integrate what they were offering. They originally had six fields of products, but eventually cut their fields down to one.
It is difficult to cut products, as that means, massive corporate infrastructure overhaul, and potentially cutting people’s jobs. So before your company puts itself into that tragic situation, here are some steps that can help you ascertain and correct product saturation. The difficulty at which your employees and customers access your products is the best indicator of whether your company is suffering from product over-saturation. This is why CRMs are important for your business, as they will have the means to gauge your customer’s experience. However, gauging employee’s difficulty with product management is more challenging to implement.
One solution, and the one Philips implemented, is to integrate innovators and product managers. For most companies, the two roles are functionally separate, they have zero interaction and communication with each other. If, and only if, you can integrate the two, then your innovators will be able to gauge when to throttle their unquenchable desire to innovate. Not only can you integrate your workforce, but you can also integrate your products.
USAA is a financial service company that supports members of the U.S. armed services. Because of their integrated product services they grew from 8 million to nearly 11 million over a four year period, and their profits rose by three percent. Originally, which would have been a multiple step interactive process to buy a car is now a single interaction process. Instead of having to contact multiple people to asses their financial situation, the average price of cars, and what services they need customers of USAA can gain all the information they require from a single interaction with USAA. Their system is simple and organized, making customer experience a pleasant and intuitive experience. USAA also does not introduce a new product simply because it will be a new source of revenue in the immediate future. If the product does not integrate into the system seamlessly they will refuse to offer it until it does. They are not the only other company that follows this practice, ING Direct Spain delayed a product for a year until they fixed the systems that delivered it.
The simplest, and cheesiest, answer to product over-saturation is actually deciding on a clear vision. This sounds self explanatory, and very nose on face, but it is through this decision that innovators will be guided and not need to be lead by that same nose. A great vision will not only guide individual projects, but also help the management team make decisions on expanding and defining company infrastructure. Ultimately a vision should help determine if a project is truly valuable or determine if it will make a complex mess.
With these guidelines you can prevent your company from becoming too saturated with products, and make sure your growth is a healthy one.