On software product strategy
In the software business, there is simply no such thing as “the best.” There are so many needs to serve, there are many ways to win. In business, the competition focuses more on meeting customer needs than on beating rivals. Creating value is at the heart of competition.
Developing a successful product is not a bit of luck or just trying hard enough. While these factors are undoubtedly helpful, successful products start with making the right strategic decisions. A successful product strategy helps to make the right choices to ensure the product stands out from the crowd.
Considering a market, the structural analysis predicts the profitability of an industry and, therefore, crucial for investors whether to enter or exit to an industry. A structural analysis should result in decision support on how and where to compete and on the required investment to compete.
The aim of this post to give an overview of the main elements of software product strategy.
Road to software product strategy
Product managers are often busy with urgent sales requests or with writing new user stories to keep the development team occupied. This shortsighted behavior often leads to a situation where no longer see the wood for the trees. These tactics often direct product development to a wrong path or a dead-end street. Instead, to ensure a product's success a strong business strategy is needed to guide its development.
A company vision (or vision statement) is a foundational business document. A vision statement looks towards the future: what the company want to achieve in the long run. Company vision sets a broader strategic plan for the entire organization. Here are some well-know examples:
- Microsoft: "To help people and businesses throughout the world realize their full potential."
- Google: "To provide access to the world’s information in one click."
- IBM: "IBMers believe in progress—that the application of intelligence, reason and science can improve business, society and the human condition."
(Please note, the vision is often confused with a mission statement. The latter is saying about what the company is doing in the present and not about the future.)
A business strategy is a kind of map that determines the direction of a business and what the company want to look like in the future. It can simply be described as long-term business planning - typically covers about 3-5 years. When identifying specific objectives to support long-term goals, it is common practice to apply the widely used SMART (Specific, Measurable, Actionable, Relevant and Time-bound) mnemonic .
The industry structure analysis reveals the average performance of players in an industry. Competitive advantage is not about beating the industry average but providing superior value. Competitive advantage means that a company operates at a premium price, at a lower cost of both.
The right strategic decision making starts with the strategic competition, that is, to choose a different path from the others aimed at serving different sets of needs and customers . Therefore, the strategy explains how an organization will achieve superior performance while providing superior values.
Every firm competing in an industry has either an implicit or explicit competitive strategy. Although, there are benefits of the explicit process of formulating a competitive strategy: ensure that all departments are coordinated and directed with the common set of goals . The core element of competitive strategy is based on industry analysis, competitor analysis and strategic positioning  .
The competitive strategy considers taking offensive or defensive actions to create a defendable position in industry by dealing with Porter's five forces. Basically, there are three compelling generic strategies in an industry (see Fig. 1), any of them can provide a superior return on investment for the firm :
- Cost leadership strategy: The company sells its products either at an average price to earn a higher profit than rivals or to gain market share. It requires a vigorous pursuit of cost reductions from experiences, tight cost and overhead control in areas like R&D, service, and advertising. Cost leadership position defends the company against the Porter's five competitive forces .
- Differentiation strategy: This strategy means that the company creates a product or provides services that are industry-wide unique. This strategy provides above-average returns because it creates a defensible position for coping with all of the previously mentioned forces.
- Focus strategy: Focusing means limiting on a particular customer group, or geographic market to achieve either cost advantage or differentiation. The rationale of this strategy is to serve the particular target group very well - more effectively or efficiently than competitors who are competing more broadly.
Risks of the different strategies
Successfully implementing the different generic strategies requires different resources and skills. Cost leadership involves a series of risks to keep up its position. For example, as technology improves, the competition may be able to beat the present production capabilities. Some other examples can be the reinvestment into modern equipment or product line rationalization .
Differentiation also pours severe difficulties on the company as the cost difference between low-cost competitors and the specialized firm could be too huge for loyalty. In this case, a customer may sacrifice some of the features, services for cost savings. The other example could be the changes in customer tastes.
Focus involves another risk. Because of the narrowed market focus, this strategy results in lower volumes and less bargaining power with their suppliers. Furthermore, a broad-market cost leader may adapt its product to serve the same specific segment to compete directly.
The above mentioned three generic competitive strategies are alternative, viable approaches to dealing with the competitive forces. Sometimes the firm pursues more than one approach as its primary target, therefore, failing to develop its strategy in at least one of the three directions — a firm that is “stuck in the middle” — is in an extremely poor strategic situation. Porter says that business, which is ‘stuck in the middle’ have no clear business strategy, and are at serious risk as practising more than one strategy loses focus, and hence a clear direction for the future business trajectory .
A product vision represents the essence of the product, where a product is headed, or what is the end state of the product in the future. Typically, product vision defines two to five years’ time or even more – depending on the industry and the product life cycle. Here are some well-known examples:
- Microsoft Surface: "Unlike laptops, Surface serves your on-the-go needs without having to carry an extra device."
- Amazon Kindle: "To make available in less than 60 seconds every book, ever written, in any language, in print or out of print; and bring the same ease-of-use, deep integration and superior selection of content to movies, TV shows, music, magazines, apps, games, and more."
- LinkedIn*: "To connect the world’s professionals and make them more productive and successful."
- Instagram*: "To capture and share the world’s moments."
Simple statements (as the examples above or product vision boards can summarize them. The product vision clarifies why the product is bringing to the market, and what its success will mean to the organization. The product vision is a statement that is aspirational and communicates concisely where the product hopes to go and what it hopes to achieve in the long term. The vision is the ultimate reason for creating the product; it describes the positive change the product should bring about. An effective vision has four qualities :
- Big: depicts a higher picture that everyone can relate to
- Shared: motivates and unites people, facilitates collaboration
- Inspiring: provides motivation and resonates with the people working on the product
- Concise: easy to communicate and understand; captures the vision as a memorable phrase
It is also recommended that a vision follows the next pieces of information :
- For (target customer)
- Who (statement of the need or opportunity)
- The <product name> is a (product category)
- That (key benefit, compelling reason to buy)
- Unlike (primary competitive alternative)
- Our product (statement of primary differentiation)
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 Michael E. Porter. Competitive strategy: Techniques for analyzing industries and competitors: with a New Introduction. New York: Free Press, 1998. ISBN: 0-684-84148-7.
 Jacqui Carrel and Roy Everitt. Easy Competitor Analysis - How to Find What Your Competitors Are Up To, & How to Benefit From That Valuable Knowledge. Cinnamon Edge, 2012. ISBN: B0075LZ0FM.
 Craig S. Fleisher and Babette E. Bensoussan. Business and Competitive Analysis: Effective Application of New and Classic Methods. FT Press, 2007. ISBN: 131873660.
 J. Magretta and M.E. Porter. Understanding Michael Porter: The Essential Guide to Competition and Strategy. Harvard Business Publishing. Harvard Business Review Press, 2012. ISBN: 9781422160596.
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 Roman Pichler. Strategize: Product Strategy and Product Roadmap Practices for the Digital Age. Pichler Consulting, 2016. ISBN: 0993499201.
 Vaughan Evans. Key Strategy Tools: The 80+ Tools for Every Manager to Build a Winning Strategy. FT Publishing International, 2013. ISBN: B00BU0NELQ.
 Vaughan Evans. 25 Need-to-Know Strategy Tools. FT Publishing International, 2014.