Digital Product Management Thinking

Edition 1.0
Last E-Book Update: July 18 2017
Published by Senseshaping Ventures LLC
ISBN: 978-0-692-92410-5
Copyright © 2017 Nitin Joglekar and Varun Nagaraj

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We dedicate this book to our elders who loved us, taught us, and inspired us:

Mrs. Smruti Joglekar (1927-2016)

Mr. C.R. Nagaraj (1928 – 2016)

Mr. Baal Rishi (1933-2017)

About the Book

What does it take to product manage a digital product or service through its lifecycle?

Lean and agile practices are necessary, but are they sufficient?

Digital products generate a tremendous amount of data in distribution and use, lend

themselves to constant iteration, and enable innovative business models. Digital product

management (DPM) therefore involves sophisticated analytics, design thinking, and business

modeling in addition to the central coordinating role of traditional product management. The

authors contend that the key to successful digital product management is Digital Product

Management Thinking (DPMT) – a collection of systemic practices and skills that integrates

Analytics, Business modeling, Coordination, and Design thinking – the ABCD of DPMT. These

practices and skills are most relevant to the product manager, but DPMT is even more effective

when it is viewed as an organizational-wide competency. This book describes DPMT and its

application across the lifecycle of digital products – from up-front strategy formulation to

product development to ongoing portfolio and roadmap management.

The authors – Nitin Joglekar, Associate Professor at Boston University, and Varun

Nagaraj, Fellow at Case Western Reserve University and Boston University – draw upon current

product management best practices, relevant academic research in strategy and innovation, and

their own hands-on experiences as product managers, consultants, and executives in Boston and

Silicon Valley. Writing in an engaging ‘practitioner-scholar’ style, the authors provide a

succinct, practical, and rigorous approach to mastering and implementing DPMT. The book is

supplemented by an online MOOC on digital product management (QD503) taught by the

authors on the edX platform. (https://www.edx.org/micromasters/digital-product-management).

About the Authors

Nitin Joglekar

Nitin R. Joglekar is on the faculty at Boston University’s Questrom School of Business.

His interests involve Digital Product Management Thinking (DPMT), deployment of analytics

and machine learning techniques in innovation processes, and digitization of supply chains. In

addition to his academic career, he has overseen product management teams at established firms

and founded a software startup. He holds degrees in engineering from IIT, Memorial University,

and MIT. He also holds a doctorate in management science from the MIT Sloan School.

Professor Joglekar is the department editor for Technology, Innovation Management, and

Entrepreneurship at IEEE Transactions on Engineering Management. He is also a department

editor for industry studies and public policy at Production and Operations Management.

Varun Nagaraj

Varun Nagaraj is a Digital Learning and Innovation Fellow at Boston University’s

Questrom School of Business, and a PhD candidate and Design and Innovation Fellow at the

Weatherhead School of Management at Case Western Reserve University. Varun has been a

product manager, consulted to product managers on strategy and cycle-time excellence while at

PRTM management consulting (now PwC), and hired and mentored product managers in his

roles as VP of Product Management and CEO in the fields of networking, security, data center

virtualization, medical instrumentation, and IoT over a 30-year career. Varun holds degrees in

electrical and computer engineering from IIT Bombay and North Carolina State University in

Raleigh, and an MBA from Boston University.

Acknowledgements

This project came about, as many digital innovations do, because of a market disruption,

in this case created by edX in online education. Thanks to Anant Agarwal and his edX team for

creating an opportunity to address the growing interest in digital product management,

worldwide. We are grateful to Dean Ken Freeman, Paul Carlile, and colleagues for conceiving

and launching Questrom Digital Learning & Innovation program on edX to share research and

pedagogy expertise from the Questrom School of Business. Thank you, team DLI (Digital

Learning & Innovation at BU: Tim Brenner, David Charpentier, Bob Heim, Mathieu Hemono,

Monty Kaplan, Diana Marian, Sue Pett, Romy Ruukel, and Chris Dellarocas, along with

graduate students Anushree Srinivasan and Emre Guzelsu, who also served as the learning

facilitator for the first MOOC) for their partnership in developing the companion online class on

edX.

From Nitin

I would like to thank my MIT colleagues Steven Eppinger and Josh Forman for the

opportunity to teach an experimental class on digital product management at MIT. Tom

Eisenmann at Harvard generously let me peek into his ground-breaking product management

class at HBS. I am grateful to my product management colleagues from industry (together, we

had the privilege to nurture an amazing set of product life-cycles in the digital sector) who

continue to provide context and insights. Many of my former students have forged product

management-related careers and continue to provide me with insights from the field: Rehana

Ashraf, Eli Mather, Neel Madhvani, Carl Palme, and Nishant Sharma. I am also grateful to Ed

Anderson, Geoffrey Parker, and Moren Lévesque for many years of research partnership and
 Digital Product Management Thinking

friendship. Thank you Paula Maute for editorial support. On the home front, I am thankful for

my extended (seven) families in Boston. And last, but not the least, thank you Anika, Natasha,

and Aruna for your constant support and love.

From Varun

My parents prioritized learning and a good book above everything else, and I thank them

for that eternal lesson. I was incredibly lucky to have great colleagues and mentors at PRTM

(now part of PwC) who helped me build a solid foundation in product strategy and product

development. I am grateful to my many friends and colleagues (amazing product people) for

their generosity in sharing their insights over the years, and more recently, for participating in

my ongoing PhD research on design thinking, senseshaping, and decision-making under novelty.

I thank my wife, Arati, for her sustained support through the years. And special thanks to my

children, Ranjini and Nakul, for editing the manuscript, developing the website, and for their

constant love and encouragement.

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Contents

PREFACE ............................................................................................................................................................ 8
CHAPTER 1 DIGITAL PRODUCT MANAGEMENT .................................................................................... 13
THE RELEVANCE AND ROLE OF THE DIGITAL PRODUCT MANAGER ..........................................................................................14
THE ABCD OF DPMT...................................................................................................................................................15
ANALYTICS ..................................................................................................................................................................16
BUSINESS MODEL.........................................................................................................................................................16
COORDINATION ...........................................................................................................................................................17
DESIGN THINKING ........................................................................................................................................................18
BOOK OUTLINE ............................................................................................................................................................19
THOUGHT QUESTIONS...................................................................................................................................................19
REFERENCES ................................................................................................................................................................20
CHAPTER 2 BUSINESS CONTEXT: A PM MUST OPERATE WITHIN A BUSINESS MODEL ............... 22
FIRM-LEVEL STRATEGY ..................................................................................................................................................22
Michael Porter’s Frameworks ............................................................................................................................23
Scale and Scope ..................................................................................................................................................23
Blue Ocean Strategy ...........................................................................................................................................24
Core Competencies .............................................................................................................................................24
Agility/Adaptation Strategies ..............................................................................................................................24
Core and Edge ....................................................................................................................................................25
BUSINESS MODEL CANVAS (BMC): .................................................................................................................................25
INTEGRATING BUSINESS MODEL THINKING INTO DPMT ......................................................................................................26
THOUGHT QUESTIONS...................................................................................................................................................29
REFERENCES ................................................................................................................................................................30
CHAPTER 3 ORGANIZATIONAL CONTEXT: COORDINATING TEAMS AND PROCESSES ............... 31
CROSS-FUNCTIONAL COORDINATION ...............................................................................................................................31
CONTRASTING STAGE-GATE WITH LEAN DEVELOPMENT.......................................................................................................33
AGILE AND BLENDED DEVELOPMENT PROCESSES ................................................................................................................34
INTEGRATING ANALYTICS, COORDINATION, AND DESIGN THINKING IMPROVES THE AGILE PROCESS ..............................................35
THOUGHT QUESTIONS...................................................................................................................................................39
REFERENCES ................................................................................................................................................................39
CHAPTER 4 IDEATION AND HYPOTHESES DEVELOPMENT ................................................................ 41
OPPORTUNITY IDENTIFICATION .......................................................................................................................................41
CHARACTERIZING A PRODUCT CONCEPT ............................................................................................................................43
INTEGRATING ANALYTICS AND DESIGN THINKING IMPROVES IDEATION ...................................................................................45
THOUGHT QUESTIONS...................................................................................................................................................47
REFERENCES ................................................................................................................................................................47
CHAPTER 5 THE SCIENCE OF REQUIREMENTS MANAGEMENT ........................................................ 49
COLLECTING AND ASSESSING REQUIREMENTS ....................................................................................................................50
PRIORITIZING/REPRIORITIZING REQUIREMENTS ..................................................................................................................51
DOCUMENTING REQUIREMENTS – THE MRD AND THE PRD ................................................................................................52
DOCUMENTING REQUIREMENTS – USE-CASE BASED AND PRODUCT-ATTRIBUTE BASED REQUIREMENTS .......................................53
 Digital Product Management Thinking

ENHANCING REQUIREMENTS MANAGEMENT WITH DATA AND ANALYTICS THINKING .................................................................54

Portfolio-Analytical Approach ............................................................................................................................55
Analytical Hierarchical Process (AHP) Approach .............................................................................................57
THOUGHT QUESTIONS...................................................................................................................................................59
REFERENCES ................................................................................................................................................................59
CHAPTER 6 PRODUCT DEFINITION AND MVP EVOLUTION ................................................................ 61
MINIMUM VIABLE PRODUCT (MVP) ...............................................................................................................................61
DIFFUSION OF INNOVATION (DOI) AND PRODUCT EVOLUTION..............................................................................................62
PRODUCT EVOLUTION THROUGH ANALYTICAL EXPERIMENTATION ..........................................................................................63
THOUGHT QUESTIONS...................................................................................................................................................65
REFERENCES ................................................................................................................................................................66
CHAPTER 7 PRODUCT EVOLUTION: ARCHITECTURE, A/B TESTING, AND ITERATION .............. 67
ARCHITECTURE AND MODULARITY ...................................................................................................................................67
CONTINUOUS PROTOTYPING AND A/B TESTING .................................................................................................................69
DEPENDENCY STRUCTURE MATRIX (DSM): ARCHITECTURE AS ANALYTICS THINKING IN ACTION ..................................................70
THOUGHT QUESTIONS...................................................................................................................................................73
REFERENCES ................................................................................................................................................................73
CHAPTER 8 GO-TO-MARKET ....................................................................................................................... 75
GTM STRATEGY: LOOKING BEYOND THE PRODUCT.............................................................................................................75
The 4P and the 4C Models ..................................................................................................................................76
The SAVE Model .................................................................................................................................................76
Pricing/Value Capture ........................................................................................................................................76
Place/Access/Convenience ..................................................................................................................................77
Promotion/Education/Communication ...............................................................................................................77
PRODUCT MANAGEMENT AND PRODUCT MARKETING IN GTM ............................................................................................78
INTEGRATING ANALYTICS INTO GTM ACTIVITIES ................................................................................................................79
THOUGHT QUESTIONS...................................................................................................................................................81
CHAPTER 9 METRICS: P&L, INTERMEDIATE MEASURES, AND RISKS .............................................. 83
MARKET SIZING ...........................................................................................................................................................84
TAM ....................................................................................................................................................................84
SAM.....................................................................................................................................................................85
SOM ....................................................................................................................................................................85
LAM ....................................................................................................................................................................85
Data Collection ...................................................................................................................................................85
KEY PERFORMANCE INDICATORS (KPIS) ............................................................................................................................86
P&L MANAGEMENT .....................................................................................................................................................87
ANALYZING A P&L STATEMENT FOR RISK MANAGEMENT.....................................................................................................88
THOUGHT QUESTIONS...................................................................................................................................................91
REFERENCES ................................................................................................................................................................91
CHAPTER 10 BEYOND GOING TO MARKET: PRODUCT LIFECYCLE AND ROADMAPPING .......... 93
ROADMAPS .................................................................................................................................................................94
PRODUCT LIFECYCLE MANAGEMENT ................................................................................................................................95
PORTFOLIO MANAGEMENT ............................................................................................................................................96
PLATFORM ECONOMICS.................................................................................................................................................97

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 Digital Product Management Thinking

THE INTERPLAY BETWEEN ANALYTICS AND BUSINESS MODEL THINKING ..................................................................................98

THOUGHT QUESTIONS...................................................................................................................................................99
REFERENCES ..............................................................................................................................................................100
CHAPTER 11 SOFT SKILLS AND THE SOCIAL ASPECT OF DPMT ..................................................... 101
PRACTITIONER INSIGHTS ON SKILLS ................................................................................................................................101
A STRUCTURED ANALYSIS OF KEY SKILLS .........................................................................................................................102
Creating and Orchestrating Stakeholder Network ............................................................................................102
Empathizing with Stakeholder Network Members ............................................................................................103
Extracting Insights from the Stakeholder Network ...........................................................................................104
Communicating with the Stakeholder Network .................................................................................................104
Projecting Credibility and Building Confidence with Stakeholders .................................................................105
THOUGHT QUESTIONS.................................................................................................................................................105
REFERENCES ..............................................................................................................................................................106
CHAPTER 12 CAREER ARC ......................................................................................................................... 108
THE PM INTERVIEW ...................................................................................................................................................109
Motivation and Awareness ................................................................................................................................109
Product Thinking ..............................................................................................................................................109
PM GROWTH OPTIONS ...............................................................................................................................................110
Climbing the Ladder .........................................................................................................................................110
Career Maneuvers within Established Firms ...................................................................................................112
Startups as a Launch Pad .................................................................................................................................113
THOUGHT QUESTIONS.................................................................................................................................................114
REFERENCES ..............................................................................................................................................................114

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Preface

If you are a student or a practitioner of product management, there are many excellent

books, on-line materials, and communities that can sharpen your expertise. So what does our

book add to the conversation? Our book is based on our experience and research-backed belief

that the digitization of products has significantly raised the bar on product management, and that

successful digital product management requires the adoption of Digital Product Management

Thinking (DPMT) not only by product managers, but also by their organizations.

What is DPMT? Consider the recent mainstreaming of ‘design thinking’ – once the

exclusive purview of designers. Today, design thinking is a problem-solving methodology that

entire teams and companies use to solve a range of business issues. Similarly, we believe that

DPMT is a collection of attitudes, behaviors, and systemic practices that are relevant to entire

teams responsible for product, service, or customer-experience-based value creation in a digital

economy. These behaviors and practices span Analytics, Business modeling, Coordination, and

Design thinking – the ABCD of DPMT.

Just as David Packard, founder of HP, is famously reported to have said, “Marketing is

far too important to be left only to the marketing department,” we think DPMT may be too

important to be left only to product managers! We’ll acknowledge right away that we think

product managers may be among the most critical people in their organizations, ‘mini-CEOs’ of

their products, if you will. But a product manager will be more successful if the many teams that

he or she has to work with embrace and are proficient at DPMT.

While product management generally assumes that the customer is external, there is an

emerging trend of companies appointing product managers for strategic internal-facing

 Digital Product Management Thinking

deliverables such as an analytics application developed by a pharmaceutical company’s

Information Systems (IS) department for use by the company’s drug development team. DPMT

is appropriate in such situations as well and should be part of the standard IS toolkit going

forward.

This book can be read stand-alone or used in conjunction with our online course on

Digital Product Management offered on the edX platform

(https://www.edx.org/micromasters/digital-product-management). The book and online course

themselves are digital products. We view the first versions of our book and online course as our

minimum viable product (MVP). With your feedback, we look forward to iterating and

improving the book and the online course over time. You can contact us at

senseshaping@gmail.com.

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Chapter 1

Digital Product Management

Product management is the process of creating products, services, and experiences that

are valuable to customers, but are also feasible and commercially viable for the company to

develop and deliver. Product management spans the product or service life-cycle – from its

conception, through development and launch, to its sunset. Effective product management

balances the interests of the customer and the company over the product, service, or experience

life-cycle and enables a long and mutually beneficial relationship between company and

customer. The product manager (PM) is the central actor in the product management process –

saddled with responsibility and accountability for the product’s success, but rarely with the

authority over the resources required to deliver results. In most modern organizations, the

responsibility is formal (via a job description), but it is not uncommon for individuals to take on

informal PM roles (as in “somebody’s got to do it”).

Digitization adds complexity to product management. Digital products generate rich real-

time data that the development team can and must use to learn and constantly modify product

features and customer value (Gnanasambandam, et al., 2017). Understanding and reacting to user

experience is critical. Digital products can enable entirely new business processes. And digital

products often need to plug into business and technical ecosystems that span companies.

Consequently, digital product management is far more analytical, business-model dependent,

cross-functional and cross-organizational, and adaptive than traditional product management.

In this book, we aim to describe what it takes to be an effective digital product manager.

A key tenet of our book is the concept of Digital Product Management Thinking (DPMT) – a
 Digital Product Management Thinking

collection of attitudes, behaviors, and systemic practices that are relevant to entire teams

responsible for product, service, or customer-experience-based value creation in a digital

economy. We view DPMT in two ways. DPMT is a set of hard and soft skills that a digital PM

must master. But equally important, DPMT is a mindset or a way of thinking that is applicable to

the entire organization. In a DPMT-sensitized organization, everyone should think like a PM.

In each chapter (and corresponding online class session), we introduce a few core topics

along with exercises to reinforce an overall understanding of DPMT. In this introductory chapter,

we:

1. Discuss the role and relevance of the digital product manager.

2. Define Digital Product Management Thinking (DPMT).

3. Introduce the outline of the book and subsequent chapters.

The Relevance and Role of the Digital Product Manager

Few professions today are as sought-after as product management. Digital PMs get to

work with smart people to define and drive products and services that will hopefully change the

world. Talented PMs are sometimes compensated like ‘rock stars’ (Tsuchiyama, 2011),

especially in technology hubs such as Silicon Valley (Coren, 2016). CEOs at companies such as

Microsoft and Google started their careers as PMs. In their essay, “Good Product Manager, Bad

Product Manager,” Ben Horowitz and David Weiden refer to the PM as the “CEO of the

Product.” Because of its multi-faceted and central role in the modern digital company, product

management is the perfect training ground for those aspiring to senior executive roles and also

for those wanting to learn how to launch a startup.

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 Digital Product Management Thinking

PM roles and profiles vary greatly. Some PMs may focus more on the initiation of new

products, while others may be tasked with more mature lifecycle elements such as enhancing or

sustaining a product or managing ongoing market perception. Levels of authority and

responsibility may also vary greatly as shown by 25 student teams – enrolled in PM courses at

Boston University and MIT taught by the first author – who analyzed leading digital firms in

Boston and Silicon Valley in 2016–17. The PM’s level of hands-on technical proficiency also

varies significantly (Vogt, 2017). Some PMs are extremely technical, but many successful PMs

have a liberal arts background.

Given the great diversity in PM roles and profiles, what success factors can be

generalized? In this book, we make the case that successful digital PMs do share common traits.

They:

1. Understand (and know how to manipulate) the business and organizational context

within which they operate.

2. Are proficient at the process of digital product management – from ideation to go-to-

market and beyond.

3. Have a versatile repertoire of ‘soft skills’ such as empathetic listening and persuasive

communication, and are aggressively committed to continuous learning.

The ABCD of DPMT

DPMT is a collection of attitudes, behaviors, and systemic practices that help effectively

manage a digital product’s lifecycle. As the various chapters in this book describe, these include

a) analyzing constantly arriving information and building and rebuilding situational awareness;

b) developing and iterating a holistic response in the form of a business model; c) collaborating

and coordinating across functions and other boundaries to actualize the response; and d) iterating

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and refining situational awareness and response through customer-empathetic interactions. In

short, DPMT is a systemic amalgamation of Analytics thinking, Business model thinking,

Coordination thinking, and Design thinking. We like to think of this as the ABCD of DPMT.

Analytics

Digital products generate data that can be leveraged by the development team and by end

users across the entire product life-cycle. Therefore, the ability to collect and analyze data

becomes an integral part of DPMT. Consider a hypothetical app for diabetes. Assume the PM

and the development team have access to data on the adherence patterns of a population of

diabetic children taking medication. The data could inform the selection of the most effective set

of features to be included in this diabetes app given a fixed budget: for example, understanding

the value of triggers built into the app to advise parents or caregivers to call the physician when

the data reaches certain thresholds, versus alternative features. Trade-off decisions throughout

the life-cycle can be made much more effectively when they are based on good analytics. A PM

is typically not a data scientist by training. Rather, the PM’s job is to identify and recruit the right

data people for his/her team to enable analytics-driven decisions (Davenport, 2014) and to

inculcate analytical thinking across the organization. The role of analytics thinking in improving

various aspects of the product management process is highlighted in Chapters 4 through 10.

Business Model

Developing an up-front ‘business plan’ or ‘business case’ (often locked in arcane

spreadsheets) has long been a staple of classic product management. However, the dynamic

nature of digital products requires an approach that is less tedious and more amenable to change.

Business model thinking focuses on the high-leverage elements within a business plan and on the

inter-connectedness between them. Doing so makes the ‘business aspects’ of product

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development more consumable by the overall organization and encourages constructive

discussion. Business model thinking also offers the advantage of providing better visibility into

key assumptions and subsequently tracking changes. Chapter 2 describes how business model

thinking guides all downstream aspects of product management.

Coordination

Coordinating or integrating people and processes is a core aspect of a PM role. In fact,

the phrase “connecting the dots” quite accurately describes what a PM does.

Figure 1.1: Integration across multiple functions and stakeholders

(The graphic can be accessed online at: http://bit.ly/2tHVoBB)

Figure 1.1 shows core PM tasks including gathering user stories, specifying customer

needs, tracking profit and loss, and aligning product decisions with the business model. These

tasks are carried out in conjunction with other functions such as marketing and supply-chain

/operations. PM tasks often involve solving conflicts that arise due to differing objectives of the

multiple stakeholders. For example, a user interface designer may wish to simplify a product

versus a marketer who wants to add use features to increase product appeal. The need to manage

multiple perspectives is one of the reasons why coordination thinking is a key element of DPMT.

A second benefit from coordination is improved efficiency. The benefits of conflict resolution

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and execution efficiency will be apparent throughout all the chapters, with Chapter 3 in

particular discussing the role of teams and various development processes in facilitating

coordination.

Design Thinking

Design thinking is a problem-solving practice that contemporary organizations are

increasingly deploying to create innovative products, customer experiences, business processes,

information technology systems, and organizational structures (Brown and Katz 2011). The

practice or process of design thinking consists of four distinct dimensions. The practice is

empathetic and user-centric, with problems and solutions framed in terms of the interaction

between the product or service and its user environment. The practice is generative and involves

collaborating with diverse stakeholders in an open-minded environment that encourages debate

to generate and discuss multiple plausible hypotheses. The practice is iterative and based on

experimentation, a modular ‘bite-sized’ approach to problem and solution definition, and on

decision-making that is late-binding or reversible. Finally, the practice is representational and

uses prototypes to learn and adapt the product.

It will become apparent that the product management practices around ideation and

requirements management presented in chapters 4 and 5 are extremely aligned with the

empathetic user-centric and generative aspects of design thinking. And our approach to

developing and iterating the minimum viable product (MVP) as outlined in subsequent chapters

is consistent with the iterative and presentational dimensions of design thinking.

In addition to being a key element of DPMT, design thinking also complements and

reinforces analytic thinking. One of the dangers of relying too much on analytics is that the

benefits offered by experience-based intuition can be lost. Design thinking bridges the gap

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between analytical thinking and intuition by offering a starting point or a hypothesis that is based

on observation that subsequently can be validated and refined based on data (Martin 2009, p. 54).

Book Outline

Subsequent chapters are organized around three major themes: Context, process, and

skills. In chapters 2 and 3, we highlight the importance of context. We build on popular concepts

such as business model canvas, lean, and agile, and draw attention to the fact that product

decisions and actions are guided and constrained by the company’s business strategy and

development processes. Chapters 4 through 10 form the crux of the book. Key ideas around

ideation, requirements, minimum viable product (MVP), go-to-market, and life-cycle

management along with relevant aspects of DPMT are introduced in each chapter. In Chapters

11 and 12, we make the case that strategic and process mastery isn’t sufficient. Soft skills such as

active listening and persuasive communication along with a thirst for learning may be the

difference between a good PM and a great PM. We conclude by examining PM growth

trajectories, from landing that first PM job to achieving lasting success.

Thought Questions

1. Should a PM’s role be the “CEO of the product”? What are the pros and cons of this?

2. An organization is focused on “Internet of Things” (IoT) products, involving a mix of

hardware and software technologies, for supporting their business models. IoT products

in this setting refer to a connected network of physical devices, vehicles, buildings, and

other items embedded with smart electronics, software, etc., with built-in data sensing

and sharing capabilities. Reflect on the business and technical ecosystems that an IoT PM

must be aware of.

3. PM roles and required skills can vary across companies.

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a) What aspects of DPMT might be most important if you were a PM at a search engine

company?

b) What aspects of DPMT might be most important if you were a PM at a digital retail

company like Walmart Labs?

c) What aspects of DPMT might be most important if you were a PM at a digital

medical devices company developing a blood sugar monitoring product?

References

Brown, T., & Katz, B. (2011). Change by design. Journal of Product Innovation
Management, 28(3), 381–383.

Coren, M. (2016, Aug. 26). The highest paid workers in Silicon Valley are not software
engineers. Quartz [Blog: Show Me the Money]. Retrieved from
https://qz.com/766658/the-highest-paid-workers-in-silicon-valley-are-not-software-
engineers/

Davenport, T. (2014, March 3). Big data at work: Dispelling the myths, uncovering the
opportunities. Brighton, MA: Harvard Business Review Press.

Gnanasambandam, C., Harrysson, M., Srivastava, S., & Wu, Y. (2017, May). Product managers
for the digital world. McKinsey & Company. Retrieved from
www.mckinsey.com/industries/high-tech/our-insights/product-managers-for-the-digital-
world

Horowitz, B. & Weiden, D. (1998, April 1). Good product manager, bad product manager.
Khosla Ventures [Blog]. Retrieved from http://www.khoslaventures.com/good-product-
manager-bad-product-manager

Martin, R. L. (2009). The design of business: Why design thinking is the next competitive
advantage. Boston, MA: Harvard Business Press.

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Tsuchiyama, R. (2011, Feb. 14). The product manager as the digital industry’s rock star. Forbes.
Retrieved from https://www.forbes.com/sites/raytsuchiyama/2011/02/14/the-product-
manager-as-the-digital-industries-rock-star/#2418b2625983

Vogt, H. (2017, Feb 15). The non-technical product person’s* survival kit. LinkedIn. Retrieved
from https://www.linkedin.com/pulse/non-technical-product-persons-survival-kit-heike-
vogt?published=t

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Chapter 2

Business Context: A PM must operate within a Business Model

A PM is responsible for developing the strategy for a product or product family. Product

strategy describes the ‘why,’ ‘what,’ and ‘how’ of the product. However, product strategy must

generally be developed in the context of the company’s or business unit’s overall strategy. While

PMs are not responsible for authoring their company’s business strategy, it is critical that they

and the teams they work with understand the company’s business model, and how to operate

within that. It is not an overstatement to say that DPMT begins with business model thinking. In

this chapter, we:

1. Introduce concepts from the broad area of firm-level strategy that the PM can use to

productively discuss business strategy with senior management.

2. Introduce the popular Business Model Canvas tool as a means of documenting business

context.

3. Discuss enhancements to the business model canvas tool that make it more dynamic and

easier to integrate into DPMT.

Firm-Level Strategy

Generally, product strategy is aligned with firm-level business strategy. For example, if a

company generally competes on offering the lowest priced product and fast delivery, then a

product strategy for a high-end product that is customized over time to fit a niche customer might

rightly be considered non-aligned, and therefore a questionable strategy. Note that it is possible

that an anomalous product strategy may be a conscious attempt by the company to experiment

with a new business model and the lack of alignment could be “by design,” but it is good
 Digital Product Management Thinking

practice to always question and clarify such atypical plans. To facilitate a conversation on

strategy, the PM must be familiar with commonly used strategy frameworks and terminology

often used by senior executives. Here we briefly introduce six strategy frameworks:

Michael Porter’s Frameworks

Strategy is often described in terms of whether the company competes on cost or

“focused differentiation” (i.e., wherein a small group of customers is targeted based on

differentiated product features) (Porter, 1996). Popularized by economist Michael Porter of

Harvard Business School, such categorization of strategies are often referred to as “generic

strategies” and are often developed based on industry analysis (i.e., by looking at all the key

firms in an industry such as the automotive sector). This process uses Porter’s “Five Forces”

model along with SWOT (Strength, Weakness, Opportunity, and Threat) analysis. The five

forces are threat of new entrants, threat of substitutes, bargaining power of customers, bargaining

power of suppliers, and industry rivalry. Digital businesses are challenging to analyze in this

manner because digital businesses often blur the lines between traditional industry structures. For

example, consider how autonomous vehicles have upended traditional definitions of the

automotive industry and the software industry.

Scale and Scope

A core building block in strategic planning is the distinction between economies of

“scale” and “scope” (Chandler, 1994). Raising the scale of production reduces unit cost, and

thereby creates advantage for a firm with a larger sales volume than its rivals. Scope refers to a

firm’s efficiencies formed by increasing its product variety. Thus, a strategy built around scale

generally requires a different supporting product strategy than a business strategy built on scope.

While traditional companies generally chose to compete either on scale or scope, today’s digital

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businesses like Amazon often simultaneously compete on scale and scope.

Blue Ocean Strategy

Some firms have a better chance of success by creating a new market or a product

category rather than competing in established markets. The concept of “red oceans” (competitive

markets) versus “blue oceans” (new markets and categories), introduced by Kim and Mauborgne

(2005), scholars from one of the world’s top-ranked business schools (INSEAD), is now part of

corporate strategy vernacular. For an application example, see Khanlari (2016). The ability to

rapidly evolve the product or service offers digital businesses opportunities to steer their

companies away from red oceans to blue oceans.

Core Competencies

A traditional but still relevant way of formulating strategy is to understand and build on

the company’s unique resources or “core competencies,” a term introduced by management

scholars C.K. Prahalad and Gary Hamel (1990). For example, Intel’s core competencies include

designing, producing, marketing, and distributing micro-processors. A software company might

identify that a particular algorithm is its core competency, and look to extend and exploit that

specific advantage while developing new products. One could argue that search remains

Google’s core competency and that the restructuring of Google into Alphabet was driven partly

by a desire to not dilute this distinct core competency.

Agility/Adaptation Strategies

An alternative view of strategy focuses on learning and adapting to change. In this

worldview, strategies such as competing on cost or focus differentiation are temporary; even core

competencies can become irrelevant. The key for surviving and thriving over time in dynamic

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markets is agility, or the speed at which decisions are made and implemented. For a discussion of

speed and agility in digital strategies, see Venkatraman (2017).

Core and Edge

Companies use the terms “core” and “edge” to delineate different parts of the business

and their importance (Nagaraj & Billings 2001). As a PM, it is important that you know whether

you’ve been tasked with defending the core or extending the edge, or both. Digital businesses

may have a much more fuzzy distinction between core and edge than was the case with

traditional businesses.

Business Model Canvas (BMC):

A widely-used approach for concisely describing the product’s business context is the

Business Model Canvas, or BMC, popularized by Osterwalder and Pigneur (2010). The BMC

(see Fig 2.1) categorizes key decisions and assumptions into nine boxes: partners, activities,

value proposition, customer relations, customer segments, key resources, channels, cost

structure, and revenue streams. Product development experts like Steve Blank recommend using

the BMC to provide the ‘strategy front-end’ for lean development projects (Blank, 2014). One of

the advantages of the BMC approach is that it brings teams together around key assumptions that

are tracked over time. That is, periodic snapshots of the BMC reveal the evolution of strategy

and enable teams to engage in productive retrospection and debate.

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Figure 2.1 Business Model Canvas template (courtesy of Strategyzer: https://strategyzer.com/)

(The graphic can be accessed online at: http://bit.ly/2tIgm3d)

Integrating Business Model Thinking into DPMT

A potential limitation of the standard BMC approach is that it does not explicitly consider

the interplay between the nine elements of the canvas. Either reinforcing or opposing interactions

or effects can be associated with individual decisions across these key elements. To understand

interactions and their causal effects, consider Microsoft’s Xbox platform. Multiple independent

software vendors (ISVs) or partners such as Electronic Arts (EA) (makers of Madden NFL

software games) produce and sell products for the Xbox. We illustrate allied interactions in a

causal loop diagram (Sterman, 2000) shown in Figure 2.2, with two revenue streams: direct

platform sales to end customers, and licensing fees paid by ISV partners. The relationships

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between the BMC elements that drive the evolution of these revenue streams are shown in the

outer and inner loops of Figure 2.2. They correspond to economies of scale and scope,

respectively.

Figure 2.2 Evolution of scale and scope effects with multiple software vendors (ISVs)

(The graphic can be accessed online at: http://bit.ly/2ubUAbI)

The outer loop shows a scale effect: as the number of partners increases, the value of the

platform (in this example, the number of available games on Xbox) increases. This, in turn,

increases the number of customers and allied direct revenue. These dynamics provide additional

impetus to increase the number of ISV partners. On the other hand, the inner loop indicates a

scope effect that goes in the opposite direction: as the number of ISVs (scale) goes up, the

perceived value of using the Xbox gaming device goes up, and thus the number of customers

increases. This in turn increases the direct revenue for Xbox, providing an incentive for

Microsoft to consider the creation of even more custom application programming interfaces

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(APIs) to increase the scope of offerings and attract a larger number of ISVs. But as the number

of custom APIs goes up, the cost of supporting ISVs goes up, and if the licensing fee from the

ISVs does not grow proportionally, profit margins may go down. Such trade-offs between

revenue and costs may require that the numbers of ISV partners be reduced by following a more

focused API strategy (Anderson & Parker, 2013).

The BMC provides a static picture (or a collection of periodic snapshots), whereas the

addition of causal loops provides a dynamic understanding of how the business logic may

evolve. A dynamic BMC integrates business model thinking with analytics, coordination, and

design thinking, leading to enhanced DPMT by the PM and the team.

It is worth reviewing Figure 1.1 in Chapter 1 in this regard. Different stakeholders in a

product team often represent different aspects of these nine elements. It is the PM’s job to clarify

the synergies and tensions between them by validating assumed relationships between the boxes.

Doing so requires the incorporation of additional data or analytics. The PM also needs to act as

the team’s coordinator and resolve potential conflicts. A dynamic BMC can be used to inform

dissenting members of a PM team as to why a particular decision is being made (e.g., to secure a

larger or a smaller number of partners).

Table 2.1 offers a step-by-step procedure for developing a dynamic BMC.

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Table 2.1: Seven-step process for completing a BMC and assessing interaction effects

(The graphic can be accessed online at: http://bit.ly/2gLBcO4)

Finally note that the BMC box structures and the causal loop diagrams are just one

possible mechanism for describing business model dynamics qualitatively. Other representations

such as the Balanced Score Card (Kaplan and Norton, 1996) and System Dynamics Simulations

(Sterman, 2000) serve a similar purpose. In Chapter 9, we illustrate how to look at these

tradeoffs quantitatively by setting up a profit and loss analysis.

Thought Questions

1. Can you articulate your company’s strategy using some or all of the six frameworks

presented in this chapter? Note that the frameworks are not mutually exclusive. As an

over-the-top example (just to make a point and to win strategy Bingo), a company might

exploit new learnings from customers to develop a differentiated product family that

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leverages some unique firm competencies to pursue a blue ocean opportunity within the

existing industry structure! If you do not work for a firm, think of a company where you

wish to get a job interview, and reverse engineer their strategy based on publicly

available information.

2. Reverse engineer the BMC for a competitor so that you can inform your firm’s product’s

business model. If you do not work for a firm, think of a company where you wish to get

a job interview, and reverse engineer their competitor’s BMC based on publicly available

information.

References

Anderson, E. G., & Parker, G. G. (2013). Integration and co-specialization of emerging

complementary technologies by startups. Production and Operations
Management, 22(6), 1356–1373.

Blank, S. (2014, Oct. 24). The business model canvas gets even better – Value
proposition design [Blog]. Retrieved from https://steveblank.com/2014/10/24/17577/

Chandler, A. (1994). Scale and scope: The dynamics of industrial capitalism. Cambridge, MA:
Belknap Press of Harvard University Press.

Kaplan, R. S., & Norton, D. P. (1996). Linking the balanced scorecard to strategy. California
Management Review, 39(1), 53–79.

Khanlari, A. (2016, June 2). Blue ocean vs. red ocean strategies (6 major differences): Red Bull
case study. Retrieved from https://www.linkedin.com/pulse/blue-ocean-vs-red-strategies-
6-major-differences-bull-khanlari

Kim, W.C. & R. Mauborgne (2005). Blue ocean strategy: From theory to practice. California
Management Review 47(3), 105–121.

Nagaraj, V. and D. Billings (2002). EnCORE-EDGEing Your Strategy. http://www.top-

consultant.com/ask_a_guru/article.pdf

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Osterwalder, A., & Pigneur, Y. (2010). Business model canvas. Self-published. Retrieved from
https://strategyzer.com/canvas/business-model-canvas

Porter, M. (1996). Competitive Strategy: Techniques for analyzing industries and competitors.
New York, NY: Free Press.

Prahalad, C. & Hamel, G. (1990). May–June. The core competence of the corporation. Harvard
Business Review, 79-90.

Sterman, J. (2000). Business dynamics: Systems thinking and modeling for a complex world.
Boston: Irwin/McGraw-Hill.

Venkataraman, V. (2017). The digital matrix: New rules for business transformation through
technology. Vancouver, BC: LifeTree Media.

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