Commentary
Commentary
Time
to market
Time to Market
|
Summary |
Stylish Enthusiasm
Product development is full of slogans and buzzwords about speed and minimizing time-to-market (TTM). There's "incremental delivery"--that's one of the more reasonable. Then there's "just ship" [1]. And, finally my favorite, "internet speed", which better than any reminds us that minimizing TTM can be lemming-thought. Off the cliff we go!
As it turns out, minimizing TTM is not the goal at all. The goal is optimizing TTM in order to maximize profit. Just getting a new product to market isn't enough--the business has to follow through with the new product well enough to produce a sustainable profit. In fact, it has to operate well enough to produce a sustainable economic profit.
So, how does a product team optimize TTM? First, it has to answer these questions about its company, product, and customers:
- What is our investing preference? Small, fast projects are not always preferable to large, slow ones for maximizing profit.
- What are all the components of our product,. i.e. what is our whole product [2]? The product might be just the tangible output of manufacturing. Or it may also include sales support, professional services, customer project management, etc.
- What are the market entry points for each of our product components? Answering this question yields a list of milestones, any of which may measure TTM.
- What do our customers require for our product to succeed in the market? The answer may differ depending on the customer's goals and interests. TTM may differ for different markets.
Investment Preferences
Small, fast entrants to a market defeat large, slow incumbents, right? Sometimes. This oft-repeated story overlooks the huge number of large projects that only large companies can afford. It also overlooks that large companies often prefer large projects that have well-understood risks and a good-enough return. Large size enables them to continue growing with a manageable number of projects. Well-understood risks enable them to make very large investments.
The slow speed of large projects is not always due to large company inefficiency. It is often due to coordinating large numbers of people who do a large quantity of work. Some of that work reduces risk through extensive prototyping, market testing, etc. Large companies sometimes create more value by batching projects together to take advantage of economies of scale even when they have the option of treating those projects separately and delivering them sooner.
In The Origin and Evolution of New Businesses [3], Amir Bhide does an excellent job of summarizing the investment preferences of small and large companies. The optimum size and risk for projects is very company-specific, and company size is an important factor.
Regardless of its investment preference, though, a product team that wants to optimize TTM must determine what its product consists of. That leads to the idea of a whole product.
From Product to Whole Product
A "whole product" is a complete customer solution. It includes what we normally think of as a product plus related services and the customer's implementation activities. Typically a whole product consists of the output of R&D and Manufacturing, i.e. the product proper; plus informational materials from Marketing; selling expertise and delivery from Sales; professional services delivered by application developers, trainers, and support personnel; and finally the customer's own implementation efforts. Note that third parties may supply any of these components.
A useful tool for identifying whole product components is the total value statement. A total value statement extends the standard income statement to include the total value to the customer, the customer's margin, and the customer's implementation expense. It is especially helpful for identifying the component for a whole product because it lists not just the vendor's expenditures and return but the customer's expenses and return as well. Thus it accounts for the expenses and profits for a total solution. Following the money identifies real whole product components, even those from third parties.
Figure 1 uses a generic total value statement to identify the components of a generic whole product that includes sales, services, and customer expenses. For each component, the figure also lists the milestone at which the component reaches the market. The best way to review the figure is bottom-up, starting with what we normally think of as a product and building on it.
In more detail, figure 1 includes these items:
- R&D expense. This is the vendor's cost of developing the product. It results in a product design, and typically the design first reaches the market as part of an early product version at beta test entry. In most cases, more of the whole product is needed before a vendor can claim to have reached the market.
- Marketing expense. This is the vendor's cost of researching the market and positioning the product in that market. It results in materials like collaterals, sales training, advertising, etc. These components first reach the market when the vendor announces the product.
- Administration expense. Part of this expense is setting up an order entry and fulfillment system. The system engages the market at product launch.
- Cost of sales. This is the expense of paying sales reps and manufacturing the product. The selling, manufacturing, and shipping process first engages the market when the vendor ships the product to a paying customer.
- Cost of services. This is the vendor's cost of producing a customized and integrated application of the product for the customer. It may also include customer training, phone support, and other follow-on services. One can consider the vendor's application development process to have reached the market when at least one application is ready for use at a paying customer.
- Customer's internal expenses. This is the customer's internal cost of readying the application for production use, and it is in addition to what the customer pays to the vendor for services. Often, a customer will have its own project manager and training program, for example. In addition, internal expenses include space, equipment, power, and other infrastructure dedicated to the solution.
- Customer's margin. This is the return the customer receives by investing in the complete solution, so this is a flow of money to the customer rather than an expense. The customer's ROI is this margin divided by the customer's total cost of ownership. An ROI story is the resulting whole product component, and if the vendor is fortunate, it will be able to cite the ROI story when it uses the customer as a reference account.
So, by thinking through how a vendor and its customers spend money to create a complete solution, one can identify the components of a whole product. Each of these whole product components reaches the market at a particular milestone. R&D's output first reaches the market at beta test. Marketing's at announcement, etc.
Which milestone should one use to measure time-to-market?
That depends on how much risk is left at each milestone. For products that use a generic delivery channel, have committed buyers, don't involve services, and require only well-understood customer implementation, launch probably serves as a good time-to-market milestone.
On the other hand, a product that requires direct sales, professional services, and a unique customer commitment really doesn't reach the market until it obtains its first reference account. Businesses with products in this class, though, often consider a product "in the market" at launch, and that's a mistake. Even if at launch they have trained their sales channel, service providers, and customers, too many risks remain to consider the product to be in the market. Any one of those stakeholders may reject the product as too hard to sell, deploy, or use, thus requiring additional R&D and Marketing investment (beyond product maintenance) and a re-launch.
So, it's important for a product team to choose a TTM milestone that's meaningful for its particular whole product. But the choice of milestone is not driven just by the whole product. Just as important, a vendor must consider its customer's goals and interests to assess which TTM milestone to use.
Customer Goals and Interests
The book Crossing the Chasm [2] does an excellent job of summarizing typical customer preferences for different stages of a product's lifetime. Figure 2 uses a total value statement to illustrate the same ideas. In the upper right of the figure are names for five different types of customers that a vendor encounters as its product reaches new markets. These are Innovators, Early Adopters, Early Majority, Late Majority, and Laggards. The figure summarizes the interests for each type of customer as follows:
- The word "focus" indicates that customers of this type are particularly interested in achieving goals related to this component.
- The word "pressure" indicates that customers of this type will negotiate very aggressively to reduce costs or demand service for this component.
- A check mark indicates that customers of this type will be interested in this whole product component, but may not apply pressure.
In more detail, the types of customers and their preferences are:
- Innovators. These are technologists who are primarily interested in the technology of the product. Of course, they are interested in the products' price, but have little interest in how the technology will contribute to a total solution. Often, these customers are themselves suppliers of technology components to other companies.
- Early adopters. These are risk-taking visionaries who are determined to create the total solution but, because the product is so new, cannot be certain of all the costs and risks of achieving that solution. Nevertheless, they are willing to plunge ahead with an unproven product because the vision is so compelling. They of course are interested in the total value of the solution and the price for the product and services, but are very focused on the capabilities of the shipped product. They will apply pressure to get customized services and R&D work as they learn what they require to implement their vision.
- Early majority. These are pragmatic, value-driven businessmen. They are interested in creating value for their companies, and they will spend to achieve that; however, being good businessmen they are very conscious of ROI and risk. Therefore, they focus on total value and their margin. They are very careful about total cost of ownership--their nightmare is to be entangled in a messy, unpredictable project with unclear ROI.
- Late majority. These are followers, at least with respect to the solution in question. They choose to purchase only to stay at-par with their competitors. They are very sensitive to price and terms.
Clearly, "reaching the market" does not mean the same thing for all these types of customers. To reach a market of innovators one need deliver primarily intellectual property. To reach visionaries one needs a shippable product and well-prepared services. To reach pragmatists one must offer a proven total solution and solid references. To reach the late majority one still needs a complete solution but now with a competitive price. Note that the vast difference in interests between visionaries and pragmatists is the chasm referred to in Crossing the Chasm.
It seems clear that the phrase "time to market" is very ambiguous. It also is clear that the common attitude of "just ship", i.e. a focus on reaching launch, is not wise in many, perhaps most, situations. Choosing the appropriate TTM milestone requires some analysis and thought. Knowing your whole product components and customer preferences should enable you to determine the appropriate milestone by which to measure TTM.
With that milestone in mind, though, is it wise to focus on minimizing the time to each intermediate milestone, and finally to TTM? No.
Optimizing TTM
TTM is an optimization problem, not a minimization problem. An optimum combination of content and deadlines for the whole product components will maximize economic profit.
For example, a company in a race with competitors to deliver a total solution (i.e. a whole product with services and customer internal expenses) might maximize profitability by launching as fast as possible, thus fending off competitors, and then developing its sales and services. This would complicate developing sales and service capability, thereby lengthening the time to a first reference account (the product's TTM milestone), yet be the right thing to do. In this case, minimizing TTM would not be a good idea at all.
On the other hand, sometimes delaying an early milestone such as launch enables sales and service personnel to better prepare for the first customer engagement, which results in a shorter time to a first reference account (faster TTM) and greater economic profit. In this case, minimizing TTM makes sense, and delaying earlier milestones reduces TTM.
Delaying launch to reduce TTM and maximize profit is only one kind of tradeoff. Any pair of whole product components may synergize or compete. For example, adding some product features, thus delaying beta test, may simplify preparing services later on. And investing more time in preparing services may simplify selling.
Optimizing TTM is a wicked problem. Costs, returns, and risks are difficult to estimate; however, it's becoming clear that any attempt to make those estimates can pay off, and that a religious commitment to minimizing TTM is foolish.
Real Evidence
The book Customer-Driven Product Development [4] offers an interesting chart that shows that product profitability versus TTM reaches a peak for mid-TTM products. A related report on the research behind the chart [5] says "a single-minded pursuit of getting to market fast might actually reduce profitability and fail to optimize your R&D effectiveness".
The evidence, as well as experience and logic, argue that project teams must optimize, not minimize, TTM in order to maximize profit.
Summary
To optimize TTM for maximum profit,
- Know your own investment preferences: your optimum project size, required return, and acceptable risk.
- Know your whole product. This includes all customer-visible components of your own products and services, of your partners products and services, and of your customer's internal expenses related to the total solution.
- Know your customer's preferences. Tailor not just your products and services but also your TTM focus to your primary market's objectives and preferences. Dovetail your delivery with their activities and goals.
- Be flexible about allocating time to shore up weak points in the whole product. Sometimes this will shorten TTM, but it may mean delaying an early milestone or even delaying TTM. Keep the lifetime economic profit of the whole product in mind.
References
1. G. A. Moore, Inside the Tornado, Harper Business, New York, 1995.
2. G. A. Moore, Crossing the Chasm, HarperCollins, New York, 1991.
3. A. V. Bhide, The Origin and Evolution of New Businesses, Oxford University Press, New York, 2000.
4. S. Mello, Customer-Centric Product Definition, AMACOM, New York, 2002.
5. “New PDC Study Suggests Portfolio Managers Focusing on the Wrong Things”, Product Development Consulting Best Practices Report, Vol. 6, No. 7, July 1999, (accessed 1/3/2003), <http://www.pdcinc.com/insights/bpr_jul99_Portfo.html>
Copyright 2003, Peter Bradshaw. All rights reserved.