production managementthe product managers handbook the complete product management resource 20

Preface vPart I The Role and Operation of Product 2 Introducing Product Management and Managing 3The Cross-Functional Role of Product Managers 29 Part II Planning Skills for Product Mana

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ProductManager’sHandbookThe Complete ProductManagement Resource

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Preface v

Part I The Role and Operation of Product

2 Introducing Product Management and Managing

3The Cross-Functional Role of Product Managers 29

Part II Planning Skills for Product Managers 65

10 New Products: Proposal, Development, and Launch 15511 The Financial Side of Product Management 191

13The Product Manager as Marketing Manager 22114 Product Management: The Final Frontier? 239

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Back to the Future

The changes I have observed in business have been dramatic since thefirst edition of my book was published The Internet was a fledglingconcept at that time and now it has become a fairly standard part ofbusiness Although globalization was a growing phenomenon prior tomy first edition, it has also escalated in importance

On the other hand, there have been some constants Through allthe turbulence, there remains a need for entrepreneurial spirit, for anability to work with and through other people, and for a clear andfocused direction These are the characteristics of a product manageracting as the general manager of a “virtual company.”

Product management has long been viewed as one of the moreeffective organizational forms for multiproduct firms The advantagesare numerous and frequently documented First, it provides a dedicatedchampion for a product, brand, or service Second, a healthy internalcompetitive environment can be created Third, by championing anumber of offerings, a firm can more quickly respond to shifting cus-tomer loyalties And, finally, an opportunity is provided to readilyassess candidates for promotion to higher management levels

P r e fac e

Nevertheless, the effectiveness of product management is gent upon several factors If we expect product managers to trulychampion brands, they must be engaged in both day-to-day decisionissues and in developing the strategic future paths of their offerings.Although some companies have created a hierarchical product man-agement structure to do this, effective product management in thefuture will result from a horizontal decision-making process Productmanagers will play a major role in most product-related decisions,while relying on specialists to carry out many of those decisions Theemphasis will be on matching customer needs with corporate capabil-ities through the development of specific products and services.

contin-Now, to introduce the second edition, I’d like to use the porary format (often used in website design) of frequently asked ques-tions (FAQs)

contem-Frequently Asked Questions (FAQs)

What is a product manager?

A product manager is typically a middle manager charged with aging and marketing existing products (and developing new products)for a given product line, brand, or service Other job titles could includebrand manager, industry manager, or customer segment manager

man-(Note that the term product will refer to both products and services.)

What types of companies use product managers?

Product managers are used in all types of companies from consumerpackaged goods to services (such as financial institutions) to industrialcompanies (such as original equipment manufacturers (OEMs), com-ponent suppliers, and after-market firms) to nonprofit organizations(such as hospitals)

What’s the difference between product management andproduct development?

Product management is the holistic job of product managers, ing planning, forecasting, and marketing products or services Productdevelopment is a corporate process of designing and commercializingnew products This book focuses on product management

includ-vi•The Product Manager’s Handbook

Who should read this book?

This book is targeted most directly at existing product managers andcustomer segment managers (primarily in “nontraditional” roles beyondconsumer packaged goods) However, it has been used effectively bypeople in all types of companies and industries Many new productmanagers and directors or vice presidents of product management ormarketing have found it valuable as well

What will I learn by reading this book?

You’ll learn about different approaches to product management fromdifferent types of organizations, as well as ideas for getting work donethrough other functional areas You’ll learn how to develop annualmarketing plans for your products and services, with a special empha-sis on enhancing customer loyalty and profitability You’ll learn how tostrategically evaluate your product portfolio, walk through a typicalcorporate development process, and prepare for effective launch strate-gies And finally, you’ll learn various ways to add perceived value bothto your product and to your effectiveness as a product manger

How will I learn these skills?

Several techniques have been used to help you in the learning process:(1) real-world cases showing product management in action, (2) hands-on worksheets for the planning process, and (3) checklists at the endof each chapter for evaluating progress at every critical stage In addi-tion, this edition has new chapters on the impact of technology onproduct managers (Chapter 4), customer value management (Chapter6), and the financial side of product management (Chapter 11)

What feedback did you receive on the first edition?

A review published in the July 1997 issue of the Journal of Product

Innovation Management stated

This book is a handy broad-based reference guide describing allaspects of the product management function and relating them to thecontemporary and turbulent business climate It provides a real-istic overview of the many roles product managers play and it exam-ines, in an organized fashion, a variety of management tools whichmay be employed to maximize the value of the product manager

Preface •vii

viii•The Product Manager’s Handbook

The book is valuable because it provides theoretic frameworks [for]identifying, analyzing, and managing product lines while supportingthose approaches with relevant and recognizable case studies toclearly illustrate the points being made.1

A customer review from Amazon.com stated:Product Management is one of those jobs that is different for eachproduct manager; what it is depends on your product and what youmake of it The danger is that when you write about product man-agement, you focus on your specific experience I found this book tobe general enough to be of interest to many; still it was not so high-level that it did not provide any help I would recommend this bookto everyone who thinks about product management as a next career.I would also recommend it to those who have been in product man-agement for several years, and just want to read what others thinkabout it

In addition, since the book has been used as part of an executiveeducation program sponsored by the School of Business at the Univer-sity of Wisconsin−Madison, it has been reviewed by hundreds of prod-uct managers and has received high marks for practicality and usefulness

Is the book available internationally?

Yes, the book has had increasing international sales and the first tion was translated into Spanish

My interest in product management began several years ago when I ized that the term meant significantly different things to different com-panies Several people contributed to this growing awareness, includingparticipants at my product management workshops, sponsored by theExecutive Education department of the School of Business at the Uni-versity of Wisconsin−Madison I found numerous examples of nontra-ditional approaches to the subject, and widely varying success factors.This book highlights some of those findings In addition, several prod-uct managers responded to E-mail inquiries about their positions andsupplied example job descriptions I want to thank all those individualsfor their willingness to provide input for the revision of the book

real-Ac k n ow l e d g m e n t s

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Part IThe Role and Operation

of ProductManagement

McGraw-Hill's Terms of Use

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The ability to attract and retain high-profit customers is a

dis-tinguishing characteristic of successful businesses, and manycompanies struggle with how to attain that goal To succeed,firms employ many different strategies, including competency man-agement; customer retention programs; strategic leveraging; globalmarketing; project management; big, hairy, audacious goals (BHAGs);E-commerce; and supply chain management Yet all of the tools andtechniques espoused by management gurus have not replaced theimportance of a solid organizational structure to guide an organizationin accomplishing corporate goals One such organizational structurethat has withstood the test of time in many situations is the productmanagement structure In this type of structure, product managersoversee a set of defined products or services that face different com-petitors and different customer constraints than many or all of theother products and services in the company Determining if productmanagement is the optimal structure for a particular company involvesa number of considerations, including the company’s culture; howmuch technical knowledge is required to design, launch, and supportspecific products; and whether the company’s products require dis-tinctly different approaches to “going to market.”

Once a structure is established, clarifying the roles of companypersonnel with whom product managers routinely interact is impor-tant The product manager is a generalist who must rely on numerousfunctional specialists to develop and market the product line The prod-

4•The Product Manager’s Handbook

uct manager is the liaison among the functional departments within thecompany as well as among the company, the sales force, and the cus-tomers for all product-related issues As a result, some understandingof mutual expectations is appropriate

On an ongoing basis, product managers exchange information withthe sales force They represent the voice of the customer at internal meet-ings on the product line in question And they need to plan for currentand future product activities that benefit the company as a whole

Part I discusses the evolution of product management, providessuggestions for selecting the “right” product managers and managingthe system effectively, and demonstrates the need for product man-agers to be cross-functional leaders

There has been an evolution in product management over the pastdecade Rather than declining in number and importance as had beenforecast in numerous articles, product management (especially “non-traditional” product, market, and service management) has prevailedby encompassing customer management and value chain analysis,evolving into a more holistic position The overall responsibility of aproduct manager is to integrate the various segments of a business intoa strategically focused whole, maximizing the value of a product bycoordinating the “production” of an offering with an understanding ofmarket needs To accomplish this, a product manager needs a broadknowledge of virtually all aspects of a company along with veryfocused knowledge of a specific product or product line and its cus-tomers Product managers manage not only products, but projects andprocesses as well

Procter & Gamble has been credited with the creation of the uct management concept In 1931, Camay soap was languishing whileIvory soap was thriving A Procter & Gamble executive suggested thatan individual manager be assigned responsibility for Camay, in effectpitting the brands against each other This brand-management systemwas so successful that it was copied by most consumer packaged goodscompanies.1

Product management is a matrix organizational structure in whicha product manager is charged with the success of a product or prod-uct line but has no direct authority over the individuals producing andselling the product Much of the work of a product manager is throughvarious departments and cross-functional teams, almost as if the prod-uct manager were operating a business within a business (See featureThe Life of a Consumer-Brand Product Manager.)

There are both advantages and disadvantages to the product agement approach On the plus side, a product manager provides ded-icated attention to a product line This results in better informationabout the customers, competition, and strategic potential for thatgroup of products In addition, since the product manager must nec-essarily interact with the various operational units of a company, theposition can provide a good training ground for young executives Onthe other hand, one common criticism of the product managementstructure is that it is a “fast-track” or “stepping-stone” position,overemphasizing short-term results It also promotes the perceptionthat product management skills are more transferable than productand industry knowledge In addition, product management can causeconflict because the product manager has limited functional authorityover many parts of the development, marketing, and sales of the prod-uct, but may nevertheless have bottom-line responsibility Finally, prod-uct managers might focus on the product almost to the exclusion of thecustomer

man-Despite its limitations, product management (or some variation ofit) has found its way into virtually every type of industry, going wellbeyond the traditional consumer-product brand-manager position Evenwithin fast-moving consumer packaged goods companies, product man-agement has evolved However, because of the increasing level of inter-nal brand cannibalization and competition for resources, along withmedia fragmentation and a higher level of retail and consumer sophis-tication, product management is being stretched into different “shapes.”

Product Management Today

Product management as an organizational form has moved into a ety of business-to-business firms, as well as service organizations suchas financial institutions and hospitals Most large banks have productmanagers for credit cards, deposit services, trust operations, and com-

vari-6•The Product Manager’s Handbook

The New Product Management •7

The Life of a Consumer-Brand Product Manager

Tracy Carlson, senior product manager for Lever Brothers’ Wisk gent, spends an inordinate amount of time with stains In an effort tomove her brand to become the best-selling liquid laundry detergent inthe country, she has to convince consumers of the superiority of herproduct over Procter & Gamble’s Tide Like her counterparts at otherconsumer-product companies, Carlson is responsible for nearly everyaspect of her product.

deter-More than being simply champions for their brands, product agers are viewed in some ways as running their own little businesses.They not only oversee product development, but also monitor adver-tising and promotion, as well as negotiate to obtain shelf space fromretailers With current product proliferation, manufacturers concede thatthere are few lasting competitive advantages from which to attain mar-ket dominance Therefore, sensitivity, intelligence, and intuition areimportant traits for product managers facing these battles.

man-But the real challenge of the job for product managers like Carlsonis often simply getting the product onto shelves A glut of new productshas made retailers reluctant to open shelf space without generousinducements from manufacturers The inducements include paying forin-store displays, fees for mentioning the product in store advertisingcirculars, and compensation for the increased processing costs ofwarehousing the new products.

Carlson will not reveal the Wisk marketing budget, but she saidthat in general the proportion of consumer-products budgets for tradeand consumer promotions has risen from less than half to as much asthree-fourths, with the balance going to advertising.

Source: Condensed from “High Stakes for Product Managers,”The New York Times(December 4, 1989): D1–D7.

mercial cash management services.2 Property/casualty insurers havebegun to utilize product managers for highly competitive, rapidlychanging lines such as workers’ compensation and auto insurance.3

Hospitals have also experienced success with the product

manage-ment structure A study published in the Journal of Health Care

Market-ing reported that hospitals with product-line management outperformed

those without it on virtually all performance indicators, including pancy rate, gross patient revenue per bed, average profit margin, andreturn on assets.4 Not surprisingly, the implementation of product-linemanagement increased with level of competition and hospital bed size.Other health care studies found that product-line management in hospi-tals offered the benefits of increased accountability, elimination of dupli-cation of services, and a better market orientation The limitationsincluded a possible increase in costs (because functional management wasnot eliminated) and an increased need for more timely and accurate data.5

occu-Even though traditional product management has had its successes,companies have increasingly modified their approach to product man-agement to incorporate a focus on the customer This has taken manyforms Some service firms have created what is in fact segment man-agement (even though the product manager title might still be used) Forexample, hospitals might have a product manager for women’s services.Financial institutions might have a small-business product manager oran “affluent market” manager Deregulation in financial services hascontributed to this latter phenomenon Interest-bearing checkingaccounts, money market funds, affinity credit cards, and an explosionof other product offerings attempt to appeal to increasingly smallermarket segments This, along with the availability of more sophisticatedtechnology, has changed the focus of product management at banks

[In one year alone], banks launched about 700 new affinity programs,and customers opened 7.5 million new affinity accounts The aim ofproduct proliferation has been to satisfy an increasingly divergent setof customer needs To keep track of these divergent needs, banks haveinvested in customer information file (CIF) technologies that permitsegmentation across many dimensions, only one of which is product.The data generated by CIFs have accelerated the growth of mar-ket-segment-focused strategies.6

Segment management has been successful at several banks (Seefeature Segment Management in Financial Services.) Simply shiftingthe emphasis from products to segments, however, will not eliminatesome of the problems that can exist in a matrix organization A matrix

8•The Product Manager’s Handbook

organization is one in which people report directly to a specific tion area, but report indirectly (through a “dotted-line” relationship)to other functional areas Both—or neither—can result in an enhancedunderstanding of customers and an ability to satisfy their needs Itrequires a commitment to make it work.

func-First, there must be a clear understanding of the basic rationale forproduct management as an organizational form Product managementis generally most successful for companies with several products hav-ing similar manufacturing but different marketing requirements, par-ticularly when the same product cuts across several divisions orcustomer groups Second, top management must be committed to theproduct management organization and provide the structure and toolsto make it work And, finally, the right people must be selected anddeveloped for the job

Product Management Tomorrow

Product management will continue to evolve to meet the needs of themarket and of the particular company employing it Consumer goodsproduct managers, for example, will find it necessary to be moreinvolved with the trade as retailers gain more knowledge of and “influ-ence” with consumers Consequently, they will need to think more interms of category management Category management involves look-ing at a line (i.e., category) of products as it might be evaluated by amarket segment (i.e., retailer) To accomplish this, product managersmight need to work together as a category team Or a category man-ager position might be established to oversee all products and productmanagers related to a given market segment

Another trend that might affect the future role of product agers is the use of product management teams As companies continueto escalate their involvement with team-based decisions, product man-agement teams (PMTs) will appear in some companies Global compa-nies will have cross-border product business teams responsible forleveraging capabilities throughout the world These will be “virtualteams,” which do not meet regularly on a face-to-face basis and are notlocated in the same country Although project teams have been very

man-successful in new-product development, the appropriateness of ongoing

The New Product Management •9

teams in charge of existing products will have to be carefully consideredand structured before implementation.

Regardless of the organizational changes product management mayundergo in the future, successful product managers must thoroughlyunderstand the needs of various segments within the market, appreci-ate the corporate competencies available in the company, and be able

10•The Product Manager’s Handbook

Segment Management in Financial Services

Banks that have traditionally used product managers have generallyassigned them to groups of deposit products, home equity loans, mort-gages, insurance, and so on Unfortunately, these products are notalways complementary, and they might even be considered indirectsubstitutes by consumers Therefore, banks such as Sovran Financialand Bank One/Texas have experimented with segment management.Sovran Financial Corp., a holding company for four Middle Atlanticbanks, reorganized its marketing structure to replace product man-agement with a market segment emphasis Sovran had attempted arelationship marketing strategy before the structure change, but foundit difficult to implement with an organization by product Therefore, in1988, it reorganized by individual market segments, such as the “afflu-ent market.” The segment management design allowed Sovran to cap-ture what it referred to as “share of wallet,” which increased from 38percent to 46 percent in Virginia and from 44 percent to 62 percent inTennessee.

At Bank One/Texas, one of the product managers is the small ness market segment manager, responsible for developing marketingprograms to support the branches and sales force in bringing in newsmall businesses to the bank This position has enabled Bank One topackage products appropriate for a specific segment’s needs.

busi-Source: Condensed from Eric Berggren and Robert Dewar, “Is Product ManagementObsolete?”Journal of Retail Banking 13 (Winter 1991/1992): 30; Lauryn Franzoni,“Product Managers: Finding the Right Fit,”Bank Marketing 23 (May 1991): 28+.

to leverage these competencies to meet market needs In other words,the ultimate goal of the product manager will be customer satisfactionobtained by being a cross-functional leader in the firm.

The Product Manager’s Job

The product manager’s job is to oversee all aspects of a product/serviceline to create and deliver superior customer satisfaction while simulta-neously providing long-term value for the company To accomplish this,there will be various day-to-day, short-term, and long-term activities.Ideally, day-to-day activities provide the foundation for the job of theproduct manager and usually absorb 40–55 percent of a product man-ager’s time; 20–30 percent of the time is devoted to short-term activi-ties; and 15–25 percent is allotted to long-term tasks (This, of course,varies depending on the time of the fiscal year, the relative proportionof new versus mature products managed, as well as a host of other vari-ables.) These percentages are goals Unfortunately, the reality is thatmany product managers spend too much time “putting out fires,” to theexclusion of strategic planning (See Figure 1.1.) Time management iscrucial for all businesspeople, and product managers are no exception.A recent national survey of product managers showed that a sig-nificant proportion of product managers spent much time respondingto sales force requests and expediting products through other depart-ments but wished they could spend less time on those activities Thissame survey found that product managers spent little time developinglong-range strategy for products and contacting customers to under-stand future needs/applications but wished they could spend more timein these ways.7

benchmarks, trends and opportunities, and customerexpectations

The New Product Management •11

• Act as a liaison between sales, manufacturing, researchand development (R & D), and so on.

• Control the budget and achieve sales goals

• Participate in product-elimination decisions

Long-Term Duties

On a long-term (strategic) basis, the product manager might have thefollowing responsibilities:

12•The Product Manager’s Handbook

Figure 1.1 The Product Manager’s Balance of Activities

• Create a long-term competitive strategy for the product.• Identify new-product opportunities.

• Recommend product changes, enhancements, andintroductions

Historically, the product manager’s job has varied somewhat betweenconsumer and business-to-business firms Consumer product managerstypically managed fewer products and spent more time on advertisingand sales promotion The target markets were generally larger (millionsrather than thousands or hundreds), with a greater potential for diver-sity Business product managers tended to be more involved in the tech-nical aspects of the product or service and spent more time withengineering and the sales force

However, the gap between the two types of product managers isnarrowing Fragmentation of consumer markets has escalated, resultingin greater product proliferation and parity products, for which con-sumers perceive little distinction in features or quality and usually makepurchase decisions based on price Trade satisfaction is becoming morecritical as mass merchandisers and other “category killers” such as Wal-Mart, Home Depot, and Office Max are gaining momentum As a result,consumer product managers are finding themselves more involved withsalespeople and the trade (e.g., retailers) On the business-to-businessside, product managers are finding a growing need to introduce adver-tising to their firms and to establish a more solid position against anever-increasing number of competitors Market (as opposed to product)knowledge has become a key determinant of successful differentiation

The Global Product Manager

A global product manager is not simply one who oversees productssold in other countries The global product manager is one who thinksand plans with an appreciation of the global competitive arena Evencompanies with a low percentage of foreign sales have global com-

petitors, global suppliers, and global customers Global thinking is

important for these product managers, not just sales Whether or nota company has multinational locations, global product managersdevelop long-term product strategies on a global basis They look forsimilarities across different world markets, standardizing whenever

The New Product Management •13

possible and customizing whenever necessary This affords ties (proactively) for future foreign sales as well as for competitivestrategies against global competitors.

opportuni-Global strategy for product managers means embedding bothdomestic and international standards into products and services at thepoint of design, not as afterthoughts This implies meeting world stan-dards even before seeking foreign markets, while simultaneouslyacknowledging national differences and local norms This approachhas the obvious advantage of taking into consideration the needs ofmajor markets right at the start, rather than having to retrofit a prod-uct developed for one national market

Product managers start by identifying globally strategic marketsand then analyzing the needs of those markets By searching for com-monalities (as well as differences) product managers necessarily thinkin terms of platform design for global products Product managers arewise to design the largest possible standardized core, while allowing fornecessary customization at the same time The main goal of the prod-uct-development process is not to develop a standard product or prod-uct line but to build adaptability into products and product lines toachieve worldwide appeal

The idea of a fully standardized global product that is identical allover the world is a near myth Some of the benefits of global products(or services), however, can be achieved by standardizing the core prod-uct or large parts of it, while customizing peripheral or other parts ofthe product In passenger automobiles, for example, product stan-dardization comes primarily in the “platform” (the chassis and relatedparts) and to a lesser extent the engine The auto industry has beentalking about global cars for decades, but implementation has beendifficult at best Honda made progress with its 1998 Accord By com-ing up with a platform that can be bent and stretched into markedlydifferent vehicles, Honda saved hundreds of millions of dollars indevelopment costs By moving the car’s gas tank back between the reartires, Honda engineers discovered they could design a series of specialbrackets that would allow them to hook the wheels to the car’s moreflexible inner subframe Rather than shipping the same car around theglobe, only the underlying platform will be used worldwide

Regardless of the attempt to standardize products or product linesglobally, various levels of adaptation are required Some products need

14•The Product Manager’s Handbook

only different language documentation For example, when Minoltacameras are shipped from Japan to New Wave Enterprise, a distribu-tion center at the Port of Antwerp in Belgium, they are shipped with-out support materials Language-specific documentation (e.g., French,Dutch, German) is added when the products are shipped across landto other destinations in Europe

Other products could have their life cycles extended by looking forthe best fit between market needs and product capabilities For exam-ple, the current U.S technology for anesthesia ventilators allows plusor minus a few milliliters of oxygen accuracy However, many LatinAmerican operating rooms are satisfied with plus or minus 100 milli-liters of accuracy, with a commensurately lower price A major sup-plier of anesthesia equipment found it could prolong the life of its“unsophisticated” ventilators by offering them in these markets at amuch lower price than the “state-of-the-art” equipment

This approach can apply to consumer products as well Take basicflour as an example India consumes about 69 million tons of wheat ayear (compared to 26 million tons in the United States), yet almost nowhole-wheat flour is sold prepackaged Selling packaged flour in Indiais almost revolutionary, since most Indian housewives still buy rawwheat in bulk, clean it by hand, and on a weekly basis carry some to

a neighborhood mill, or chakki, where it is ground between two stones.

Pillsbury found it could increase the sales of basic prepackaged flour(a mature product in the United States) by appealing to this marketand has modified the Pillsbury Doughboy to pitch this “old” productas something new in India

With increasing competition able to react quickly when new ucts are introduced, worldwide planning at the product level providesa number of tangible benefits First, product managers are better ableto develop products with specifications compatible on a global scale.Second, they are able to more effectively and efficiently adapt productsto local needs And third, they are able to respond more quickly tocompetitive moves of global companies

prod-The New Product Management •15

Checklist: The New Product Manager

✓ To ensure that you focus on the long-term value of a product, donot view your product manager role as a “fast-track” or “step-ping-stone” position

✓ Be careful not to lose sight of the customer as you strive to ate competitively superior products and services

cre-✓ If you have specific groups of customers who require uniqueproducts, or if you must combine standard products in uniqueways to meet the needs of these customer groups, consider seg-ment management as an alternative (or in addition) to productmanagement

✓ Expect the role of product manager to continue to evolve tomeet current business challenges Category management and theuse of product management teams will be tested by companiesstriving to improve competitive performance

✓ Balance your activities among day-to-day, short-term, and term activities to avoid the trap of constantly “putting out fires.”✓ As your company begins multinational moves, your job should

long-start with global thinking rather than global sales:• Embed both domestic and international standards into prod-

ucts and services.• Look for common needs among globally strategic markets

and standardize the core product.• Identify the appropriate level of country adaptation required

for your product.• Anticipate global competition

16•The Product Manager’s Handbook

Shifting from a functional (silo) organizational structure to any of avariety of team or matrix-based organizational forms (including prod-uct management) requires careful planning Job descriptions must bewritten to help the product managers understand their new roles, andother departments must understand what to expect from the new posi-tions Product managers must rely on the support and performance ofmany others in the organization to achieve product performance goals,even though they have no control over those functions Clarification ofobjectives is imperative for the successful introduction of a productmanagement structure in an organization Unfortunately, many com-panies introduce the title “product manager” because their competitorshave such a position, but they lack understanding of what the positionentails

There are four steps involved in initiating product management.First, the company must assess whether product management is theappropriate organizational form and, if it is appropriate, decide whatreporting structure (hierarchy) it will have Second, the company mustclearly specify the responsibilities of product managers as well as otherintegral members of the system Third, characteristics of successfulproduct managers must be identified, with suitable personnel recruited

2

Introducing ProductManagement and Managing

Product Managers

McGraw-Hill's Terms of Use

for the product management openings And, fourth, there must be asystem for developing and evaluating product managers Each of thesesteps is discussed in detail in this chapter.

Assessing the Need for and Structure of ProductManagement

Product management can be an appropriate organizational structurewhen a company’s product line has grown to the point where a func-tional structure no longer works There might be more products thana single marketing manager can handle, even though these could flowinto a common market through the same channels Or the company’sproducts might be so different from each other in terms of competitionand customer groups that they must be handled differently Or techni-cal or sophisticated product knowledge might be required to meet theneeds of the market In this case, the product manager might beinvolved in the development and marketing of a product line acrossvarious divisions or markets (See Figure 2.1.)

On the other hand, there are subtle variations that might be priate under different circumstances (See Figure 2.2.) If the industry’sproducts are primarily “parity” (essentially the same) in the minds of

appro-18•The Product Manager’s Handbook

Figure 2.1 Traditional Product Management Organization

Vice President,Marketing

MarketingServices

Advertising Marketing

Research

ProductManager

ProductManager

ProductManager

Sales

Assistant Product Manager

Assistant Product ManagerProduct Group (orCategory) Manager

Assistant Product Manager

the customers, a traditional product manager structure might result inpressure to create artificial differences simply for the sake of differen-tiation In this case, a market or segment management approach mightbe preferred Market managers are used when a company needs todevelop different markets for a single product line Focus is on devel-oping the market rather than on taking the product to market Themarket manager would “bundle” and/or adapt combinations of a com-pany’s products to fit the needs of select market segments There might

Introducing Product Management and Managing Product Managers •19

Figure 2.2 Appropriate Organizational Structures for Various

Product/Market Types

Product/Market Characteristics

Many products going to a limitednumber of market segments Theproducts require focused attention to be fully successful.

Company sells to a variety of marketsegments with preferences for variousproduct sets The products might notrequire elaborate customization, but the “bundling” of products is unique tothe market segments.

The same situation as above, but thereis also a need to develop some newproducts for various market segments.The company sells to a few largecustomers with differing needs from therest of the customer base.

New-product efforts are time-consumingand critical for the company, to the pointwhere a special position is createdexclusively to handle new products.

Possible Organizational Structure

Product management

Market or segment management

Segment management with “specialproducts” managers

Key account management

Product development manager or products manager, possibly (although notnecessarily) part of a technical

new-department

or might not also be a need to have “special products” managers inconjunction with segment managers.

A variation of market management is key account or nationalaccount management With the emergence of “category killers” andother large customers, key account managers have been given theresponsibility of working with major accounts to determine howproducts can best be adapted to meet their needs If product man-agers are spending an inordinate amount of time handling specialrequests for major customers, a key account position could focus onthe “special requests” and work with the product manager on prod-uct adaptation

The Impact of New-Product Development

The last major consideration in organizational structure is related tonew-product development Although most product managers spend asignificant part of their time on new-product development activities,some companies choose to have a separate new-product manager posi-tion to handle the specifications and design of products, with the prod-uct managers following through with the marketing activities Althoughthis is less common (and perhaps less desirable if customer input is anafterthought), it is an organizational form that can fit certain needs

Implementing a Global Structure

As mentioned in Chapter 1, product managers should generally befamiliar with the global environment for their products if they dealwith global suppliers, customers with global locations, or competitorswith foreign operations For global companies, there’s an additionallevel of complexity Companies must decide whether a single productmanager has global authority for a product, whether product man-agers should interact with country managers, or whether there shouldbe country-specific product managers At minimum, the product man-ager will be involved in cross-cultural teams charged with leveragingthe skills of different parts of a global company located in differentparts of the world As Whirlpool CEO David Whitwam said in an

interview with Harvard Business Review,

20•The Product Manager’s Handbook

The only way to gain lasting competitive advantage is to leverage yourcapabilities around the world so that the company as a whole isgreater than the sum of its parts Being an international company—selling globally, having global brands or operations in different coun-tries—isn’t enough

Let me use washing machines as an example Washing technologyis washing technology But our German products are feature-rich andthus considered to be higher-end The products that come out of ourItalian plants run at lower RPMs and are less costly Still, the realityis that the insides of the machines don’t vary a great deal Both theGerman and the Italian washing machines can be standardized andsimplified by reducing the number of parts, which is true of any prod-uct family Yet when we bought Philips, the washing machines madein the Italian and German facilities didn’t have one screw in common.Today products are being designed to ensure that a wide variety ofmodels can be built on the same basic platform Our new dryer linehas precisely this kind of common platform, and other product cate-gories are currently being designed in the same way.1

Reducing Hierarchy

Most product managers are part of a marketing or marketing/salesdepartment, usually reporting to a marketing or product managementdirector, a marketing or product management manager, or a vicepresident of marketing Product managers frequently have no onereporting to them In larger firms, however, product managers mighthave assistants and associates reporting to them, as well as authorityover some functional subordinates Some product managers have eightor more people reporting to them directly If there are to be staff underthe product manager, it’s usually best to provide information proces-sors, coordinators, or analysts, rather than proliferating pyramids ofassistants and associates, creating a hierarchy within a hierarchy.Hierarchies are designed to prevent mistakes, but they also dimin-ish individual responsibility, creativity, and risk-taking opportunities.That’s why so many management gurus have espoused variations ofthe horizontal corporation, with an emphasis on providing better prod-ucts and services for the end customer Product managers and productmanagement teams are consistent with this philosophy if they arelinked to customer satisfaction (as they should be) and given theauthority to make relevant decisions regarding their product lines

Introducing Product Management and Managing Product Managers •21

Specifying Responsibilities of ProductManagers and Others in the Firm

To minimize the potential for miscommunication and ing and to increase the chances of a successful product managementstructure, management must thoroughly explain to key managersexactly how the organizational concept will work and what the under-lying rationale is for moving to it It’s important to specify not only theroles of product managers, but also the roles of the individuals withwhom they commonly interact Let’s take a hypothetical example of acompany with three product managers, a marketing services manager,a marketing research manager, and regional sales managers (All ofthese people might report to a marketing director or a vice presidentof marketing/sales.)

misunderstand-Typically, the product managers would recommend and establishstrategic guidelines for their products, obtain market informationabout their customer segments and products, provide input to sales forthe closing of selected accounts, and play a major role in product/ser-vice development, modifications, and elimination The marketing servicesmanager would support the product managers by providing commu-nication materials and handling company-wide promotional and pub-lic relations activities The marketing research manager would contractout or conduct marketing research activities required to fully under-stand customer needs and competitive capabilities and provide inputinto company growth and acquisition opportunities The regional salesmanagers would provide the day-to-day motivation and managementof the sales force and support the product managers in the introduc-tion of new products

Many product managers (particularly in business-to-business panies or in the service sector) are hired for their technical expertisewith a specific product or service Therefore, the roles of the productmanagement function and the related operational functions need to beclarified For example, the product manager might supply customerand competitor data in support of a recommended new product butleave the actual design to the design staff

com-Although these descriptions of responsibilities would not be priate for every organization, it’s important to think through and definethe related responsibilities and overlaps Providing a summary of role

appro-22•The Product Manager’s Handbook

responsibilities before introducing product management will reduceuncertainties about the organizational structure.

Where product managers are positioned in a company can also nificantly influence their role, regardless of the responsibilities put inwriting A critical issue for management is to establish a balancebetween product managers’ administrative and entrepreneurial func-tions Product managers with a relatively low perceived status cannotbecome true change agents On the other hand, product managers witha relatively high-perceived status should have the skills and earnedrespect required to perform effectively

sig-A major service-sector firm, introducing product management forthe first time, created a task force charged with establishing a modelof product manager responsibilities along with the responsibilities often support areas (plus senior and business unit management) as theyrelated to product management The product managers were chargedwith many of the specific activities listed in this chapter An abbrevi-ated summary of the responsibilities of the ten support areas is listedin Figure 2.3 Once the structure of product management is installed,management must select the right people and monitor and coach theiractivities to make sure they stay on track

Characteristics of Successful Product Managers

There is no ideal profile of a successful product manager However,several traits, skills, and experiences are frequently identified as relatedto product management success Frequently cited traits looked for inproduct managers include an entrepreneurial attitude, leadership, andself-confidence Acquired abilities should include organizational, time-management, and communication skills Sales proficiency and techni-cal competence are also important in many industries The importanceof prior experience depends on the particular needs of the productmanagement position If highly technical, engineering-oriented knowl-edge is required, a background in engineering is appropriate If anunderstanding of customer applications is desired, a sales backgroundin the industry is appropriate If knowledge of large-market trends andcompetitive positioning is important, marketing research and/or adver-tising experience are desirable

Introducing Product Management and Managing Product Managers •23

24•The Product Manager’s Handbook

Senior Vice President

• Setting overall direction and priorities of the organization• Allocating overall resources

Business Unit Manager

• Approving annual product business plans and budgets• Determining product resource allocation

Marketing and Communications

• Developing and coordinating product-related marketing and sales communication• Assisting in the development of marketing plans

• Executing marketing plans

The appropriate characteristics of a product manager also dependon the culture of the organization and the expectations placed on theposition Some product managers provide (and are expected to pro-vide) a coordinator role; others may be more directive; and still otherstake on a leadership role.

Product managers who are coordinators primarily function asadministrators to assure deadlines are met and requests are carried out.Coordinative product managers are more likely to deal with budgetsthan plans Product managers who are directive not only coordinateprojects but also develop product plans Product managers who areleaders are more entrepreneurial and become more active in the strate-gic planning of products and services for the company

Part of the difference among desired product manager acteristics depends on whether they work for consumer or industrialproduct manufacturers A study of senior marketing executives fromAustralian companies with a product management organization founddifferences in management expectations between consumer and indus-trial firms Marketing executives from consumer goods firms tendedto view product managers as coordinators or implementers of strategyto a greater degree than was true for industrial firms On the otherhand, a greater importance was placed on forecasting and competitorintelligence for industrial product managers than was true for con-sumer product managers This is partly because of the wealth of syn-dicated data available about consumers that is absent in manyindustrial channels.2

char-This same study highlighted some problems with the product agement concept (PMC)

man-Those companies who expressed dissatisfaction with the PMC wereasked in an open-ended question to explain their reasons Therange of reasons embraced the following: product managers spenttoo much time on day-to-day matters and not enough on planningand searching for new opportunities; product managers were notsufficiently entrepreneurial; product managers did not have enoughauthority over the sales department and had poor communicationwith the sales force (the most frequently mentioned responses);there was poor understanding of product manager role; productmanagers were inexperienced; and there was an authority-respon-sibility mismatch.3

Introducing Product Management and Managing Product Managers •25

Developing and Evaluating Product Managers

Product managers need a variety of knowledge, including product/industry knowledge, business knowledge, and interpersonal/manage-ment knowledge Since beginning product managers typically spendmost of their time gathering and organizing information on the prod-uct, its customers, and the competition, product knowledge is para-mount As they gain experience, the focus shifts to more comprehensivebusiness knowledge, including finance, marketing, and strategic plan-ning At the same time, they develop team-building, negotiation, com-munication, and leadership abilities

Many companies believe it takes from three to five years to developan effective product manager According to Bill Meserve, a principalat the management-consulting firm of Temple, Barker & Sloane Inc.,training and motivation are critical at this time, and career develop-ment must be an obligation: “The formal approach used at one 3Mdivision is based on a written career development document and sched-uled annual reviews, which are separate from performance appraisal.Primary responsibility for monitoring career development rests withsenior marketing management or a separate marketing council.”4

For product managers to be effective, they need to build bridgesthroughout the company and be cross-functional leaders Therefore, inthe selection and development of product managers, this ability to tran-scend functional lines must be considered The downfall of severalproduct or brand management systems was the establishment of aproduct manager as caretaker of the product, with an emphasis on“safe” results Product managers were charged with immediate resultsrather than the creation of long-term customer value When this hap-pens, product managers focus on improving their own position ratherthan that of the company’s product According to William Weilbacher

in his book Brand Marketing,

In the end, the brand manager is forced by the brand-managementsystem to pay more attention to career management than to brandmanagement Brand championship and brand advocacy are replacedby actions that make the brand manager look good to management,no matter what the long-term effect upon the brand or the percep-tions of the consumers who buy it.5

26•The Product Manager’s Handbook

Appropriate evaluation criteria depend on the performance tations of management Sales and/or profit goals are fairly common mea-sures of performance However, if profit is a measure, it’s important todistinguish between profit contribution and bottom-line profit Profitcontribution is the amount of product revenue remaining after subtract-ing all of a product manager’s direct, controllable, or relevant expenses.This contribution to overhead (CTO) figure is a fairer assessment of per-formance than is fully allocated profit, because CTO minimizes the con-cern over the validity of the allocation methodology Obsessive attentionto allocating overhead against each product often consumes effort thatcould be better spent elsewhere This isn’t meant to imply that total over-head doesn’t need to be covered The CTO goal is established to coveranticipated overhead allocations but doesn’t hold product managersresponsible for overhead increases beyond their control.

expec-Some companies implementing quality management principles haveopted to minimize individual performance measures and focus on com-pany performance This does not have to be an either/or decision Met-rics can be designed to measure both individual and corporate per-formance Companies can weigh these metrics differently depending ontheir corporate philosophies on performance measurement

In addition to financial measures, product managers may be uated on some combination of other factors, such as the following:

eval-• Successful introduction of new products• Market share defense or growth

• Customer satisfaction indexes• Attainment of company-specific goals

Introducing Product Management and Managing Product Managers •27

Checklist: Keys to Product Management Success

✓ Recognize product management as an organizational businessform, not as an isolated job function

✓ Prevent product management from being done in the absence ofmarket management Otherwise, you run the risk of being pro-duction-driven rather than market-driven

✓ Develop an information system of cost, business, and marketdata according to the relevant products or product lines.✓ Clarify the roles of product managers and the roles of those

with whom they routinely interact.✓ Push product managers to evolve from being solely product spe-

cialists to being cross-functional leaders.✓ Establish performance goals that reflect company expectations

and provide the tools (budgets, people resources, approvalauthority) to achieve the goals

✓ Select product managers with the skills appropriate for the ture, expectations, and responsibilities for your company Pro-vide additional training as required

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