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Every company claims that it wants to deliver value to its customers, be profitable and establish leadership in its core markets.

Such assertions seem only natural. One would expect that they'd be accompanied by a corporate strategy that supports such goals. But closer inspection usually reveals that many companies often employ product-delivery strategies that lead away from their business objectives.

Delivering products is a process that begins with a combination of innovation, technology and market sensing. Each of these driving elements contributes to the initial product concept and its development.

But, over time, and depending on the company, some driving elements demonstrate a stronger and more lasting impact on the product concept and its road map. This is not necessarily due to merit or market forces; more commonly, it's an outcome of the corporate culture and business perspectives that dominate the company.

Certain corporate functions take charge of directing the company's overall product delivery strategy. For example, in one US software firm, a business unit manager noted, "Marketing has had a relatively limited role in the past; technology is what has driven this company. We're a technology-oriented firm."

In contrast, in a US packaged-goods firm, a marketing manager said, "Engineering has absolutely no sense of the consumer. They're a group of educated technology scientists who can do amazing things, but they need focus."

Corporate business goals and wants are relatively similar across diverse industries, but the methods they use to reach their goals vary greatly. These different approaches to product delivery strategies are termed technology-driven, sales-driven and market-driven.

Take My Road: Technology-Driven

Some companies believe that they know what is best for the customer. They operate under the notion that they can develop technology, design products based on that technology and have entire markets buy their products because they are "technologically superior." Their engineering departments determine product-delivery strategy.

These technology-driven companies often create products without thoroughly researching the market and without fully understanding the prevailing market requirements.

This sounds somewhat detached from end-user needs, and may very well be so. But a technology-driven approach has its advantages. It enables a company to rapidly deliver products to market since it skips/skimps on lengthy traditional market research and consequently bases product design decisions on internal company expertise.

An example is the company of Sir Clive Sinclair, a British entrepreneur who was also a brilliant engineer and consummate salesman. Sinclair trusted his intuition for all his product decisions.

More than two decades ago he believed that the general public was sufficiently interested in electronic wizardry to constitute a completely new market for inexpensive and relatively simple-to-use computers. The moment had arrived, he thought, and without conducting any market research whatsoever he ordered 100,000 sets of parts in 1980 so that he could launch his new ZX80 computer at high volume.

By 1982, Sinclair's British company revenue was £30 million, compared with £4.65 million the previous year.

Sinclair and his engineers had intuitively succeeded in assessing the combined potential of technological developments and changing consumer needs, as opposed to researching the market potential for an innovative product. Sinclair's business decisions proved enormously successful, as well as fortuitous.

Technology-driven products are often advanced and therefore appeal to early adopters and niche markets that seek the latest technological developments. Additionally, technology-driven products may also constitute high-risk/high-reward venues, to be favored by speculative investors.

Such products await a triggering event that causes a dramatic surge in demand. Those events may range from the hypothetical (for example, future governmental legislation that would promote vehicles with fuel cell engines) to the actual (sales of survival gear after people were confronted with the specter of Y2K, or the tremendous demand for security equipment after 9/11).

But this is the problem with being technology-driven: it is a risky approach to delivering products. Adopting a technology-driven posture has, over time, proven to have low growth potential due to the failure to implement proper marketing activities and because of the isolated manner in which products are managed.

Many technology-driven products have complex or unnecessary features; and, realistically, some technology-driven products are unneeded. In the 2004 Consumer Electronics Show in Las Vegas, Nevada, Gerard Kleisterlee, CEO of Philips, quoted data from a Yankee Group survey: "30 percent of all recently introduced home networking products sold today were returned because the consumer could not get them to work; and 48 percent of potential digital camera owners were delaying their purchase because they perceived the products to be too complicated."

The conclusion is obvious. Although some may succeed with a technology-driven approach to product development and management, there is a bigger chance that driving the best technology to customers will not yield a prosperous outcome.

This is simply because the company and its product are focused on providing better technology—not on closely matching customer needs and abilities with that technology.

A Cruising Taxi: Sales-Driven

A technology-driven company is focused on its technology. A sales-driven company is focused on maximizing short-term return on investment. Accordingly, the prime responsibility of most corporate departments in a sales-driven company is to help the sales channels with knowledge, ways to sell and sales support.

Like taxi drivers cruising city streets looking for passengers, sales-driven companies cruise their markets seeking deals with customers who very often have differing needs. Like the proverbial taxi drivers who deviate from their routes to accommodate passengers, these companies alter their products' features to accommodate the specific wishes of customers.

There is nothing fundamentally wrong with being sales-driven and providing custom work. Generations of tailors have sewn fitted clothes to people of different shapes and sizes, and scores of taxi drivers worldwide transport passengers to varied destinations.

The advantage of being sales-driven is less risk, because there are always unique business opportunities and individual needs to satisfy. A sales-driven product strategy can be a lifesaver when used as a survival tactic if market segments start deteriorating or are in a chaotic phase that precludes targeted marketing programs.

The downside is that a sales-driven product strategy is a short-term approach that does not build highly sustainable product lines. Without sustainable product lines, building market leadership and promoting company growth is difficult.

The eventual outcome of a sales-driven approach in high-tech companies is a plethora of product variants (produced via modification of core products) that are sold to various customers. These product variants are full of individualized, custom features that are developed, tested, documented and supported. Invariably, resources are duplicated, effort is wasted, distinctive competence is lost, and the company has great difficulty in implementing product road maps.

Due to market dynamics, the majority of sales-driven companies struggle in the long run because there is nothing much to differentiate them from the competition—other than price, which becomes the primary marketing tool.

Driven to Success: Market-Driven

To gain the status of being market-driven, a company has to engage its customers and listen to their needs.

It is all a matter of timing, since asking customers what they want during the sales process is not considered actually listening to the market.

By taking a long, hard look at end-markets and paying attention to customers' demands before proceeding to develop a technology platform or products, a company can develop a market-driven approach to product development and management.

Big Blue presents a case of sales-driven culture posing as market-driven. IBM was the dominant force in the technology industry and synonymous with innovation and cutting-edge technology. IBM achieved its leadership position through a market-driven approach by using its massive sales force to determine customer needs.

However, the company ran into trouble when it stopped listening to needs and began telling customers about its latest new product or technology.

Applying a market-driven approach demands commitment and discipline, as it is a procedural approach. Companies with an informal work culture and loose organizational structures fail at applying this methodology. So do companies eager to rush into the market, because of the time involved in executing all phases of the market-driven process.

But when it is properly applied, the result is a product that solves a pervasive market problem in an established market segment, and customers are willing to pay for it. Experience has shown that rewards come to those who patiently follow the course.

Market-driven companies produce sustainable products with notable targeted value. The biggest reward is that a market-driven product helps establish market leadership and revenue-growth potential.

Conclusion

Several years ago, a study of top marketing executives working at 100 leading US technology companies showed that despite all the talk about being market-driven and customer-focused, 54% of respondents viewed their company as actually being technology-driven.

Companies understand which approach they should follow, and publicly declare so. But it is hard to mend ways and make the transition, because becoming market-driven demands a painful shift in corporate culture and business practices.

For those who take the path, success is lasting. In the high-tech world (e.g., Microsoft) and consumer goods industry (e.g., Proctor and Gamble), a leadership position can be established and maintained by being a market-driven organization that has superior skills in understanding, attracting and keeping valuable customers with products that deliver real value. This is not just a cliché, but also a formula for success.

What ultimately prevails in companies is the understanding that product value is always determined by the customer—not by the company or its technology. This understating in turn leads to the realization that finding technology that solves known market problems is easier and more profitable than finding or catering to buyers of that technology.

Continue reading "Who's Driving Your Company?" ... Read the full article

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ABOUT THE AUTHOR

Gabriel Steinhardt is a principal with Blackblot. For more information, visit www.blackblot.com.