White Paper

As software executives, we all have a unique

view on how to define product strategy

for our organizations. We serve different

markets, segments and customers. We

have different competitive and regulatory

environments. And, we have different people,

values and cultures. But, one thing we all

grapple with is the challenge of delivering

our existing offerings while working to

innovate the next big thing. It is around this

fundamental truth where the essence of

product strategy is defined. Product strategy

is at its core choosing what to do and what

not to do to win in the marketplace.

Importance of innovation on product strategy

Realizing your innovation potential Of course, to make those choices we must have good ideas to choose from. For this reason, innovation plays a key role in shaping product strategy. This premise is evidenced by taking a look inside the most innovative software companies. Inside those organizations all employees believe they are innovative. They innovate not only on products, but on business models, processes, marketing programs, customer support, and partnering models – cutting across all functions. These organizations have been able to weave innovation into their collective DNA.

If your organization is not in this group, odds are you are working to get there. As leaders, we believe that we can influence and make things happen. We also tend to have a rosier view of our organization’s capabilities than the rank and file. So before we take action on implementing new innovation programs, we would all serve ourselves well by taking stock of our organization’s readiness to change.

Engaging your organization to understand their readiness is a key ingredient in raising your innovation output. Employee engagement is a well-known and straightforward concept, and most of us would say that we already engage our employees. Why then, aren’t more of us in the elite group of innovative companies? Consider one or more of the three reasons below:

1. “One-sided” engagement. Often leaders develop a plan first, and then take it to their organization.

2. Lack of a compelling case for change.

3. Misalignment between the desired “innovation quotient” trying to be attained and the culture of the organization.

One approach that can change your innovation trajectory is to engage your organization before you ever start to formalize your innovation program. Critics of this approach like to point out that leaders are in the best position to know what is right for their organizations. But, isn’t it better to know where your organization stands before you lead them down the path? You might even find that they have some insights you have not thought of. Or, better yet, they share some of your ideas, which you can now make their ideas.

When you engage with teams across the organization, ask three simple questions and you will be amazed at what you will learn:

1. What is going well?

2. What is not going well?

3. What are your ideas to fix what is not going well?

By asking these questions you will gain critical insights. You’ll get your bearings on whether or not the right behaviors to support innovation are being role modeled by key influencers. You’ll discover if your organization already sees what you see, but perhaps from a different altitude. You may even find there is strong resistance from certain teams or even more broadly. What you will ultimately learn is the gap between the innovation quotient you want your organization to have and their capability to get there. From that baseline, you can begin an iterative process to synthesize what you heard and define an innovation roadmap that fits your organization’s culture and readiness.

Increasing your organization’s Innovation Quotient (IQ) There are many ways to drive innovation – we can acquire innovation through M&A activity, we can innovate via skunk

works initiatives or innovation labs, we can leverage external stakeholders via open innovation, and we can tap into our employees. While all of these methods can drive innovation, only employee innovation can give us the keys to truly unlock our organization’s full innovation potential.

There are plenty of employee innovation methods to choose from – brainstorming workshops, demo days, hackathons, ideathons, internal crowd-sourcing, incubation funding processes, “20 percent” time programs made famous by Google, and more. No matter what methods we choose, the goal is the same – to gain convergence of the two distinct mindsets that we all have in our organizations: those employees who say “I am not creative, and it is not my job to innovate” and those who say “I am and it is”.

So, what does all of this organizational stuff have to do with product strategy? The answer is simple. Product strategy is about making choices on what ideas to implement and what ideas not to implement. Our biggest asset, human capital, is full of innovation potential that is not being realized. If we can tap into that potential we can innovate on great ideas and stay relevant for a long time to come. And that is a goal we all share.

Innovation shapes product strategy.

The key is choosing the methods that best fit our organizations. Choosing incorrectly may drive greater disparity instead of the convergence that we need.

So how do we best address fit to select the right methods? One extremely helpful tool is the Gartner Innovation Maturity Model®.

Similar to other maturity models, this model helps us know where our organizations are on the curve so we don’t take too big of a leap.

As written in “A Maturity Model for Innovation Management,” April 6, 2011, by Jackie Fenn and Kathy Harris, the Gartner Innovation Maturity Model® has five levels:

1. Reactive: Decisions driven by personality or seniority. Localized adhoc response to business demand.

2. Active: Teams and business units share best practices and approaches. Locally funded innovation initiatives with strategic focus.

3. Defined: Innovation watch involves external sources. Teams funded and sustainable. Processes, tools and methods are formalized and shared. Active executive support.

4. Performing: Strategic partnerships contribute ideas and resources. Expert innovation catalysts and teams. Best-in-class processes, tools and methods. Planned, funded and championed at the enterprise level.

5. Pervasive: World-class leader in new methods and practices. Expansive open innovation and co-development programs. Multiple high-functioning enterprise and distributed teams. Pervasive culture of innovation. Core competency integral to all business activities.

Most Software executives can easily spot where their organizations fall on the maturity curve. The methods associated with each level are well-known and straightforward. So instead of focusing on what we already know, let’s look at three key things that we can do to ensure success implementing our innovation initiatives, regardless of what innovation methods we choose:

1. Enlist advocates, influencers and leaders–spend time with this group gaining alignment on a consistent message and how to teach it. They will be the ones that will run into the dissenters and skeptics in the hallways and break rooms. These hallway conversations are the critical “moments of truth” where change can be most influenced, yet we tend to overlook it.

2. Address all employee ideas–Employees don’t believe anything they can’t see. They must see that it is real. Employee innovation programs are easy to start. The struggle becomes sustaining the programs, which can only be done if we “action” all of the ideas that come in from employees. We need to spend time up front to define a clear process to filter the ideas and communicate back to employees why or why not their idea was selected. This closed-loop principle will be what carries the program forward. Without it, the initial excitement and buzz will dissolve before our eyes as employees slowly realize their ideas simply have gone into a black hole never to be seen or heard from again.

3. Measure what is important and what makes sense–We must have the right metrics in place to ensure progress and enable us to checkpoint and adjust along the way. For example, it makes no sense to measure revenue when ideas are first being incubated. We must keep our organizations’ honest by measuring only what is important and what makes sense, nothing more.

Assessing maturity using an industry model and following these simple rules will greatly improve our organization’s innovation quotient. Leveraging the collective power of our employees is a low cost, highly effective way to drive innovation, ultimately creating the healthy innovation pipelines we need to ensure sustainable competitive advantage.

Making the right strategic choices Once the innovation pipeline is flowing, we are faced with evaluating and making decisions on which ideas and concepts to pursue. These decisions not only involve what new ideas to start working on, but also what current initiatives to stop working on.

There are lots of ways that organizations go about this challenging task. Start-ups with less technology debt may have an easier path than larger firms that are further along their organization lifecycle. Enterprise B2B software, consumer facing software, and gaming software organizations all have nuances that must be accounted for. However, the fundamentals of making strategic choices bridge across all organizations. Over the years, I’ve seen software firms that do this well stick to four core principles.

First, start with a vision of where we want to be in the future – 3 years, 5 years, or 10 years. The timeframe doesn’t really matter. What does matter is making sure you have a grounded view on “where” you want to go and “what” your product will be in that ideal future state. Articulate it in the simplest way possible and drive it home with everyone in the organization. Making strategic choices without a strategic vision is like getting and the car and driving without knowing where you want to go. And discussing strategic choices with stakeholders and contributors that don’t understand that vision is even more difficult.

Second, go through a process to determine what percentage of resources/time/money you want to invest in new things verses existing things. For start-ups that may be 80%. For large enterprises that may be 15%. The industry average for software firms is around 20% to 25%. This “investment mix” will determine how fast you get there.

Third, develop a prioritization model that aligns with your strategic vision. For example, if you want to expand into adjacent spaces, any new idea that is outside of that would be a lower priority. If your vision requires that you modernize your technology platform, then you may need to include a higher weight on technology modernization than revenue in some cases. If your strategy involves a shift to subscription services, which will change your release frequency and customer support model, then you may put a higher weight on process and tools than you normally would otherwise.

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Four core principles

Fourth, have a solid innovation pipeline. Rate ideas, concepts, and prototypes against your prioritization model. If you’ve done your prioritization model right these decisions still will not be easy, but it will make sense and feel right at the end of the day. Make sure to think about the following three dimensions in the prioritization model: business value (revenue / costs), customer value, and strategic value (the longer view, which may not create short-term business value, but lays the foundation to capture future value).

About the author Balaji Gangishetty

Vice President, Product Engineering Services

Balaji’s primary focus is on creating and delivering innovative software solutions across the Enterprise, Cloud, Mobile and IOT space to help position Hitachi and its clients for market leadership. A versatile engineering and technology executive with strong development background, he has built tens of commercially successful software products across industries, leveraging various technologies and development methodologies in a global model.

About Hitachi ConsultingHitachi Consulting is the global solutions and professional services organization within Hitachi Ltd., a global innovation leader in industrial and information technology solutions and an early pioneer of the Internet of Things. Hitachi Consulting is a business integrator for the IoT era and a catalyst for digital transformation. Using our deep domain knowledge, we collaborate with clients to help them innovate faster, maximize operational efficiency and realize measurable, sustainable business and societal value. As a consulting-led solutions company, we can help you leverage data as a strategic asset to drive competitive differentiation, customer loyalty and growth. To learn more, visit www.hitachiconsulting.com.