How product development drives competitive advantage in the digital age

[This article was co-written with Brandon Metzger.]

As the digital revolution dissolves industry boundaries, legacy companies are increasingly facing competition from non-traditional competitors. Look no further than the $800 billion trucking industry, where incumbent freight operators are spending millions to stave off disruption from startups using the latest technology and business model innovations to steal market share.

To thrive in this complex and rapidly shifting environment, organizations must not only understand their customers deeply, but also must be able to address those needs with products and services that exceed rapidly evolving customer expectations. And as technology becomes increasingly central to product and service development, CIOs and other technology leaders have an opportunity to engage with customers and contribute directly to the top and bottom line.

To effectively seize these opportunities, technology leaders must have a clear understanding of how product development works in the digital age. Through Metis Strategy’s work with Fortune 500 companies and fast-growing startups alike, we have identified the five steps for successful new product development.

1. Anticipate the needs of tomorrow’s customers

New product development begins by identifying an unmet customer or market need. While core needs, like a positive customer experience, remain constant, expectations about how those needs are met are rapidly evolving. 7-Eleven, for example, defined convenience for a generation. However, it recognizes that in today’s world, the most convenient store for consumers is the one they can access from the phone in their pocket. “You must consider not just the journey of today’s customers,” noted 7-Eleven CIO/CDO Gurmeet Singh, “but the potential journey of tomorrow’s customers as well.”

To hone in on emerging customer needs, Metis Strategy recommends creating user personas, fictional yet realistic representations of key customer segments developed through qualitative and quantitative research. A hospitality chain seeking to enhance the guest arrival experience, for example, might develop a user persona for a busy business executive with platinum loyalty status.

Meanwhile, a specialty pet retailer looking to improve online sales may develop the user persona of a first-time, millennial pet owner. By representing the goals, desires, and limitations of key user groups, user personas enable product teams to understand the spectrum of customer needs, which helps guide decisions about the product.

It is important, however, to anchor personas in common behaviors, rather than solely the demographics of age, gender, and socioeconomics. Further, personas must consider broader macro-environmental factors as to not miss shifts in underlying behavior. To do so, Metis Strategy recommends conducting a PEST analysis, which considers political, economic, social, and technological forces. By leveraging personas that account for macro trends, product managers can more deeply understand emerging customer needs.

2. Develop a product strategy that flows from the organizational strategy

It is critical that the new product strategy be aligned with the broader organizational strategy. While working with a global hospitality chain to enhance the guest arrival experience, Metis Strategy began by identifying the top five key objectives based on internal and external strategic drivers. A cascading strategic framework allowed us to identify current and future opportunities to improve the arrival experience while accounting for the evolving strategic context company-wide.

You may imagine that a guest arriving at a hotel wants to maximize convenience by checking in prior to arrival, using a mobile key, or communicating their preferences to the hotel. This creates several opportunities to delight the guests by anticipating service requests and providing a smooth check-in experience. Through use of this framework, we were able to ensure strategic focus by aligning all actionable recommendations to strategic drivers.

Once strategic alignment has been established, hypotheses should be documented so they can be communicated and validated. Rather than develop a detailed business plan based on untested hypotheses, we often leverage the lean business canvas, a lightweight framework that enables key assumptions to be documented.

By rapidly documenting and communicating assumptions such as the problem and solution, unique value proposition, revenue streams and cost structure, among other critical elements, product teams can gain alignment and buy-in from stakeholders while maximizing the ability to validate assumptions as product development advances.

3. Develop a feature roadmap with the MVP in mind

The first iteration of the product roadmap must prioritize the features that will deliver enough immediate value to customers to drive adoption. The term “minimum” viable product (MVP) is sometimes misconstrued by organizations to mean the product they can ship quickest, rather than the product they can ship quickest that will provide value to users and enable the validation of hypotheses. When this happens, the result often is poor adoption, and the idea either gets killed or limps along without further investment. Instead, firms should set the bar not at “can you launch it?”, but rather “can, will, and do customers use it?”

User stories, simple articulations of a user’s desire told from their perspective, are a powerful tool for identifying these high-priority customer needs. A user story for the busy business executive might be, “As an executive, I want to reserve hotel rooms from my phone so I can book travel while on the go,” while a first-time pet owners may be, “As a first-time pet owner, I want to receive curated advice on raising a dog at the moment my dog is going through that phase of life.”

Ultimately, the product roadmap will depend on a range of value and feasibility-based prioritization criteria. However, the starting point must always be an in-depth understanding of the customer’s needs. When Metis Strategy worked with a leading telematics company to develop a go-to-market strategy for a new product offering, for example, we began by surveying potential customers. These surveys revealed that the most significant pain points with existing solutions centered around inefficiency, lack of transparency, and complexity. Truck drivers often had underutilized truck capacity, while shippers wanted faster, cheaper, and more dynamic ways to transport loads on-demand.

Armed with this insight, we were able to recommend a three-phased development roadmap that prioritized the features, such as assisted load searching, assisted negotiations, and load negotiations, that would address the top pain points in a way that was differentiated from competitors, thereby maximizing the stickiness of the product upon launch.

4. Accelerate the build-test-learn cycle

Launch with a small group of customers to validate product-market fit as early as possible. High performing digital natives like Uber and Tesla run thousands of experiments to continually validate assumptions and optimize the customer experience before scaling an approach to the total population of users. As I have previously written, we recommend that clients adopt a business experimentation framework, which outlines how people with the right mindset, and enabled by technology, can leverage iterative processes to test ideas, learn, and make well-informed decisions faster.

CarMax CIO and CTO Shamim Mohammad has developed a framework called “dual track product development,” which allows the company to effectively iterate on customer feedback in pursuit of product-market fit. In this system, multidisciplinary product teams begin by quickly validating ideas or concepts with customers and, if a minimum threshold is met, immediately moving ahead with production. Even in production, the product team will continue to test ideas with customers and rapidly iterate to improve the experience.

It is important to create the organizational management system to support iterative scaling of new ideas. Like CarMax, Magellan Health leverages a structure it calls the “Business Innovation Garage”, that includes advisors, technology, processes, and funding to help scale a product to its next tier of exposure. Their model is less about creating an innovation outpost, and more about enabling internal entrepreneurship. Teams that can demonstrate incremental success via user adoption receive more funding and access to broader populations of users to test ideas, until the concept is ultimately sunset or commercialized.

Truly leading product development organizations are making considerable investments in a DevOps value chain that enables automation and orchestration across collaborative development, continuous integration, automated functional, security, and performance testing, continuous deployment, and continuous monitoring. Consider the two benefits Stuart Sackman, ADP’s Head of Product and Technology, has achieved by adopting DevOps and merging the product and technology teams. First, it enables agility and speed to market since the infrastructure requirements are fulfilled while the product is developed.

New ideas do not stack up unreleased, creating waiting time and waste. Second, it results in more resilient and reliable systems since there is end-to-end responsibility for performance, reliability, and delivery. This automation allows organizations to reallocate precious resources into the more valuable areas of idea generation and software development. Agile without DevOps automation is like having a Ferrari and parking it in a garage: the ideas look great but don’t go anywhere fast.

5. Measure, validate and scale the product

As the MVP rolls out to customers, Key Performance Indicators (KPIs) must be closely monitored so that hypotheses can be validated. Consider the augmented reality solution Lowe’s developed to help customers visualize their home renovation projects. Their hypothesis was that AR and VR could increase sales and reduce project abandonment.

This was quickly validated when data showed that 3D product representations increased sales conversions by 10% to 50%, and VR reduced project abandonment by improving project step recall by 36% over video. These KPIs gave Lowe’s confidence in their solution, and today the company has a suite of AR- and VR-based solutions that allow them to address customer pain points in a way their competitors cannot.

Once the MVP has been validated, the team must determine if they possess the skills to build the solution at scale, if they need to buy and integrate off-the-shelf capabilities, or if they will partner with another organization. In the case of Lowe’s, the home improvement giant partnered with augmented reality solution providers to develop the initial MVP, but when it came time to scale, they built their own team and developed patent-pending technology in-house.

Logistics provider Schneider National CIO Shaleen Devgun advocates that technology executives keep an open mind when exploring sources for scaling innovation, noting, “there is a great deal of value that gets created for [companies] who have extensive experience in the industry and can partner with those in Silicon Valley to create art-of-the-possible solutions.” Other firms may elect to white label an underlying platform, make a strategic investment to gain early access to a technology, or develop a joint venture.

Regardless of the ultimate path to scaling a product, it is critical that you maintain the majority influence of the product development and innovation roadmap so that you can stay laser-focused on core needs, iteratively test and learn, and ultimately win the hearts and minds of customers.