In the age of the customer, companies need to drive a new business agenda around customer engagement- and to achieve that level of engagement, software becomes critical. Software has become a strategic asset which sits at the intersection between companies and their customers and has become vital in enriching companies’ brands. For example, how you interact with a travel agency or retailer today is often through their mobile app – and the experience of using that app has a direct impact on how you perceive the company.
However, developing software-enabled products requires sophisticated technology and architectural design skills which presents tremendous challenges — even more so for companies for whom technology is not in their DNA. Reflective of this, already in 2012, 38% of the business budget decision-makers who indicated that improving their firm's ability to innovate was a top priority, expressed an increasing willingness to partner with other firms to address their innovation challenges.
The recently published Forrester Wave on software product development services (PDS) evaluated the leading providers who can partner with companies to help develop these software-enabled products (EPAM Systems, GlobalLogic, HCL, Infosys, Mindtree, Ness Technologies, Pactera, Persistent Systems, Symphony Teleca, TCS, and Wipro).
The next generation of product development will require wholesale change to the types of skills companies need. As my colleague James Staten recently wrote, an earthquake in Silicon Valley is turning every company into a software vendor. It is this notion, that every company becomes an ISV, that will profoundly change the nature of business, and in particular product development:
Software, and customers interaction with that software, now defines companies and their brands.
Developing software-enabled products requires sophisticated technology and architectural design skills. This presents tremendous challenges — even more so for companies for whom technology is not in their DNA.
Companies must look in the mirror and evaluate if they currently have the skills and expertise to navigate this new environment. In this new world where customers interact with you through software, do you have the skills to develop products and services which will create intense and enjoyable customer experiences?
Historically, one of the main segments of the product development services (PDS) market has been software product development for independent software vendors (ISVs). My colleague John McCarthy and I have just published a report that outlines how this market is undergoing a significant shift as it splits between serving the traditional ISVs and serving what Forrester refers to as “software-is-the-brand” companies.
Software-is-the-brand companies are those firms in industry sectors like financial services, retail, information services, and media and entertainment that are seeing more and more of their business value coming from their software-based products and services. This new segment will comprise the majority of growth in the software PDS market over the next four to five years.
This growth will occur as these companies increasingly require high-end product development capabilities for what, in many cases, were seen as traditional IT projects. My colleague Christine Ferrusi Ross recently wrote how technology has become the supply chain for these software-is-the-brand companies because it is the “raw material” that allows today’s products to be built. Frequently, however, these companies need help from service providers to acquire the appropriate skills and expertise to handle the current complexity and speed of technological change.
As part of my ongoing research into the product development services market, I took a step back to consider how sourcing and vendor management (SVM) professionals have seen their responsibilities increase as new sets of stakeholders start to rely and utilize their expertise and experience.
The first wave really started in 2007 as business buyers started to self-provision both devices and software, representing a key shift from centralized to decentralized IT. And this brought with it a whole new set of stakeholders into the view of SVM professionals.
But it wasn’t long before other stakeholders started to emerge. In 2009, we started to see human resources (HR) and finance appear on the horizon. In HR, this was being driven by trends such as the rise in telecommuting. For example, SVM professionals were increasingly required to work with HR and IT to develop a formal telecommuting policy, as an increasing number of employees worked away from the office.
In the past year we have started to hear from clients about increasing interaction with marketing professionals. In many organizations, marketing works autonomously from IT and SVM but often has large contracts, for example with digital marketing agencies. And so we have gradually seen proactive sourcing professionals reaching out to marketing to gain visibility and bring a greater level of robustness and process expertise into these relationships.
In my recently published report (SVM's New Stakeholder: Product Development) I argued that product development will become a crucial new stakeholder for sourcing and vendor management (SVM) professionals in the next few years. And we're already seeing some interesting indications that this is starting to happen. For example, I recently came across this job description: Manager, Product Development & Sourcing.
Look at some of the elements of the job description for this sourcing professional:
Manages the development process.
Partners with the design team.
Improves processes and increases efficiencies by partnering with design, merchant, color, and technical design teams.
The recent news of a golfing glove utilizing sensors and apps to allow golfers the opportunity to measure the trajectory and speed of their swing, is reflective of the increasing range of smart products on the market. It also serves to illustrate the new challenges being faced by product development teams where rapid technology change and ever more demanding consumers are transforming even traditional product categories.
Aside from my work with product strategists, I’m also a quant geek. For much of my career, I’ve written surveys (to study both consumers and businesses) to delve deeply into demand-side behaviors, attitudes, and needs. For my first couple of years at Forrester, I actually spent 100% of my time helping clients with custom research projects that employed data and advanced analytics to help drive their business strategies.
These days, I use those quantitative research tools to help product strategists build winning product strategies. I have two favorite analytical approaches: my second favorite is segmentation analysis, which is an important tool for product strategists. But my very favorite tool for product strategists is conjoint analysis. If you, as a product strategist, don’t currently use conjoint, I’d like you to spend some time learning about it.
Why? Because conjoint analysis should be in every product strategist’s toolkit. Also known as feature tradeoff analysis or discrete choice, conjoint analysis can help you choose the right features for a product, determine which features will drive demand, and model pricing for the product in a very sophisticated way. It’s the gold standard for price elasticity analysis, and it offers extremely actionable advice on product design. It helps address each of “the four Ps” that inform product strategies.