If you’ve read any of our content before, you’ll know that we’re pretty big fans of products. Product Thinking is at the heart of what we do at A Few Good People. So you’d expect that a question as simple as “should you productise everything” would have a simple answer, but there’s a lot more to this question than you’d think. Of course we are strong believers in productisation, but at the same time, productisation is not just a veneer applied over the top of a static business. In if a business wants to productise, it also needs to change.
The decision of whether that change is worth the effort is nuanced. You need to consider two things:
Does it make sense to productise what you do?
Should you be doing things that can’t be productised?
What does it mean to productise?
Productisation implies that there is a deliberate process of standardisation across your entire business. It’s not just about having a list of services and prices, it implies that you apply standardised approaches to propositions, selling, contracting, design, production, delivery, billing and innovation. Productisation is a life cycle driven by measurement and managed continual improvement. In return it offers greater efficiency, improved profitability and clear points of differentiation. Given these are the outcomes, who wouldn’t want to productise? In general, if you are doing something regularly and repeatedly, there’s little reason why it shouldn’t be productised. Surely that answers the question right there? Or does it?
Bespoke offerings have benefits
But what about the things that haven’t yet been productised, or can’t be productised? What do they offer? What about the things that have never been done before? Or things that are so niche, they’re only attractive to one client? Often these things are highly valuable to a client, because they’re being built specifically for them, to meet their exact needs, without any need to compromise on the part of the client. These highly bespoke products or services can be attractive to offer for a few reasons:
They can make clients feel highly valued, which drives loyalty
They can attract a significant premium over standard offers
It can be difficult for competitors with more standard offers to compete
The product or service demanded by a customer could form the basis of a new product innovation
The premium they attract can effectively fund new product development
These are all valid reasons for selling non-standardised services. The problem however is in ensuring you attract a premium for such a specialised offer. And there lies the catch.
What often happens is that these bespoke offerings mask a lot of hidden costs and don’t attain a premium in pricing. Rolls Royce cars offer a huge level of bespoke customisation for their cars, but in return their cars attract a huge premium – the Rolls-Royce La Rose Noire currently holds the title of the world’s most expensive new car at $30 Million. One assumes they're making some money from these. Yes, these cars fill a niche, and yes their value is driven by their brand, as much as their input costs. In fact, you can even argue that despite only making three of these cars, the vast majority of the elements of these cars are produced using productised parts and processes. It's a powerful example of how you can make something that feels very niche, using productisation.
Measurement is critical
Often, especially in services businesses, the cost of learning how to do new thing for a client is not born by the client, but by the business delivering it. Sure, on paper the work may generate quite a bit of revenue. But if the effort and cost of learning how to do something new is not attracting a premium, and is not re-used, then what might appear to be profitable business, ends up being unprofitable. Many agencies eschew re-doing something new because they believe that a standardised process must produce the same result, which is bad for creativity. They fail to recognise, that like Rolls Royce, you can produce a highly valued, highly customised piece of work, using many standard inputs.
Even worse, very often, bespoke businesses don’t have real visibility of their costs down to a project or customer level. Profits can be eaten up in extra hours, lower productivity, the need for specialist contractors, extra rework, or merely absorbed into additional overheads. It may be hard to spot at an individual client level that very little is being made.
In general, product businesses tend to have tighter allocation of costs to individual products (as the name would imply). This really underlines how a decision to productise is much more than a change of proposition. The decision to productise is accompanied by very real change in the way the business operates and measures its performance. It’s that performance measurement which drives entirely different behaviour. This is why productisation, real productisation has to be more than just a veneer.
New product development is part of productisation
This is not to say that you are eternally locked into only offering what you know how to do. That would make no business sense at all. The world changes, and none of us can rest on our laurels of what we’ve done before. Doing new and innovative things is important. It doesn’t go against the principles of product management at all, which is why innovation and new product development is part of the product lifecycle. However, what is implied is that there is an intent to reuse what has been done. A bespoke project for a client doesn’t necessarily have to attract a huge premium if the intent is to use it to develop a new offer and to recoup the costs from reselling the same thing to other clients. Effectively it’s a pilot implementation of a new product. But there needs to be discipline. New innovations can draw resources away from other profitable business, so it needs to be managed effectively. There are many things competing for investment in a business and it’s important to find a balance between cash cows and new innovations.
But what about if you don’t yet know what you plan to productise?
It’s all well and good to say that every new thing you do for a client must be part of a product development, but sometimes it doesn’t work that way. Sometimes you don’t know the potential until you build it. This doesn’t mean however that you can just go off and ignore the product process. But it also doesn’t mean that you can’t do it at all. In these cases it’s possible to take a partially productised approach.
This ‘partially productised approach looks very similar to the way services businesses such as agencies charge for their services today. In these cases, you can just charge for the resources that go into the project using time and materials billing. But there are some critical differences. It shouldn’t be a blank cheque to bypass the product process altogether. In this situation, like Rolls Royce, you should be aiming to maximise reuse elements you have already done before, and then apply a time and materials approach to the new elements. You need ensure that these time and materials offers are in your catalogue of product offers. You also need to pay attention to document the learnings and the efforts that were used to produce the output. Later on, if you choose to make the output a product, you already have much of the information you’ll need to productise it.
Effectively, time and materials billing is a product, albeit one that is very narrowly defined and quite exposed to pricing pressure. As a product it needs to be managed as such. How profitable is it compared to using the same resources elsewhere in more fully productised offers? What is the appropriate mix of revenue and profit between these time and materials products and other more genuine product offers?
If you have productised your offerings, you should expect them to be more profitable, unless you are generating a significant premium from time and materials offers. You may decide on an optimal mix of productised versus time and materials revenue. The important thing is that you are making a conscious choice to manage the mix, informed by clear reporting. You’re not just falling into the trap of only doing time an materials as your only offer.
It's not a binary choice
As you can see, the problem of whether to productise or not is not a simple binary choice. There are grades and shades of productisation. For sure, productisation delivers many benefits that make it a desirable outcome. Where possible you should always be aiming to productise, but the path to getting there also requires innovation. While the goal should be to productise, but we accept that not all things can be productised straight out of the blocks, especially in services. That's fine, continual improvement is part of Product Thinking.
The important thing is that you are applying the principles of Product Thinking all the way through. That you are considering how every non-standard request might fit into your offering:
Does the client really need something bespoke, or would something more standardised work?
If they need something that is not covered by your current offer, could that be attractive for other customers?
If it’s not likely to be attractive to other customers, will it attract a price premium that makes it at least as attractive as using the same resources in a more standardised service sold to someone else?
If it isn’t as attractive, does it help to utilise unused capacity and contribute to your fixed costs?
If the answer to all these questions is ‘no’, then you probably shouldn’t be doing it.
By making these conscious choices you avoid the risk of stumbling into only one model. You may not be able to sell everything in the most profitable product category, but you can make informed decisions about where you should commit your resources and energy for best profit now, and in the future.
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