Thursday, May 30, 2019

What is your preferred way of building products ?

How Porsche built Cayenne:

Let's move the clock back to 1990s. Porsche wasn’t doing that well. Annual sales were 1/3rd of what they were in 1980s. The arrival of a new CEO brought in cost and process discipline. As a result, cost fell and sales rose. The CEO knew that cost control alone wouldn't win the future for them. He put a big bet to build a new SUV. Skeptics said that customers wouldn't have the brand association as

Porsche was known for speed and engineering and that it was not a family car made for loading groceries. Porsche adopted an outside-in approach for building Cayenne.
If the customers were not willing to pay for what they wanted in Porsche’s SUV, they would walk away from Cayenne. The result was running extensive analyses and validation cycles to gauge not only customers’ appetite for SUV but also their willingness to pay the price.
They ensured that every single feature stood trial before the customer. At every turn, they removed the features customers didn’t value. Cayenne was a roaring success. Porsche’s famous six speed racing transmission was not on the wish list of Cayenne. These interactions convinced Porsche engineers to include a large cup holder, which the customers weren’t used to.  Over time, Cayenne enabled Porsche to generate the highest profits per car in the industry. 10 years after it hit the market, Porsche was selling close to a 100000 Cayenne’s annually - almost 5 times it did in the launch year!

How Fiat built Dodge Dart: Fiat Chrystler had six times revenue that of Porsche. In 2009 they started the work into getting the new segment: a reimagining of the classic 1970s Dodge Dart. They wanted to get int compact car segment. Fiat Chrystler’s approach to developing the compact car was totally radically different from Cayenne. Rather than looking at a hard look at customers, they had a hard look at the product. They came out with a marketing video- TV commercial and announced that their product development way was:

Design it -> Build it -> Rethink it -> Design it -> Build it -> Rethink it -> Until engineering team felt the car was ready to go. “Perfection” as defined by Fiat Chrystler and not the customer.

The market performance was a disaster. Launched in 2012, the Dart sold about 25000 units- a quarter of the total predicted by the market analysis.

(Stories source- The Book: Monetizing Innovation: How Smart Companies Design the Product Around the Price)

These 2 cases are contrasting in terms of 1)Outcomes 2)Approach taken to deliver products. While Cayenne was built with Customer Centricity at it's core, Dodge Dart was built with Engineering at it's core.  At the heart of the way Cayenne was built were the principles of Lean Start-up (as it is known
in today’s times), comprising of but not limited to the following concepts:
1.     Validated learning: learning what our customers want before building.
2.     Build-Measure-Learn cycle: More than a cycle, it is a mindset. Tackling the cycle backwards, it is intended learning that drives the building cycle.
3.     Pivot or Persevere: Be ready to change direction if the learnings and measures indicate so.

While following these principles is no certain guarantee to success as the start-ups can still fail for other reasons but these do increase your odds to attain success.
Fiat Dodge Dart’s approach was essentially engineering centric i.e. with focus on engineering at its core without much involvement of customers in the process of product development. One of the biggest disadvantages of this approach is that it increases the feedback loop i.e. the late we show the product to the customer and seek feedback, the late it is to gather any meaningful feedback and make any changes. This is more so for design-heavy products like cars.
But like with anything, there are exceptions to the rule. When Apple built say its first iPod or iPhone, it did follow design-first approach, but the products remained heavily engineering focused. Customers may have been involved secretly but given the way Steve Jobs operated, most of validation remained a secret, almost under-the-wraps till the product was released.

What is your preferred way of building products ?

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