Adapt Your Product Strategies to the Financial Impact of COVID-19

Overview

Analysis

The world has suffered what is starting to look like its worst economic shock the world has seen since the Great Depression. This shock was triggered by the dramatic escalation of the COVID-19 crisis since the beginning of 2020. The global economy has entered a recession in all but name. It is safe to assume that any sort of recovery will not start until the pandemic displays sustained signs of abating and countries can ease lockdowns, travel restrictions and other countermeasures. Given the extreme uncertainty over when this recovery will happen, TSPs should operate on the assumption that there will be a global recession throughout 2020 and possibly well into 2021.After more than 10 years of a technology-led bull market and economic stability, product managers suddenly face an environment that is fundamentally different from anything that they are used to. The most pressing change that they must now face concerns ongoing funding, in the form of cash and corporate finance — which will, in the coming months, increasingly determine the strategic options available to most TSPs. This document provides an overview of what product managers should start doing to adapt to the new reality.

Impacts and Recommendations

By now, it has become clear that the economic fallout from the pandemic and the related countermeasures will be severe. For example, according to the projections of the World Trade Organization (WTO), the scale of the economic impact will be worse than what was seen with the financial crisis of 2008. It is no longer realistic to expect that enterprises and consumers will simply defer their spending until the end of the health crisis, allowing the global economy to pick up from where it left in the fourth quarter of 2019. In addition, it is clear that there have been fundamental shifts in customer behavior, such as working remotely, which will drive new and different needs for technology both during and beyond the crisis. Product managers should, therefore, start paying close attention to how the situation is playing out financially for the companies they work for. For the time being, the time frame for such monitoring needs to shift from the usual quarterly-or-so basis to weekly or so.

To keep themselves adequately informed of the dynamically changing circumstances, the product management team should initiate an active working relationship with the organization’s chief financial officer and the CFO’s team. This could take the form of a weekly meeting between product and finance leadership to discuss, for example, cash flow, credit lines and other financials that product managers in normal times may follow passively and sporadically, if they follow them at all. They should also keep a similarly active communication with the sales leadership; ideally, the head of the sales organization would join the same weekly updates held with finance. However, focusing primarily — let alone solely — on sales performance will no longer suffice; it is now imperative that the whole product management function learns how different product initiatives are likely to affect the organization’s near-term cash position.

Furthermore, it is equally important that the finance team have a full, up-to-date view on any latent developments that may be emerging but are not yet captured in formal key performance indicators (KPIs). These are the sort of weak signals that product managers pick up through their interactions with customers, their analysis of product usage data or, for example, conversations with industry analysts. The changes that they indicate will reflect on financial KPIs with delay, so product managers must now assume their role as the company’s “strategic antennae” and disseminate such insights to the right stakeholders, including finance. Large TSP organizations can be notoriously slow to act on changes that are not yet moving the needle in their metrics, and if product managers act with urgency and ownership, they can mitigate some of that delay.

Recommendations:

• Improve the product management team’s understanding on how the organization’s financial metrics are evolving by holding regular meetings with the finance department.

• Accelerate the transfer of information on weak market signals by developing concise weekly summaries to be shared with the finance team at the same meetings.

For most TSPs, the rapidly declining economic activity across the world calls for an immediate review of the product strategy. Product management organizations must not wait for the senior stakeholders’ guidance to start that work. They must take the initiative to drive the review and then take the finding to the senior stakeholders for approval — and thus, help shorten the whole company’s response time. In a time of a serious crisis, every day and week counts.

None of this is to say that all technology markets are currently being affected adversely. Demand for, and usage of, various products and services that enable in-person activities to be done virtually have practically exploded. Videoconferencing, collaboration, content streaming, cloud services, virtual desktop, e-learning and e-commerce are unsurprising examples of markets that are benefiting from the worldwide scramble for digital alternatives. However, even the TSPs that are experiencing such a boost at the moment should not feel complacent about the next 12 months. Tightening consumer spend and shrinking corporate budgets will make it harder for many otherwise well placed vendors to turn favorable market trends and dynamics into actual revenue. And once the situation will begin to normalize, there will be the payback time for the fiscal and monetary rescue packages — and this payback time is set to affect the economic recovery in the post-COVID-19 world.

Given the high degree of uncertainty, organizations’ access to cash will be of critical importance, regardless of how the specific markets that are relevant to the product manager are faring at this very moment. That criticality is heightened by the fact that, over the next six months, corporations’ access to new funding will likely become increasingly constrained. Taken together, this means that a corporation that is now relatively low on cash should not bet on being able to raise more of it — at least in favorable terms — if its business starts deteriorating later in the year. The financial position will, in turn, directly determine how many resources the company’s management can make available for new and ongoing product investments.

Consequently, product managers should proactively adapt their product strategies to two fundamental parameters:

• How much funding the organization is able to make available for its product investments

• How the markets of its products are being affected

The assessment on funding applies equally to all products, while the market assessment should be done separately for each one. The combination of the two will, then, determine the strategic options available to the product managers, in the following manner (see Table 1):

• Strong funding, strong market — disrupt and invest: This category contains products that justify sustained long-term investments to capitalize on the market shifts that will be ultimately unveiled by the crisis. The market outlook is positive, and even if it becomes worse in the near future, the organization’s ability to fund further investment gives product managers the luxury of being able to maintain the long-term focus in their product investments. At the same time, struggles of key competitors may represent opportunities to disrupt the market, for instance, through aggressive pricing moves or bringing forward a release of new major capabilities.

• Strong funding, weak market — protect and acquire: Products falling under this category could be described as wait-and-see ones. While the imminent market conditions may be difficult, the organization’s financial strength may allow product managers to weather the storm and, after the crisis has started subsiding, grow at weaker competitors’ expense. They should proactively aim to hire new talent as well as identify potential acquisition targets. The scope of these offensive moves may range from the organization’s core markets to entirely new, higher-growth markets.

• Weak funding, strong market — monitor and optimize: Products in this category may now seem low-risk, but there is absolutely no reason for complacency. Product managers should monitor closely how the parameters evolve in the coming months. In preparation for a potentially worsening situation, find ways to reduce the products’ cost base through, for example, leaner and more extensively automated models in areas like customer acquisition and onboarding, service delivery, or product architecture. The financial implications of such initiatives should be analyzed in the aforementioned meetings with the finance department.

• Weak funding, weak market — survive and divest: These types of products are in danger the most. Product managers responsible for them should essentially put them immediately on a full-on survival mode — looking at all realistic ways to cut costs, retreating to defend the key accounts and abandoning any growth plans. Discontinuing the products, or divesting them (when applicable), should be considered. The product organization’s leader has an urgent responsibility to ensure that such survival tactics are deployed with the company’s best interests in mind. Individual product managers’ personal interests cannot be let to compromise the strategy.

Recommendations:

• Analyze the resilience of the product portfolio by developing a strategy matrix in which the company’s funding position represents one dimension and products’ market outlook represents the other one.

• Adapt each product strategy to the new environment by reprioritizing and discontinuing products based on the strategy matrix, and by reviewing the decisions regularly with the senior management.

Gartner Recommended Reading

Evidence

“Coronavirus Downturn Will Be Worse Than 2008, WTO Says,” Reuters.