Let’s start by defining the distinctions between three concepts:
- Product-Led Organization
- Product-Led Growth
- Product-Centric Organization
A product-led organization is a business that makes its products the vehicle for acquiring and retaining customers, driving growth, and influencing organizational priorities. As a result, its product team plays a central role in strategy and decision-making.
Product-led growth is a business strategy in which a company uses its product as the main tool to acquire customers. With this model, a business offers users free access to its product. Importantly, this comes with the expectation that the product itself will persuade them to become paying customers.
A product-centric organization is a company focused on the details of its products above other considerations, including its customers’ needs. Product-centric organizations focus on product innovation for its own sake without necessarily considering customer needs. The company falls in love with what it is building rather than seeking to deliver value. In the process, it may get disconnected from the market it is serving. A product-centric organization is the opposite of a customer-centric organization.
Understanding these distinctions is important. For example, a company may be appropriately labeled with any one of these concepts without the other two applying. There is no rule that a product-led organization must adopt a product-led growth strategy. Nor does a company that adopts a product-led growth strategy necessarily have to be product-led in its organizational model.
With that understanding, our focus shifts to the landscape for product-led organizations in 2023. Specifically, we’ll employ the help of the recently published 2023 State of Product Management Report. The data from that report has some interesting implications for companies that are on their own product-led journey. Given what we know about the advantages of customer centricity over product centricity, we’ll try to avoid that concept altogether.
Changing team structures points toward growth in product-led organizational models
The increased adoption of the product-led organizational model is leading to a change in the reporting structures of and within product teams. Traditionally, product managers have reported to either engineering or marketing leaders. This is especially true for companies where product didn’t have its own independent seat at the executive conference table.
The data from more than 1,500 responses gathered for the 2023 report shows that the established tradition is changing. Product management has always been a cross-functional discipline responsible for working with multiple groups including engineering, marketing, sales, and support. It’s also famously been the poster child of the concept of “influence without authority.” So much so that a book by that same name appears on just about every must-read list for product managers. In the product-led organization of 2023, product teams are gaining authority over previously independent teams and even some historically in a leadership role over product.
|Department||Traditional Reporting Structure||% Now Reporting to Product Leadership|
|Project / Program Management||Engineering||29%|
|Engineering||CIO / CTO||29%|
This trend of giving product leadership authority over additional functions represents a significant change in organizational thinking. Furthermore, it shows that many companies are indeed “walking the walk” in the transition to becoming a product-led organization. It’s one thing to say that the product team plays a central role in strategy and decision-making. It’s another to give the product leader direct responsibility for and authority over teams on whose work product success depends.
This trend will be interesting to monitor over time. If the tendency toward product-led organizations continues, more and more companies may adopt a model in which product leadership becomes officially accountable for functions previously owned by engineering, sales, and marketing.
Internal communication and coordination are a critical concern for growing product-led organizations
On the subject of the challenges faced by scaling product teams, 69% of respondents identified issues with communicating across the organization as a primary concern:
- 44% said that keeping roadmaps and processes consistent across teams was the biggest growing pain.
- 25% pointed to efforts to avoid information and communication silos.
Importantly, these issues were a major concern of large, medium, and small companies. Only those teams of less than 5 people showed a significant reduction of concern for these issues. Even then, 61% of companies with as few as 1-4 people on the product team reported these issues as their top two pain points.
These results make sense. Product-led organizations depend on the product team not just to have a major say in the company strategy, but also to be a principal driver of the tactics to support that strategy. In the Empowered Product Team model, product leadership sets the overall direction and prioritizes the problems to be solved. The individual teams have the authority to discover and deliver the solutions that deliver the desired outcomes. With this approach, the roadmap is not dictated from a central authority. It is created in a distributed fashion and evolves organically as teams work independently to execute on the part of the strategy over which they have authority.
Keeping the rest of the organization abreast of these evolutionary changes in the roadmap is no trivial task. This is true even if you have solved some of the tactical issues associated with battling roadmap inconsistency. Making sure that everyone within any organization, product-led or otherwise, is following the same plan is a critical element of the success of any company. Those involved in the transition to becoming product-led must recognize that this responsibility falls squarely on the shoulders of the product team. Consider it the price of leadership.
As always, collaboration is key
The concept of the product manager as a mini-CEO is a polarizing one. Product managers who saw the concept as a license to dictate decisions to other departments rather than a statement of the mission-critical need to understand the interdependencies between product and the other functions were met with great resistance. And rightly so. The role of any executive is to leverage the skills and expertise of the team effectively to achieve strategic goals, not to control every aspect of how every activity is executed.
The same is true for product-led organizations and any organization that is pursuing product-led growth. Whereas a product leader may (or may not) have a broad background built on experience across multiple departments, product managers are more likely to have a vertical skillset, as shown in the data related to product team proficiency. The top two areas in which teams are most proficient, working with development teams and understanding customer personas, clearly reflect skills in traditional areas of concern for product managers.
However, the bottom three areas reflect activities that require more cross-collaboration:
- Building roadmaps that tie to the overall company strategy
- Owning the product vision across the organization
- Best practices in areas like go-to-market activities
Product-led growth requires people outside of product
Consider the case of a company pursuing a product-led growth strategy and the capabilities that have nothing to do with designing and delivering the product that must be marshaled for success.
- Someone needs to know how to generate awareness of and attract people to the product trial (marketing skills)
- Someone needs to define the price to be paid once users move out of the free period or tier (financial skills)
- Someone needs to know how to collect and analyze data to evaluate the success of the strategy (data science skills)
- Someone needs to define and write the licensing agreement associated with both the free and paid versions of the product (legal skills)
- Someone needs to provide support to address trial and paid user questions (tech support skills)
Whether an organization is product-led or is pursuing product-led growth or both, the product-led label doesn’t mean that the product team is handling everything and making all decisions. Instead, it means that product is in a focal position, with the entire organization working together in pursuit of the company strategy. The more mature a company is in its product-led journey, the more it will recognize the need for the product team to be champions for this kind of collaboration, not the owner of all decisions.
There is room for solution providers to better support product-led efforts
Although the majority of product teams use a dedicated tool for development (75%) and strategy and roadmap planning (60%), there is a lot less consistency at other steps in the product lifecycle. Only 40% of teams use a dedicated tool for ideation and solutioning, 36% for research and discovery, 34% for a product or feature launch, and 29% for post-release evaluation and reporting.
The significance of this data relates to the previous section on the importance of cross-functional collaboration. Because when different teams are using different tools, friction is inevitably introduced into the teams’ interactions.
Efforts to adopt a product-led strategy would benefit from a standardization of toolsets. Especially in regard to activities that require direct, active collaboration of two or more teams. When all teams are using a single tool, there is less risk of errors associated with moving data between tools and getting out of sync on joint deliverables.
To be product-led, product must lead
The data from the 2023 State of Product Management Annual Report contain two insights that point to the need for product leaders to take a more active role in actually leading their organizations. The first of these insights is in response to a question about whether the return on product investment, on average, meets the expectations of senior management. Notably, only 45% of respondents answered “yes” to that question.
Furthermore, the answer “I’m not sure” was the response given by 32% of product managers. In other words, almost 1/3 of product teams aren’t measuring the success of the product investments they are making.
The second insight is found in the responses to a question that asked what the primary cause is when product investments do not meet the expectations of senior management. 23% of respondents said that a lack of clear company strategy was the issue with the remainder pointing to issues that all flow from an unclear company strategy: product/feature prioritization, go-to-market strategy, investment allocation, and a roadmap consistent with company strategy.
Two key responsibilities of leadership are to set a direction and to decide when the course needs to be adapted based on new information or a change of underlying conditions. When product is in that leading role, it is the product team’s responsibility to take on both of those duties. That doesn’t mean that product is solely responsible for setting company strategy or how a product initiative will be evaluated. Instead, it means that product must drive the discussion, alignment on approach, and communication of decisions. Without that sort of leadership, movement toward a product-led model may be short-lived.
The challenges of leadership
As the saying goes, “be careful what you wish for.” The movement toward product-led organizations gives a seat at the executive table to product leaders. Furthermore, it gives product management the opportunity to help set company direction and strategy. However, it also comes with headaches. Three of the top four responses to the question “What is your biggest product management challenge?” relate to the challenge of leadership:
- Getting cross-functional alignment on product direction
- Communicating product strategy
- Working with other departments
Leadership is hard. When an organization decides to adopt a product-led structure, all of the same challenges related to setting and pursuing strategy still exist. The only difference is in who owns the work. Therefore, it is up to product managers and product leaders to demonstrate what they have learned when others were at the helm in order to show the value of a product-led approach.