Chapter 6

Sustain

Sustain

6.1 Welcome to Sustain

Well done! Nice work! You are here because your product has reached a good level of maturity. In Sustain your product is now a cash cow. This means that you are consistently generating revenue and you have a repeatable and well-understood business model. Being in Sustain, doesn’t mean pulling back because you have reached the highest point of market saturation. In a globally competitive market, sustaining great operational margins and efficiencies, while continuously delighting the customer have to become more your focus.

Even as we enter Sustain, we must remember to continue using Lean thinking and the build–measure–learn loop from the previous stages of the Lean PLC. The discipline and rigour remain the same, it is just the focus of our practice that is different. In fact, although we advocate operational efficiency, it’s expected that to improve and maintain efficiency you will continually experiment and learn. The main change is the strategic context of your product and business model.

In most cases, to be in Sustain means you have reached a dominant market saturation point. Your product is satisfying and attracting the late majority and laggards while holding onto your dominant position. This is an attractive space to be in and there are a lot of businesses looking to eat your lunch. You will need to defend your space and keep pace with your customers’ evolving needs in order to continue to stay relevant.

Although reports on product management popularise the excitement of products being in stages where they grow and innovate, successful and profitable enterprises are those that know how to manage and exploit Sustain well. Successful products in Sustain often provide the capital and opportunity for continued innovation across the enterprise. Therefore, doing this well should increase your potential for future innovation; providing you have a balanced and well-managed portfolio of products: The Sustain stage can be split into the following activities:

  1. Maintain the engine: This involves maintaining market share, customer numbers, revenues and profits. In Sustain, this is the key question for every product review: Are maintaining or losing market share, customers, revenues or profits?
  2. Keep customers happy: This involves ensuring customer satisfaction with our product. Although we are not making major changes during Sustain, we should be consistently making changes and updates to our products to meet customer needs.
  3. Optimise operations: This involves systematically reducing costs, improving efficiencies and rationalising our operations. We also have to maintain sustainable relationships with our key partners.
  4. Prepare for retire: Every product has a lifecycle and will eventually have to be taken out of the market. At some point, there will be significant declines in customer numbers, revenues and profits. Changes in technology and customer preferences can render our product obsolete. The goal is to systematically manage the retirement of our products. This is different from having zombie products or being surprised by a sudden loss of profitability.

6.2 Reduce costs while maintaining good customer service

Although we advocate lean thinking at all stages of the PLC, Sustain is where minimising waste is most explicitly the goal for internal operations. With your product in Sustain, there is a great opportunity to maximise profits, without compromising the value delivered to the customer. Focusing too much on the former and not the latter will likely end in greater costs, as you will see a decline in customers over the longer period.

Product management and performance in Sustain requires a systems thinking approach where repeatable processes can be applied, monitored and managed. Management in this space advocates a lean approach where changes applied internally and to the product and the effects are observed through experimentation.56 This scientific approach isn’t limited to a business model of discovery and growth, but to all changes which can be measured and/or observed for any part of the system.

When considering what areas to focus on during Sustain consider reviewing the following areas:

Where to find optimisation opportunities

1.  Identify, measure and optimise your workflows and processes. Where you can identify process, look to optimise flow and consider the five principles of Kanban:57
  (a)  visualise the workflow
  (b)  limit work in progress (WIP)
  (c)  manage flow
  (d)  make processes explicit
  (e)  improve collaboratively
  In reviewing your product and business model consider cycle times, lead times, queuing and work in progress limits.
2. Review purchasing procedures, re-evaluate suppliers and look for cheaper partners. Be mindful not to compromise quality in this process and remember you’re optimising for the whole. Choosing a supplier on the other side of the world might reduce your unit price, but could increase your total stock carried due to the logistical lead times. This choice could also affect your corporate strategy as you may negatively impact your company’s commitment to reducing your carbon footprint. You should also consider that the quality of interaction and knowledge transfer can also suffer with communication handovers which could, over time, degrade services.
3. Engage with remaining key partners and vendors to re-negotiate contracts and expenses. You can sometimes reduce costs by reviewing the commitment of your existing relationship. With more predictability than you may have seen in Grow, you might be able to increase commitments to some suppliers or consolidate services. Be careful to balance risk if you are considering working with only a fewer suppliers.
4. Outsource non-core capabilities to specialist service providers. Where you have repeatable processes, consider outsourcing non-core capabilities to cheaper suppliers. Business Process as a Service (BPaaS) can offer models which are more cost-effective as can other Platform as a Service (PaaS) offerings. System maintenance, periodic services and delivery bursts or other activities which are not core to your own business, might be better served by a partner providing these as a service.
5. Reduce non-value-added tasks and expenses. Consider stopping travel not related to sales and placing limits on expenses internally or through existing partnership agreements. However, be careful to consider the impact on morale and indirect productivity effects on performance before making these decisions. It’s easy to see costs in a spreadsheet and make decisions, but less obvious are the secondary effects of these decisions.
6. Reduce team size and rebalance skills for your business needs. Repeatable processes should be automated where possible as this could provide considerable savings. Human potential can sometimes be wasted if limited on repetitive tasks. People in your organisation could be more valuable if they work on products requiring exploration and discovery. We have often observed situations where companies working on new ideas and initiatives bypass using existing skills in the organisations and seek new hires. This adds costs to recruitment, training and increases knowledge drain.
7. Observe and improve quality where rework is a cost. Where can you reduce defects, waste and time invested? Remember the costs of reducing defects should be less than the savings made.

Do whatever it takes to streamline your process, eliminate inefficiencies and focus on the bottom line while not compromising customer value. For example, as you will no longer be adding new features or limiting the updates to your product, it seems sensible to reduce your new product development spend. However, you may want to improve customer services, logistics and other operational functions. If your product needs a sales force to deliver revenue, you may not want to cut that.

You can also consider reducing the features of your product. Look at the actual customer behaviour against the features of your product to identify where usage is light or non-existent and analyse the impacts of removing that feature. It’s not uncommon to generate a lot of waste as a result of feature creep over time, which not only results in increased cost to maintain, but also reduces value from your core product and can disappoint customers with complexity. If part of value delivery is a great website, make sure that you are fixing all bugs as they arise.

6.3 Key strategic partnerships

As we have already noted, selecting and reviewing key partners should be an ongoing activity in your business to refine your business model. You will likely already have in place key partnerships which have been crucial to make your business grow and successfully reach Sustain. However, your business model is constantly under pressure from environmental changes, as are your partners. Therefore, like other components of the business model, your key partners should be actively reviewed to ensure they are still the best choice for your business.

When reviewing your partner selection and needs, you will need to have a structured performance-based relationship where quality and reliability of the service are understood by both parties and managed. It’s important to also factor in the risk of the partnership to both businesses. A key partner will also need to see the benefit and potential of the agreement. Exploiting partners too much can be a risky business, particularly for key services in complex environments.

When negotiating a relationship with a key partner, you should focus beyond the initial transactional value of the agreement. Where both parties can have beneficial outcomes, you are often more likely to have a better relationship beyond the point of transaction. This is a key aspect to continuous improvement which can go a long way to optimising performance. Remember as your business grows and responds to change, you want key partners who can respond to that change with you.

Nine steps to establishing key partnerships in Sustain
  1. Define your needs and goals – By the time you get to Sustain, you should have significant success and knowledge around your business model. You will want to ensure partners align to your needs and vice versa. Your partner selection is not just based on your journey to date, but supporting you on where you need to go. This is why you need to clearly define your needs and goals before engaging with potential partners.
  2. Achieving a win–win outcome – Selecting a partner is a two-way process and when selecting partners consider what is in it for them as well. Why do they need to partner with you? What capabilities can they offer? Will they be incentivised to work with your organisation and invest in change as you evolve? Having a partnership where both parties benefit is more likely to yield a closer and more fruitful relationship, particularly when considering support, priorities and adaptive processes.
  3. Aligning on quality – Many suppliers and partners can deliver contractual quantity. However, the cost of defects will impact your business if quality isn’t assured with low variance on expectations. Explicitly agreeing and aligning on quality expectations through your process ranging from raw materials to customer service expectation, can significantly reduce cost. It’s beneficial to share to agree on measures of quality and align on the KPIs that matter through regular collaborative reviews.
  4. Skills and complexity of service – If you’re seeking specialist skills which are highly complex in nature, it’s likely that your choice of partners will narrow. In some cases, this complexity puts extra emphasis on the win-win outcomes defined above. As a general rule, the more complex the service we are seeking, the closer it should be to the business. It is not advised to make the acquisition of feedback and knowledge more complex than it needs to be.
  5. Beware of the hidden costs of outsourcing – Making the big decision to outsource based purely on like-for-like operating expenses is naive. When choosing a partner to manage a key service in your business, you need to consider hidden costs which are often overlooked. When working with internal resources, you often have value beyond what’s captured purely in the defined process, including an ability to change without the restriction of contracts in place. When these relationships are not understood you can end up with a restrictive partnership, which make you less able to respond to change; hindering your ability to improve as a business.58
  6. Due diligence – With a product in Sustain, you have a lot to lose if you don’t select the right partner. Before making decisions, define what you need to know and identify the risks. Depending on your domain, there may be restrictions in place you need to adhere to regarding regulations, transfer of data and SLAs. Seek the right council and ensure you select a partner who can support your cultural and operational demands with explicit experience operating within the markets you operate.
  7. Transparent measurements – It is important to have a clear understanding of what we are expecting from the partnership on an ongoing basis. We need clear metrics of success agreed upfront. It’s advisable to capture both direct deliverables and peripheral components which should be measured by outcomes. For example, lead time is a direct deliverable, whereas customer satisfaction would be an outcome with many contributing inputs.
  8. Burst capacity and seasonality – Testing your partner’s ability to respond quickly to change is a key component to keep costs low. When you have spikes in demand from seasonality, your entire network needs to respond. Failure to do this may severely impact your business in lost revenue, damage to brand and future opportunity costs. It’s advisable to ensure your partner provides customer references around their ability to support seasonality.
  9. Trial and evaluate – With so much at stake for your business, we highly recommend that you undergo a trial or pilot programme before you take partners on. You should also consider running pilots before you bring existing partnerships to an end. A trial programme will allow for the discovery unknowns which could not be otherwise foreseen.

Tip  Tip

If you have decided to undertake a re-organisation of your company, beware of assumptions from afar. Often these sensitive matters are handled by third-party consultants, agencies with sometimes junior consultants who have little or limited knowledge of your company culture and ways of working. Looking at a job title on a spreadsheet doesn’t always align or explain what a person or team may actually do or the value they provide. This is prolific in large enterprises where job titles are the same across business units, but each operate differently.

Embracing a Genchi Gembutsu59 mindset would be recommended before making centralised or distant decisions. Although this can sometimes focus on process improvement, the notion of going to see, observe and understand the environment you are looking to change is highly recommended. You may find areas to improve as well new information to inform your decision.

6.4 Platform innovation and sustainability

It might be easy to infer that products in Sustain minimise further product development due to the emphasis on operational efficiency. This is not necessarily the ase. It is likely that digital products will require a higher proportion of on-going investment support and incremental innovation. Given that digital products sit on platforms and operating systems which are constantly evolving, you will need to keep pace to keep your customers and dependent platform lifecycles. Just looking at the iOS lifecycle alone, there have been nine major releases from 2010 to 2017.60 The rapid adoption by loyal users also typically shows that approximately 70 per cent of users will upgrade in just over a month.61 If you don’t manage and prepare for this switch, you risk losing your customer base in a matter of just a couple of months.

Almost all products that contain software are likely to need of ongoing investment and maintenance, particularly as customers demand more of the products. Consider that a modern high-end car actually contains more lines of code than Facebook or Microsoft Office.62

Also if you recall from earlier sections of the book, your product is not just the object sold, but it is part of your business model. As such, it is important to consider how you will maintain all systems and platforms which sit across each element of the business model.

If your product is physical, your channels and customer relationships may be digital. If you sell books today, support for this product may require keeping aligned with Amazon’s integration needs for distribution. You may have a website which needs to be accessible to evolving mobile platforms. You may also have to manage orders and customer support through evolving channels such as Twitter, Facebook and more.

Keeping pace with platform innovation requires continuous observation and management to manage your product in its lifecycle. When Microsoft update the Windows operating system, there are subtle changes which need to be considered. Operability, performance and customer interaction will impact your product and you should be working with the vendors and beta developer programs to align the customer migration path.

To highlight this point, consider the platforms supported by Netflix. It could be argued that Netflix is in Sustain in the USA and Grow for other regions, and has to keep pace with platform innovation.63 Netflix is actively improving operational excellence on profits; a key activity of Sustain. Being available on smart TVs, mobile devices, PCs, streaming media players, set top boxes and games consoles is no small undertaking. As the market gets more saturated by device offerings, reaching and maintaining customers is an ongoing challenge.

For each of these customer streaming device categories, there are a range of systems and manufacturers to support. Netflix customers can have any combination of each of these and expect a continuous experience across platforms. As each of these platforms evolves and new platforms are introduced, Netflix has to move with the customers’ upgrade patterns to Sustain their business. Therefore, platform innovation is a core activity for Netflix to maintain their market share at a minimum. Failure to do so will result in a decline in customer retention.

When reviewing your product on a regular basis during Sustain, you should be observing and monitoring the effectiveness of existing channels. Detecting weak signals of change in the market and technology platforms could ensure that you are riding the wave of change and staying ahead of the curve. Do not assume that Sustain is static stage in the Lean PLC that is all about just cutting costs. Nowadays, to sustain customers, revenues and profits, you have to keep innovating. The only difference in Sustain is the strategic focus of the innovation.

6.5 Actively managing products in Sustain

As with Grow, the hope is that we can keep our product in Sustain for as long as possible. As such, unlike the left side of the Lean PLC, products in Sustain are managed via a regular review process. We advocate using regular data-driven reports and scorecards. Having a regular cadence of review whether it be monthly or quarterly, will help you structure key data points and observe key trends. This allows you to respond with the right corrective measures and exploit emerging opportunities. Remember that the key activities in Sustain include:

  1. maintaining market share, customer numbers, revenue and profits
  2. keeping customers happy by making sure our product consistently meets their needs
  3. optimising operation by reducing costs and improving efficiencies
  4. maintaining sustainable relationships with our key partners
  5. tracking evolving technology platform and ensuring that our product stay relevant and aligned.

Each of these points should have associated metrics on your dashboards which can be informed by your business systems and activities. Develop internal capabilities to report on these key points regularly, overlaid by your Sustain hypotheses. This will have a profound effect on your ability to manage your business and respond to change. Below is a Sustain template you can use, but feel free to extend and contextualise the sections and data points to best fit your company.

6.6 Prepare for Retire – nothing lasts forever

It is an inevitable part of the PLC that a product or service will begin to decline. At some point, there will be significant declines in customer numbers, revenues and profits. Changes in technology and customer preferences can render our product obsolete. Within the Lean PLC, we recommend active portfolio management which requires us to make decision about when to retire our products. This empowers the organisation by allowing it to systematically manage the retirement of its own products. This is different from having zombie products within the company or being surprised by a sudden loss of profitability.

There are several factors that can influence the decision to retire a product.

  • Three of more quarters in which financial losses have been made.
  • The technology landscape has moved on in a manner that renders our product obsolete.
  • The product no longer delivers values to customers or meets customers’ changing expectations.
  • The cost of keeping the product going is much greater than the revenue it is generating. This state violates a key principle for remaining in Sustain.
  • We have been disrupted by a startup with a better product and business model. Even as we fight back, we might also consider retiring the product.
  • We have successfully disrupted ourselves. We have created a better product with a better business model. We should then actively sunset our own product, rather than just keep it going.
  • There has been a shift in our strategy, and the product is no longer a fit.

As part of the regular review of our products during Sustain, the question of whether to retire the product should be consistently raised. When we make the decision to retire, we should base it on evidence and validated learning. We should not be making decisions based on conjecture. Our conversations should explore the cost of both keeping and retiring the product, impacts on customers and the option to move customers to our other products and services. We should also consider what other residual value we could glean from the product. Retiring a product is not the only option; the product can also be sold to other companies. In the end we need to have a clear exit plan that assesses financial impacts as well as any additional resources that may be needed for the retirement process.

SUBMISSION TEMPLATE
Sustain to Retire SUBMISSION

Product ownership
Investment board                              
Business sponsor  
Product owner  
Product overview
Product name                              
Idea description  
Strategic fit  
Product performance

Please describe the financial performance of the product to date.

  Revenue Costs Profit
Forecast      
       
Actual
(or re-forecast based on actuals		      
Sustain lessons learned

Provide an overview of the sustain hypotheses that you have tested since the last review and the lessons you have learned.

We believe that:                              
To verify that we:  
And we measure:  
We learned that:  
Unexpected learnings

Provide a summary of the unexpected learnings you got during Grow.

 
Planned activity

What are key tasks and milestones involved in retiring the product?

 
Financial projections

Since you are asking to move to Sustain, please complete the financial data below.

Expected revenue over 3 years Expected costs over 3 years Profit margins over 3 years (%)
     
     
Resources and funding requested

To Sustain the product, we are asking for (e.g. dollars, time, people):

 

* Please note that you also have the option to remain in Grow, go back to Validate or move straight to Retire. If either of these options are what you are choosing, then you need to adapt this template so that you can update the product council on work done so far, key lessons learned, what you plan to do next and the resources you need.

A case study – Paradox Beta

Paradox Beta is a company that focuses on developing niche software for a specific industry domain. With a mature and well-established customer base of leading brands, Paradox Beta’s cash cow product was in Sustain. After many strategic initiatives, the business observed that the customer demands were changing to cloud-based services. This observation resulted in a rash decision that the company needed to exploit the existing product in Sustain to protect revenue and grow the business. The profits from the product in Sustain were invested into a new cloud-based version of the product.

Paradox Beta simply created the prototype without doing any business model exploration or validation. Interesting, the product gained rapid traction from the technical success of the prototype. As Paradox Beta started to operate in this space, new complexities emerged which were not present in the previous business model. One could say that the business shifted from a complicated and simple domain to a complex domain unknowingly. The company continued to make public commitments and increase investment. This added pressure to internal teams.

During this business model change, the previous partnerships were not structured to support the new business model. Interestingly, these partners were not part of the initial stages of this journey. The strain imposed by the business on the existing partnerships resulted in stretched resourcing and tensions within long-standing agreements. In some cases the partners significantly increased prices, which rendered the previous business model less profitable, or they declined to continue services. Adding to these woes was the negative impact on customers. Customers who had been promised the same level of service they had become accustomed to were now moving away; decreasing customer retention. These laggards had been unwittingly turned into early adopters and they definitely weren’t happy with that.

During the panic and emotive decision making that was taking place, the company also selected and bet upon an embedded new technology through a limited partnership in their solution. Without strategic analysis, they did not qualify the strategic partner or establish the channels of support which were not offered by the partner. The cost of this meant that Paradox Beta had to invest heavily in domain specialists and services to support the new technology, which again took further investment and resulted in further losses.

The partner then took a different direction, which resulted in a discontinued relationship. Paradox Beta had long-term contracts in place with customers and brand reputation at stake. They eventually had to swap out the technology at additional cost and time. The outcome in the end resulted in the business having a less profitable business model for their product in Sustain, deprecating the new product, losing key employees and ultimately wasting significant time and resources that could have created new opportunities.

There are many lessons observed in this case study, which are of course easier to observe in hindsight. No doubt the leadership at the time of making the decisions made them with hope and good intent. However, had they applied the key stages of Idea through Validate, they may have learned more about the complexities and effort needed to develop a new business model. During this process they may have also evaluated and qualified their partners in a very different way at all levels and may have limited the negative impact on their existing customer base.

*Please note that the name Paradox Beta was used to protect the name of the real organisation that was involved in this work. However, the case study and the lessons learned are real.

____________________

56 The W. Edwards Deming Institute – Hunter, J. (2013). Deming 101: theory of knowledge and the PDSA improvement and learning cycle. Available at https://blog.deming.org/2013/12/deming-101-theory-of-knowledge-and-the-pdsa-improvement-and-learning-cycle/

57 David J. Anderson & Associates (2010). The principles of the Kanban method. Available at http://www.djaa.com/principles-kanban-method-0

58 Forbes / Rubin, J. (2013). The hidden costs of outsourcing. Available at http://www.forbes.com/sites/forbesinsights/2013/03/29/the-hidden-costs-of-outsourcing/

59 Economist (2009). Genchi Genbutsu. Available at http://www.economist.com/node/14299017.

60 Wikipedia (2017). iOS Version History. Available at https://en.wikipedia.org/wiki/IOS_version_history

61 Mixpanel Trends. How quickly are users updating to iOS10. Available at https://mixpanel.com/trends/#report/ios_10

62 McCandless, D. (2013). Million lines of code - codebases. Available at http://www.informationisbeautiful.net/visualizations/million-lines-of-code/

63 Forbes (2017). Netflix subscriber growth continues unabated, as margins improve. Available at http://www.forbes.com/sites/greatspeculations/2017/01/19/netflix-subscriber-growth-continues-unabated-as-margins-improve/

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