In order for companies to succeed in the age of digital transformation, it is not only critical to be able to design, build and maintain digital tools and platforms, but also to support those tools with the right way of thinking.

Some businesses are achieving this by combining product development techniques from the world of software development with a start-up mindset, an approach known as “product thinking”.

What exactly does product thinking entail, and how are successful companies putting it into practice? Earlier this year, Econsultancy carried out a survey of more than 400 digital specialists to discover how widespread product thinking is among businesses in 2018, and how different types of business are applying it day-to-day.

The results have been published as an in-depth report, Driving Digital Effectiveness with Product Thinking, produced in association with Code Computerlove. The report delves into the level of digital maturity among client-side businesses and agencies; how businesses are approaching the development of digital platforms and products; how they are adopting product thinking and its likely impact; and much more.

But first: what is product thinking?

What is product thinking?

By now, widespread agreement has been reached on how a digitally transformed company should behave. What is much less widely agreed-upon, argues the report, is how these behaviours should be delivered – and how businesses themselves should be structured.

For businesses whose ways of working are still mired in the 20th century, it can be particularly difficult to figure out how to break free of these old structures and mentalities and move into a fully digital mindset – even if they know how it should happen in theory.

A good place to look for a model, therefore, is to digitally native and disruptive companies that have never been encumbered by legacy cultures and systems: the likes of AirBnB, Uber and Spotify. These companies are all champions of product thinking, an approach which brings together human-centred design, modern engineering and lean delivery, in a bid to continually grow the value returned by a business by better meeting the needs of its users.

The Driving Digital Effectiveness report outlines three main “pillars” of product thinking:

1) Doing the right thing: this involves employing people-centric design, and focusing on business outcomes rather than deliverables from a process.

2) Doing the thing right: applying a continuous improvement process to development, delivering value early and building it constantly.

3) Doing it effectively: working in multi-disciplinary teams, and treating agencies and partners as part of the business.

As a result of enacting product thinking, companies should be able to connect investment with return, allowing them to prioritise their activities more effectively. When done correctly, product thinking also encourages a customer-centric approach, connects teams and individuals with a collective sense of purpose, and returns value more quickly.

So far, so good – but how many companies are actually employing these practices? The survey by Econsultancy found that respondents generally had a good understanding of the concept, with 64% of client-side respondents and 40% of agency respondents reporting that they or their clients understood the term “product thinking”.

However, actual implementation of product thinking is much lower, with just 13% of client-side respondents and 6% of agency respondents saying that they “use [product thinking] as a fundamental principle”.

Given that product thinking is a very new concept, this isn’t all that surprising. However, Econsultancy’s research found that client-side companies who out-perform their competitors – a category referred to in the report as top-performing companies – seem to be enacting elements of product thinking more widely than this statistic would imply.

This could be because product thinking is in use in pockets of the business, but might not yet be recognised by the organisation as a whole; or because these tactics are in use as part of an innovation-driven mindset which employees may not yet connect with product thinking.

Nevertheless, it’s no coincidence that top-performing companies – whether knowingly or unknowingly – are so much further ahead in implementing product thinking than less competitive companies, referred to in the report as mainstream companies.

Here are three key ways in which top-performing companies are enacting product thinking when compared with the mainstream.

Driving strategy through transparency

When it comes to driving strategy, many company-side respondents report that individuals or departments across their business set Key Performance Indicators (KPIs) – 46% of top-performing companies, and 40% of mainstream companies – but these don’t always tie into broader business goals.

Comparatively fewer respondents stated that their company takes a transparent approach to strategy which allows people to suggest how they will contribute to business goals, for example by using OKRs (Objectives and Key Results). Notably, however, a full third of respondents from top-performing companies (33%) said that their organisation has a clear and transparent strategy – versus just 14% of mainstream companies.

“Our research … suggests that a top-down approach leads to better results than working bottom up,” writes the report author, noting that only 12% of top-performing companies work with purely financial targets and little involvement from senior management. “However, an approach that encourages dialogue between departments and senior management works best of all.”

A self-managing organisational culture

Nearly two-fifths of company-side respondents (39% from top-performing companies and 38% from mainstream companies) described their business as having a “formal, fixed structure and hierarchy”, indicating that many organisations still cling to traditional ways of working.

However, top-performing companies are more likely to be meritocratic (16% of top-performing companies versus 9% of mainstream companies) and have self-managing teams (20% of top-performing companies versus 16% of mainstream companies), and slightly more likely to define teams and departments more broadly (15% of top-performing companies versus 14% of mainstream).

The most successful companies are significantly less likely to have a chaotic structure which is geared around influential leaders: 23% of respondents from mainstream organisations reported having this kind of company structure, versus 10% of top-performing companies.

It’s significant to note the gap between how many respondents vocally support the principles of a digital-first organisation versus how many actually carry them out. When asked to agree or disagree with a range of statements about digital working, 97% of client-side respondents either strongly agreed or somewhat agreed that “Effective cross-team collaboration is critical to digital project success”, and that “A cross-disciplinary team working together will drive the best results”.

However, this widespread acceptance of more progressive ways of working isn’t yet reflected in how companies are actually structured. As the report author writes, “Agreement with the principles of a digital-first organisation is all but unanimous. Yet the majority of business still have cultures that can best be described as retrograde.”

User-focused and agile development

The gap between top-performing and mainstream companies when it comes to enacting product thinking is even more pronounced when we look at development.

When asked to agree or disagree with a range of statements about their approach to digital development, top-performing companies were significantly further ahead in carrying out some of the best practices associated with product thinking: user-centric development, agility, a long-term view, and the ability to measure the ROI of specific projects.

More than three-quarters (77%) of top-performing companies strongly or somewhat agreed with the statement “We put user needs at the heart of our development”, compared with 53% of mainstream companies – a difference of 24 percentage points.

And more than two-thirds (69%) of top-performing companies say that they adopt agile processes in development, both in-house and with any partners, versus 46% of mainstream companies – a gap of 23 percentage points.

Even wider still was the gap between top-performing and mainstream companies when it came to attributing ROI to specific digital projects: 68% of top performers say that they can connect ROI to particular projects, compared with only 35% of mainstream companies – a gap of 33 percentage points.

And 59% of top-performing companies say that their organisation focuses more on long-term goals than short-term targets, versus 35% of mainstream companies – with just 1% of mainstream companies strongly agreeing with this statement.

This adoption of product thinking in digital development among top companies can be seen in the relative success of their digital projects. Sixty percent of top-performing companies said they were “Very” or “Somewhat” satisfied with their ability to deliver digital projects on-time and within budget, compared with 19% of mainstream companies.

When asked whether their organisation has ever had a digital project that has not achieved its objectives, 34% of top-performing companies said “Rarely” or “Never”, compared with 19% of mainstream companies.

An unconscious adoption?

If so many successful companies are enacting elements of product thinking, how is it that so few respondents reported deliberately applying product thinking in their organisations?

As I suggested earlier on, it may be that companies are carrying out product thinking as part of an innovative cultural mindset, without specifically connecting it with the term.

Top-performing companies consistently ranked ahead of mainstream companies in Econsultancy’s research in their agreement with both the principles and the practices of product thinking: from collaborating across teams and increasing the speed with which digital experiences are developed, to focusing on user needs and taking time out to learn from and reflect on their work.

While there is still plenty of work to be done in encouraging adoption of product thinking even among top-performing companies, the clear correlation between enacting product thinking and business success is encouraging.

As the report concludes,

“It remains an open question whether the use of [product thinking] has driven their success, or whether the culture that has driven their success makes them more responsive to a product thinking approach.”

The report author cautions that adopting product thinking in isolated pockets of a business rather than as a unified company can create conflict – but it could also lead to incremental change.

“Product thinking replaces many of the most fundamental principles of digital development. This will create conflict in traditional organisations if elements of the approach are adopted in pockets across the business. For example, a development head who adopts an approach based on outcomes and ROI is likely to run into problems with their superiors if in doing so they bust budgets and fail to meet deadlines.

“On the other hand, efforts to work in new ways can rapidly gain traction across a business if the new approaches are seen to deliver value, particularly if coupled with a burning platform for change. The fact that lean startup thinking has gone from the margins to the mainstream in a little over five years is evidence of that.”

For more statistics and insight into the digital maturity of businesses and their adoption of product thinking, download the full report: Driving Digital Effectiveness with Product Thinking.