This article was written by Timothy Fallen-Bailey, an Exponent PM Coach. Tim has worked for HP, Apple, Sybase, Siebel, Oracle, and Citrix before starting his own consulting company. Tim has recruited, mentored, and managed product managers in each of these positions, so you could say he knows a thing or two about interviewing for product managers.

Overview

A good product manager must mix a strategic awareness of his/her company and its overall position in the market, together with a strategy of how their own product will compete. They then have to switch gears and make the strategy happen in practice – that is part of the challenge of being a product manager! It is usually up to the product manager to develop this strategy for their product, because they know the most about the opportunities and threats that are present for their particular market.

Below is a quick introduction to strategic thinking and analysis, to help you understand some of the buzzwords, thinking, and methodology. There are people who spend their whole lives doing strategic analysis, so don’t expect to learn enough from this article to do more than just show enough knowledge to keep moving on in your interview. What is important to an interviewer (as we keep on saying) is HOW you think, not so much what you know, because you will inevitably face situations where you do not know all the answers. These strategy tools will help you find the answers in a logical manner.

A useful measure of how good a strategy tool is, and perhaps how well you are using it, is it's ability to help you predict what competitors may do next, or what your next action should be to counter competition.

1. Porter's 5 Forces Model

A good place to start talking about any strategy is Porter’s ‘5 Forces’ model[1] [see Figure 1 below], and this is a framework that you should mention in an interview. Porter's 5 Forces Model is particularly suited to analyzing a whole industry at a time, or one company, or a product line. It would not be my first choice for a single product within a large company, because several of the elements in the model may not be present. One weakness of Porter's model is that it doesn't explicitly address the role of government regulation, which is a strong force in regulated industries such as real estate, insurance, or investments, so I add that in where needed.

To see how Porter's model works, let’s take an example of a product, for instance an Apple iPhone in the smartphone market. Here is how the 5 forces model applies to sales of Apple iPhones:

Industry Rivalry – the ongoing rivalry on features, battery life, camera resolution, etc. that occurs with every new model released by competitors such as Samsung, Huawei, etc.

Threat of New Entrants – there is always the possibility of a major market upset if a powerful new company arrives on the scene – at one point that was Apple itself! [Do you remember that smartphones existed before Apple?] I don't see a likely new entrant in the smartphone space right now, but the model predicts that it could happen.

Threat of Substitutes – the market could always turn away from the use of smartphones, as unlikely as that seems right now. Alternatives could be non-smart phones (think Nokia), or some new wearable technology that is built into watches, clothing, or something else. Notice that Apple has already entered the ‘smart watch’ segment, presumably to try and head off the threat of this particular substitute.

Bargaining Power of Buyers – if large companies did bulk buying together, and forced the price point of an iPhone down to where Apple could not make an adequate profit, it would be a serious problem for Apple. Similarly, consumers could suddenly stop buying iPhones if a serious security flaw became known. The power of buyers is evident in China right now – many consumers cannot afford an iPhone, so Apple has rolled out lower cost versions for them, in order to compete in that market against local suppliers offering lower prices.

Buying Power of Suppliers – This is an ongoing problem for Apple, as lawsuits brought by suppliers Qualcomm (a supplier of networking chips) and Samsung (a supplier of screens and memory chips) have been ongoing for several years. Any of the suppliers could either raise their prices so high that the iPhone would no longer sell, or refuse to sell to Apple – for instance in Samsung’s case, there is always a danger that they may do that as they are an important competitor in the smartphone market themselves! In typical fashion, Apple has been buying chip design companies and expertise, so that they can insulate themselves from this threat. Following this model, I would predict that Apple will invest in companies that make phone screens.

Exercise

Examine the product you currently work on (or have worked on in the past), and explain the impact of each of the 5 Forces on the product, and what you did to counter them (or should have done!). Can you use the model to predict what will happen next? Mention what you did during your interview.

Answer here: Apply Porter's Five Forces Model to a Product you have worked on

2. SWOT Analysis

A SWOT analysis is a tool used in a strategic analysis to identify the Strengths, Weaknesses, Opportunities, and Threats for your product or market, with the results traditionally presented in a 2x2 matrix. The tool predates Porter’s 5 Forces model, and although it is simpler, it is somewhat better known in corporate circles, especially among senior management.

I find that SWOT analysis is initially easier for people to understand who are not experienced with strategic thinking, and works well in a brain-storming session. It is more flexible than Porter's 5 Forces model - for instance you can easily add the threat of regulation. However, I don't find it as useful in predicting what competitors will do or what your own actions should be, unless you push yourself to add that dimension.

As an example, let's assume that you are making autonomous self-driving software for cars and trucks. Here is how the SWOT analysis might turn out:

Strengths: List the strengths of your product. Here we have included the standard ones such as reducing the number of accidents, injuries, and lives lost in road accidents. For trucking, deliveries in theory could be made more quickly and with more predictable arrival times by avoiding traffic congestion.

Weaknesses: This is usually the hardest section to fill out. Here you need to be brutally honest about what your product may never be able to do, or potential flaws that might be found. With our self-driving software, the most serious issue is that a flaw in the algorithms or equipment may cause an accident or death. As we haven't found a way to make any computer system 100% foolproof, this means that it may never actually be possible to reach Level 4 or 5 fully-self-driving vehicles. If I were an investor, that realization would immediately make me hit the STOP button on investing in this technology, unless it can be addressed in some other way, or a differnent opportunity exists.

Opportunities: There are other ways to make sure that accidents don't happen, such as installing rails in the roads, or providing fail-safe components. These should be listed here, but also other markets or situations where the product could still be used. For instance, there is the possibility of using dedicated highways across deserts in the US, Africa, and Australia which would allow self-driving trucks to deliver goods reliably, and tests on this have already started. Thinking into the future is useful here - for example, self-driving carts have been tested within factories, for local deliveries in a town, and for a new breed of agricultural tractor. Perhaps they could be used on golf courses, on airport aprons, for mailbox collection, or for restocking supermarkets? Their use has even been discussed for exploration of other planets, but that is not likely to be a large market for a while!

Threats: In this section you put all of the other competitors or technologies that could compete with your product, or legal action that could stop it from being sold. This section would be where you would add the threat of 'New Entrants' from Porter's 5 Forces model, as well as the power of suppliers and buyers. Here you need to specifically think into the future to predict what might happen.

3. Value Chain Analysis

Unfortunately Porter’s model doesn’t tell the whole strategic story, because it focuses mostly on the external forces influencing a product. To really understand why a product can be a compelling purchase for a user, it helps to look at the situation from the point of view of the users - in other words the strategy behind the USE of the product by the purchaser. A product may be unremarkable in terms of features, and yet be a market leader. The answer as to why this is happening may lie in the position of the product in the user's Value Chain.

The purpose of doing a Value Chain analysis is to understand what your customer is doing BEFORE they use your product (or service), and what they are doing AFTERWARDS. If you can enhance your product (or service) to either include or eliminate steps before or afterwards, you could save your customer money and time. This in turn will make your product more desirable, which could either increase your sales, or allow you to raise the price (ideally both!).

Let’s take the example of a house-buying search engine, such as Zillow, and its role in the value chain of a person who wants to buy a house in the US (other countries have a different process). Services such as Zillow sprang up in 2006 to counter the market domination of the MLS[2] system in the US, and as such Zillow represents a ‘New Entrant’ in Porter’s model (remember that?). Originally Zillow offered just a search engine that could be better tailored to house searches than the MLS, and most importantly, could be used by anyone, compared to the MLS listing service that was only available to realtors. To compete, Zillow management decided to offer other services that were part of the same value chain for a house buyer. Here is how the traditional house-buying process in the US works:

Out of these 8 steps, Zillow initially only competed in step 2. Nowadays they also offer a way to find and engage a realtor (step 3), and find a suitable mortgage (step 6). They also offer a service to value your existing property (part of step 7). They have added information that can help you decide on the right area and price range to meet your needs (steps 1 and 2). As a house-buyer, would you use Zillow’s services? Very probably, because it could save you money and time. Can you guess what Zillow might offer next? Probably something in steps 4, 5, or 8, which they have not yet addressed. It wouldn't surprise me if they offered a complete service for step 7, where they could buy your old house automatically (and resell it). After all, that would allow the current sale to go ahead, thus ending the traditional 'chain' of buyers that are all waiting for months for someone at the head of the chain to sell.

From this analysis Zillow seems to be implementing what is known as a strategy of ‘horizontal integration’, where items in the customer’s value chain to the left and right of their core offering are being integrated into the product offering. (Value chains are traditionally drawn horizontally!)

Notice how this analysis of the house buyer's value chain has not only shown where Zillow can best compete today, but also what Zillow should consider doing in the future.

Exercise

Be prepared to explain the Value Chain of one particular type of customer for a product that you have worked on, and how your efforts made the product more valuable to that customer. Mention your analysis during your interview.

Answer here: Explain the Value Chain of a Customer for a Product that you have worked on

There are many other tools that can be used in a strategic analysis, together with large amounts of research to validate the assumptions and conclusions. The examples above will give you a basic introduction to both the terminology and way of thinking, which, when it comes to a discussion on strategy, are the most important items to remember in your interview.

Questions & Answers

Q. What is a strategic analysis, and when would you do it?

A. A strategic analysis is an examination of the forces that are influencing your company and/or your product today, and how they may change in the future. It is commonly done when a serious problem has been identified such as a dramatic drop in sales, but of course it should be done before such events occur!

Q. Could you do a strategic analysis for us?

A. Yes, any senior product manager could, but in reality it is a full-time job for several months. For that reason it is often done in conjunction with external consultants, who bring expertise, experience, a different perspective, and most valuable of all, the time to do the analysis well.

Q. Our product management team don’t get involved in strategy – our HQ team does that for us. Why are we talking about strategy?

A. Good that your company has a strategy team, but they are usually working at a whole-company level. A product manager has to concentrate on their own product, and no-one knows the market situation for that product better than the product manager! Implementing programs without a strategy doesn’t make sense, so product managers MUST think about the strategy for their product.

Q. Our product is not doing well in the market, so we want to hire a product manager to fix it. What is the first thing you would do?

A. Conduct a strategic analysis, using such tools as Porter’s 5 Forces model, Value Chain analysis, and other appropriate tools.

Q. We have two new products in development, X and Y. We don’t have enough money to finish both of them. Which one should we finish?

A. We’ll need to conduct a quick strategic analysis, and see which one comes out with more market potential, more strategic value, and less market risk.

Q. Explain to me Google’s product strategy.

A. Do you mean the strategy of Alphabet (Google’s parent company)? If so, I’m not sure that anyone outside of their management really knows! But it appears to be that every possible service that can be computerized should be online in the cloud, and Google wants to own the core technology in every one of those services. This includes shared business applications, the Android system in every device (Internet of Things), self-driving vehicles, AI, etc.

Want to learn how to use tools like the above to answer product strategy interview questions? Want to get expert coaching from interview coaches like Tim to ace your next PM interview? Check out Exponent's PM Interview Course and Interview Coaches.

References

[1] Michael E. Porter, Harvard University. First published in Harvard Business Review, 1979.

[2] Multiple Listing Service (MLS) is a listing service offered to USA licensed realtors. It is organized by state or region. See here for Northern California.

Apple and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries.

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