Derivative Chart: Maximizing the Value of Your Platform
The Platform/Derivative distinction is a key to product strategy. According to David Robertson, a platform is “the collection of assets that are shared by a set of products.” These assets divide into four categories:
Components: the part designs of a product, the fixtures and tools needed to make them, the circuit designs, and the programs burned into programmable chips or stored on disks.
Processes: the equipment used to make components or to assemble them into products, and the design of the associated production process and supply chain.
Knowledge: design know-how, technology applications and limitations, production techniques, mathematical models, and testing methods.
People and relationships: teams, relationships among team members, relationships between the team and the larger organization, and relations with a network of suppliers.
In our discussion, we will recognize the total definition of platform as indicated by the four points above, but our primary focus will be the notion that a platform is “a collection of assets (components) that are shared by a set of products.”
A Platform Derivative Chart is a diagram that depicts a set of related products over time. This is the most powerful type of Product Roadmap that highlights relationships between derivatives. You may find it the most useful type of roadmap because the horizontal and vertical axes are labeled, the products are precisely mapped, and the positioning is clearly described.
The Platform Derivative Chart differs from a Product Roadmap in several important ways. We recommend that your organization use both. The Platform Derivative Chart is a technology/design-driven diagram of related products with some underlying common design components. The Product Roadmap shows the portfolio of products under development which may or may not have common technologies, while the Platform Derivative Chart shows the lifecycle of the platform and the family of derivatives indicating the relationships between them. These relationships can include cost, performance, quality, or feature density. For example, in the computer business, the Platform Derivative Chart might show a 15” laptop family where the product platform is the base product and the variants appear at various price points with different feature sets, such as amount of memory, hard disk size, CPU speed, and graphics capability. It is possible for a laptop division to integrate all products on one chart showing where the different platforms exist in the family regarding price points and feature sets. In addition, it is possible to display competitors on the chart to communicate the relative performance of the product against its competitors.
The head of Product Management often creates this chart, and your head of the business unit reviews and approves it. There should be a clear line of sight between the business unit’s strategic plan, the Platform Derivative Chart, and the product pipeline. Internal “customers” for the chart may include Engineering, Sales, Operations, Customer Service, and related functions. In many organizations, this is the tangible conversion of strategy into product.
The chart below shows product plans over the next several years in half-year increments. The vertical axis shows the retail price in subscription costs per month. The dark boxes show the platform development efforts, with the creation of a new platform based on AJAX and HTML5. The chart shows the company has derived a second platform, based on small business needs, from the first, and added balance-sheet capabilities that incorporate depreciation and amortization. The labeling of each derivative shows the key features, such as the lowest-cost version available for mobile devices for only $5 per month.
Product road mapping has been around for a long time, but there is a new emphasis on the Platform Derivative Chart because many organizations are using ODM/JDM (original design manufacturing/joint design manufacturing) development models where the supplier communicates its roadmap to potential customers. We are also seeing the proliferation of web-based platforms where organizations build products similar in size to those of some very significant companies. One of the best examples is the set of APIs (application programming interfaces) that Facebook has created. Other companies, such as Zynga, are using them to develop very sophisticated games that take advantage of the social networking platform created by Facebook.
Platform thinking also leverages innovation by trying to create the maximum footprint of a given invention as it is commercialized. When you create and productize an invention, you would like to take as much advantage of the invention as possible. Innovation is very precious, and you should try to leverage its application and pay back the investment in the best way possible.
Maximizes the financial impact of innovation by spreading over derivative products.
Reduces average time-to-market because it maximizes reuse.
Builds alignment in the organization by focusing development on a few, very valuable design foundations.
Reduces development costs by leveraging the platform.
Which Business Problems Does the Tool Solve?
Platform thinking and the Platform Derivative Chart represent a way of looking at maximizing innovation. In many cases, the platform is the result of many years of research and development, and it codifies all the efforts resulting from one or more innovative concepts. The platform’s greatest benefit is that it maximizes the revenue and business impact of an invention.
Besides having tremendous benefits to sales and profit, the Platform Derivative Chart has internal benefits too, such as reducing engineering expenses and increasing speed and agility. When you leverage the significant design work embodied in a platform, your subsequent product variants will require much less engineering time and less calendar time to bring to market and your new product process will be much more efficient.
What Else Should You Know?
Creating a coherent platform strategy is not easy. The first challenge is that you need an innovation significant enough that you can use it to spawn a family of products. Often organizations create an advanced development group to create the next generation of platforms. They often use social communities for the ideation and creation of next-generation platforms by using the wisdom of the crowd inside and outside the organization. The second challenge is coming up with a system engineering strategy that allows the platform to create derivatives easily. This is a challenge for your principal engineer or product architect to create a total product from an innovative technology. This total product must be easy to modify, so there must be a set of defined interfaces where you can easily add or change different supporting components.
Finally, you need to be patient. Although creating derivative products is routine after you build the platform, the time to come up with a creative platform is highly variable. Platform development is more like research than development, so the timeframes are more unpredictable, and the risks are higher compared to normal development efforts. We recommend you use the winning strategy of setting aside an allocation of 10% of the product development budget for new platform creation and not put the platform project in the formal development process until you eliminate the significant risks.
WebCo is a relatively profitable and quickly growing Web 2.0 company that has the attributes of agility and growth. This consumer internet company sells a subscription service that allows consumers to manage their finances. They currently have 200 people and have had their third-round (C-round) venture funding.
Currently, they are undergoing a transition from a single product to a multiple product family approach and are migrating to a comprehensive Product Roadmap. The team that will come up with the new platform strategy consists of the newly installed CEO, Rajiv, a professional manager highly focused on execution; the CMO, Ray, who has a long history in consumer internet; and Fred, the CTO/VP of engineering and a 25-year veteran of software development.
Rajiv has challenged Ray to revise and clarify WebCo’s product strategy and to leverage some promising new technologies coming out of development. Ray has decided to work with Fred to come up with a platform plan and create a Platform Derivative Chart to communicate their thinking to Rajiv and the rest of the organization. Just the two of them, working over two and a half weeks, have come up with a platform concept and a series of derivatives that, if executed correctly, could result in revenues on par with some of the current market share leaders in two to three years. They have done some competitive analysis of two of their biggest competitors in online financial management to see how the innovations in the platform might allow them to capture some of the under-served segments of the market.
Rajiv has approved the resulting plan, as codified in the Platform Derivative Chart, and rolled it out to the organization. As a result of the new platform plan, Rajiv has supplemented the small group working on these new developments with seven additional team members and doubled their budget in order to speed up development.