Blue Ocean Thinking and Kano Models: the mindset of a Chief Product Officer
The problem with product leaders is they think their job is to build products.
After a career leading product teams at Microsoft, Slack, Spendesk, and other Silicon Valley companies, I have a blunt message.
You are not building a product. You are building a business.
I'm going to explain what I mean. I will take you on a whirlwind tour via Blue Ocean thinking, the Kano Model, my own Rocketship matrix, and the difference between the European and American way of thinking about products (spoiler: the US model is far better).
I want you to rethink the role of Chief Product Officer.
Okay, so what do I mean by not building products, but building a business? Well, just that. My core observation of European product teams is that they focus on the product in isolation. Built as part of a feature factory. They do not understand the wider business, commercial aims or the distribution mechanics. How the product is there to drive monetization at scale.
The European habit of product teams focussing exclusively on features is why the continent lags the US in tech. The seven largest tech companies in the US are worth 20x the EU's largest seven.
In the US, and in a purer form, in Silicon Valley, product teams think about the entire enterprise. They learn about sales and marketing, logistics and distribution, and work with other departments to ensure the product is right for the customer and driving the business.
As a result, there is a conveyor belt of talent leading to the C-Suite. Silicon Valley is dominated by engineers turned CEO or founder. The CEO of Adobe rose from engineering. The CEO of Google Cloud was president of product development.
Take an outstanding leader in Silicon Valley, such as Jensen Huang, co-founder of NVIDIA. He's a product guy to his core. He has a masters degree in electrical engineering from Stanford, and loves discussing neural networks and AI chip design. But Huang is also a master of customer relations; he personally delivered the first DGX H200 supercomputer GPU to Sam Altmann at OpenAI. He's the complete package - a product engineer who is also a master of all the other domains of commerce.
In Europe the sales people dominate. It's why France, Spain, and Italy are extraordinarily good at luxury goods. The richest man in Europe is Bernard Arnault who founded LVHM. The richest man in Spain is Amancio Ortega who founded fashion brand Zara. It's not a universal rule – ARM, Dutch semiconductor toolmaker ASML, and the fintech industry are strong in Europe, and engineer-led. But the trend for sales to control C-suite positions is overwhelming.
If European chief product officers want to emulate their Silicon Valley counter-parts they need to start thinking like them.
Escape from the feature factory
My first advice to European CPOs is to raise your sights. You should not be focused on the next feature. You should dream of a bold move that will re-invent the entire category and drive the business.
This is Red Ocean thinking versus Blue Ocean thinking. Created and popularized by Chan Kim and Renée Maugorgne, a Red Ocean strategy is driven by features in a well-understood market. Companies compete with each other over tiny market share percentages. It's cutthroat and mostly price and cost-driven, hence the term Red Ocean, as blood spills into the water.
Blue Oceans suggests a new way of thinking about the market and product. Opening up vast new territories. Nvidia competed with Intel at a time when it was thought impossible to rival the R&D heft of the chip giant. Rather than take Intel on with the x86 architecture, Nvidia went Blue Ocean, focussing on GPUs for the gaming industry. Crypto miners saw the value of Nvidia's products, and the stock rose fast. Then, Nvidia adapted again to power LLMs in the AI sector. The result is, at time of writing, a market value for Nvidia of $2.7 trillion, to Intel's $130bn.
This framing has nuance, best captured by the Kano Model. This framework, developed by Noriaki Kano in the 1980s, classifies customer preferences. There are various interpretations. Here's how I explain the Kano Model.
Level 1) Required features
A product must have basic qualities that must be considered by a customer. A car must have four wheels to be considered. A car with three wheels will not even get a test drive. But you will not get a higher price if you have five wheels. In software terms, your product will be considered “bloated” and be less valued by users. For example, Microsoft Word. An over-bloated piece of software that is a drag on the value proposition of Microsoft 365 and has been outstripped by newcomers like Notion. Created based on a new view of the space centred on elegance and solving problems. Not features.
Level 2) Performance features
There will be a dimension of your product your customer expects to pay incrementally more for the more of that dimension they get. The EV example would be the battery and the range it enables. The customer will pay more for the 400-mile range than the 300-mile range. But they will not pay exponentially more. The return on the increased investment is linear. In software terms, this is the context window of an LLM. The larger the window, the higher the price. Today, it costs $5 per 1M input tokens of ChatGPT-4o – the return is linear.
Level 3) Delighter features
A product that astonishes and delights can command a huge premium. A full self-driving car—now that would sell. If an electric car could go from New York to San Francisco without me touching the wheel, I would pay a fortune. In software terms, that is the difference between the price of ChatGPT 3.5 and 40. $0.5 vs. $5 per 1M input tokens—a 10x difference.
Product teams need to master Level 1. They can work on Level 2. But Level 3 is where the game-changing happens. Silicon Valley CPOs love Level 3 thinking. Look at the valuations of young firms in this sector, such as Mistral ($6bn) and OpenAI ($80bn).
Master the entire enterprise
To execute a Blue Ocean, Level 3 strategy, CPOs need to understand the full equation. What is the distribution model and go-to-market (GTM) strategy? How will the product be sold? To whom? What do customers really value, and how much will they pay to solve their problem?
If you don't expand from product into GTM your efforts may be wasted. Slack serves as a cautionary tale. Slack thought they were in a feature war with Microsoft Teams, but we were actually competing with Microsoft 365. To win over the long haul, Slack needed Blue Ocean thinking on how to disrupt the entire office productivity suite. Not just messaging versus email.
Microsoft, knowing they couldn’t compete on features and value in the short-term, distributed Teams as part of the entire M365 proposition. They priced the product as essentially free and locked Slack out of strategic accounts.
Slack was focused on a feature/value battle and missed the broader war. We needed to widen our focus to see the importance of other factors: the conflict we were in. Not messaging versus email, but Slack vs M365 and a completely new productivity paradigm. Plus, the power of distribution. We needed it all.
I hope my advice is the start of a journey for you. As a Chief Product Officer, I've loved accumulating insights into how to add value for customers and drive company valuations. The key is to do it efficiently, especially in this post-ZIRP (Zero Interest Rate) world.
As a guide, I created the Magic Quadrant of Startup Efficiency.
It is a framework that charts a path for a CPO to build products and drive distribution to create a low-cost, high-growth product business. A rocketship.
All startups want to be rocketships, accelerating to escape velocity with low costs and sky-high growth. During the “Growth at all Costs” era of ZIRP, companies found themselves in the high-growth, high-cost quadrant. I've written a detailed explanation of how to navigate the transition here. To get a full grasp, you'll need to go deep on Annual Recurring Revenue (ARR), Operational Expenses, Customer Acquisition Costs, and other unit economics.
The Magic Quadrant is a granular, practical way to consider the enterprise's trajectory and how product teams can drive the P&L.
That's the detailed version. My headline message is for CPOs to aim high. In Silicon Valley, product officers expect to make it to the very top. Get comfortable talking about enterprise trajectory using the Magic Quadrant. Be brave and pitch game-changing ideas.
European product officers can follow the Silicon Valley route. It's a question of mindset.
Expand your horizons. Learn about sales. Learn about marketing. Learn about finance. Set your sights on Level 3 thinking, and find those gorgeous and wide Blue Oceans.
About the Author:
James is an experienced product executive renowned for his ability to transform businesses across multi-billion-dollar enterprises like Microsoft, hyper-growth challengers such as Slack, and scale-up unicorns like Spendesk. Respected for demonstrating deep customer empathy while developing highly rated user-centric products, James is known for leveraging disruptive technologies and analytic-based knowledge of user behaviours/needs to spur tremendous growth.