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The effectiveness of products stems from an organisation’s product management capability, and the authority it holds to drive and deliver on product strategy.
Product management, not to be mistaken for product ownership, isn’t new to financial services. However, the demands, and consequently, the required skillsets, have shifted as the industry and focus of regulators have evolved.
Historically, product management often sat within marketing or strategy teams. This resulted in a different perspective of success based on something “new” being the solution to the short-term goals set by the organisation. With a focus often being on what new product or feature could be put together to attract new customers, as opposed to also ensuring that the existing customers continue to be well served by the products and services sold to them.
The outcome has been a proliferation of products, variability in pricing models and other gimmicks, intended to deliver something “new” that could be glossed up and sold to hit short-term KPIs.
This approach often resulted in:
In short, product sales were the primary/sole focus or KPI, which isn’t bad in and of itself, except in some cases that came at the expense of poor ongoing product governance and sometimes to the detriment of an organisation's existing customers.
It doesn’t take long to find examples where what was said on the can didn’t quite match the contents, as the products and services departed over time from what was advertised or examples where customers were left or stuck in legacy products when the organisation had superior ‘new’ products on offer.
We now see a steady stream of fines and warnings hitting the headlines.
The root causes of this?
Rightly so, the FMA has already called out weaknesses in systems and processes.
However, I feel that the product (which includes all the distribution, infrastructure and on-going management) delivered at the time were a response to the demands of the day, which were driven by those short-term organisational objectives rather than long-term organisational and customer needs. They either intended to deliver the infrastructure needed to support the product long term, but that got deprioritised through the “day 2” backlog. Or…they failed to balance all the requirements for successful long-term products anchored in customer needs and operational rigour.
Naturally, there has been a response with more regulations and regulator oversight.
Financial advice requirements have made it harder to provide advice when products meet largely the same need, albeit with very minor differences. FMCA requires that organisation don’t misrepresent, deceive or mislead customers, meaning they have to have confidence that the fees they charge and benefits they provide work as advertised. Product simplicity has been the most obvious response to date with much of the market taking on product and fee simplification programmes.
At the same time, organisations have been strengthening product governance and oversight with the goal of avoiding making the same mistakes of product proliferation, weaknesses in operational processes or poorly supported pricing models (e.g. incorrect fees, interest, discounts or waivers). With strong product governance, product simplification does not have to be the only response to avoid regulatory attention. CoFI is about being confident and demonstrating how you treat your customers fairly, and simply offering a ‘simple’ product does not, in and of itself, demonstrate you are treating your customers fairly.
Product management should now, rightly so, look across the product lifecycle, portfolio and value chain when reviewing products and making decisions to develop, change and retain them. This centres on clearly defined product target markets that drive the product design, distribution and in-life servicing.
Seems logical, but it isn’t universally applied or always easy due to competing demands or capabilities.
Product managers have to evolve to apply these practices. They need to be true generalists who look across an organisation and the wider market environment to drive strategic direction for that product throughout the lifecycle and across the value chain. They need capability and knowledge in research, customer design, strategy, finance, risk, compliance, operations, data, technology, distribution and marketing. They then need to be able to balance all of the above (with the support of the respective experts, of course!). As always, there will be trade-offs, but the tricky bit is walking the tightrope to deliver the best long-term solution for the customer. This is a specialist skill set.
That said, the risk is that the product manager, or the organisation, falls into the same trap and over indexes on any of those considerations. Once again, generating similarly distorted outcomes for the organisation and the customer.
The other risk is that product managers or product governance may lack the authority to balance or effectively steward the product throughout its lifecycle. The outcome is that they appease the powers of the day, which are driven by, at times, narrow objectives. See strategies to innovate (often a thinly veiled way of saying “we need something new to sell”), internal technology and process infrastructure rubbing up against delivery pressures resulting in “workarounds”, the push for new gimmicks to appeal to target demographics rather meeting customer needs.
Strong product management that centres on product target markets (who is the product designed for and what is the customer need it aims to deliver on) and also ensuring the products are operationally supported, will drive not only good customer outcomes and fair treatment but more sustainable business models over the long term.
At Mosaic we have a depth of experience in product management and the interface with operational challenges. Please get in touch if you are facing challenges or questions with product strategy, management or governance.
