What Keeps Chief Product Officers Awake at Night

• Two in 5 heads of product at firms generating $400 million to $750 million in revenue operate under high uncertainty.
• Heads of product feel uncertainty’s impacts, with 48% reporting diminished profit margins and 32% citing missed opportunities.
• Nearly 1 in 3 heads of product say customer demand behavior is a top source of uncertainty across the middle market.

Heads of product drive profitability by setting strategic goals and supporting innovation across the product portfolio. As a result, their role is distinct from that of CFOs and heads of payment. Heads of product focus on aligning a firm’s offerings with market demands and ensuring timely product releases.

PYMNTS Intelligence finds that 40% of heads of product representing firms generating $400 million to $750 million in revenue operate in highly uncertain environments. In comparison, 31% of heads of product at smaller firms (generating between $100 million and $250 million in revenues) say the same.

Yet data reveals the top source of uncertainty for heads of product: customer demand behavior.

Uncertainty’s financial toll can have significant consequences. Many heads of product report diminished profit margins (48%) and missed opportunities (32%) as key adverse effects. Heads of product estimate the total cost of uncertainty at 7.2% of revenue.

Many heads of product employ strategies like implementing new processes (47%) and partnerships (35%). Together, these strategies helped heads of products reduce uncertainty more than 90% of the time.

• What’s at Stake
• Diminished Profits and Missed Opportunities
• Putting a Price on Uncertainty
• Strategies that Succeed in Reducing Uncertainty
• Conclusion
• Methodology

What’s at Stake

The primary concerns of middle-market firms’ heads of products revolve around customer demand behavior. This behavior directly impacts a company’s ability to develop or update offerings that meet market needs. For example, uncertainty could reduce profits or cause missed opportunities from delayed product releases. Alternatively, uncertainty could lead to a mismatch between consumer demand and product strategy.

As a result, heads of product are focusing on process improvements and partnerships to enhance operational efficiency and expand their market reach.

Uncertainty rises with product portfolio complexity, resulting in greater uncertainty for larger firms.

Similar shares of CFOs (33%), heads of payments (30%), and heads of product (30%) reported high levels of uncertainty last month. One factor crucial for understanding uncertainty’s impact on heads of product is their relative revenue size. To illustrate, just 20% of firms generating annual revenues between $250 million and $400 million reported high uncertainty last month.

Larger middle-market businesses often have more complex product portfolios, contributing to their heightened uncertainty. This complexity makes heads of product at larger firms feel the impact of uncertainty more acutely. In contrast, smaller middle-market firms typically see more volatility in their finance and payment operations.

Uncertainty surrounding customer demand behavior gives heads of product serious headaches.

Nearly one-third of heads of product say customer demand behavior is their biggest source of uncertainty. This can impact product strategy and the firm’s ability to innovate and release products with agility.

This focus on demand highlights the role heads of products play. After all, they often manage product portfolios and the need for partnerships and new processes. Unlike CFOs and heads of payment, heads of product prioritize uncertainty’s potential impacts on product strategy and market alignment.

These are just some of the findings detailed in “Middle-Market Heads of Products Battle Uncertainty with New Processes and Partnerships,” the fourth edition of the PYMNTS Intelligence 2024 Certainty Project. This monthly project rotates through CFOs, heads of payment and heads of product. It monitors trends in the operations of U.S. firms with revenues between $100 million and $1 billion in 2023. This edition examines how heads of product handle uncertainty to keep their company’s product roadmap on track. It draws on insights from a survey of 60 heads of product from middle-market companies. The survey was conducted from April 4 to April 10.

Diminished Profits and Missed Opportunities

Heads of product cite reduced profit margins as the most common negative impact of uncertainty, followed by missed opportunities.

Heads of product oversee the expansion and development of a firm’s product and service offerings. These responsibilities can entail entering new markets and require driving innovation. This makes heads of product acutely aware of uncertainty-related losses. When the product portfolio is misaligned with customer demand, the impact can be profound. Nearly half of heads of product (48%) report that uncertainty led to diminished profit margins. This significant share stresses that product alignment and timely market entry play a critical role in maintaining profitability.

Uncertainty also leads to missed opportunities, and 32% of heads of product identify this as a key adverse effect. The inability to anticipate and respond to market demands effectively can result in delays that erode the customer base. Thirty percent of heads of product attribute customer issues and churn to uncertainty disrupting innovation and new product launches. This highlights the importance of strategic foresight and agility in product management. Missed opportunities mean that innovative products are not introduced on time or fail to meet evolving customer needs. They also can result in stunted growth and slowed market expansion as these customers move to a competitor.

Moreover, heads of product must contend with distinct operational challenges brought about by uncertainty. Notably, 27% say labor and staffing issues are a direct consequence of uncertainty. These challenges can lead to high turnover rates, difficulties in fulfilling client orders and increased labor costs. These strain the operational capacity of the business. Addressing these issues through improved processes and strategic partnerships is essential for heads of product.

Putting a Price on Uncertainty

Heads of product estimate that uncertainty costs a considerable chunk of revenue.

Heads of product estimate the total cost of uncertainty at 7.2% of revenue. In fact, their estimates are higher than the estimates from CFOs and heads of payment. Heads of product are likely to be projecting the missed revenue potential from unrealized opportunities rather than merely thinking of incurred costs from customer demand volatility, such as excess inventory. In this way, heads of product’s higher estimates reflect a sense of loss when product strategies fail to meet market demands. However, middle-market heads of product generally employ fewer strategies to mitigate uncertainty than their C-Suite counterparts.

While CFOs took an average of nine actions to mitigate uncertainty, heads of product only took about six. However, the number of strategies employed by heads of product increases with higher levels of uncertainty. Heads of product at firms with high uncertainty implemented 9.4 strategies on average. In contrast, heads of products at firms operating with lower uncertainty implemented 4.4. This underscores the need for proactive approaches, highlighting adaptive strategies heads of product need to manage uncertainty effectively.

Heads of product rely on analytics less than other executives, instead preferring new processes or partnerships.

While 28% of heads of product used analytics to forecast trends, 47% introduced new processes and 35% partnered with others. Several sought informal advice from contacts within their business networks (27%). These actions differ from the other executives we studied. The divergence highlights heads of product’s preference for strategies that expand operational capacity and market reach with fewer resources.

Many heads of product (30%) focused on training existing staff to mitigate uncertainty in customer demand behavior. Training personnel rounds out the top three most common strategies employed by heads of product, just ahead of using analytics. This emphasizes how heads of product see human capital as crucially important in managing product-related uncertainties. These findings suggest the extent to which heads of product prioritize practical, process-oriented strategies over more technical solutions.

Strategies that Succeed in Reducing Uncertainty

Heads of product find that introducing new processes and partnerships reduces uncertainty more than 90% of the time.

Introducing new processes and partnering with others can enhance efficiency and manage uncertainties without significant resource investment. Heads of product’s preference for these practical, collaborative approaches reflects their focus on agility and adaptability in response to market changes. However, heads of product also fall victim to the relative success of their go-to strategies.

Heads of products recognize that using analytics is the most successful strategy overall for mitigating uncertainty. In fact, they report that it reduced uncertainty 95% of the time. However, just 28% of them use analytics, compared to 62% of heads of payment and 74% of CFOs.

These are sizable gaps. While using data analytics is highly effective, heads of product may face barriers, such as costly access to data or expertise. This may help explain why they rely more on process improvements and external partnerships.

Heads of product in larger middle-market firms or those facing high uncertainty are less optimistic about next year’s business volatility.

More than one-fifth of heads of product at firms reporting high levels of uncertainty expect worsening conditions over the next year. Similarly, 17% of heads of product at firms generating $750 million to $1 billion in revenue have a gloomy outlook. This concern likely reflects the complexity and volatility of managing product portfolios in an uncertain market. It also highlights the pressures of competing with larger players.

Nearly half of heads of product at firms operating with high uncertainty expect conditions to remain the same over the next year. This outlook may be influenced by the primary source of their uncertainty: customer demand behavior. Fluctuations in customer demand are difficult to predict and manage. Heads of product should take a page from the CFO playbook and use more data and analytics to forecast demand.

Conclusion

Uncertainty continues to challenge middle-market firms, hitting heads of product particularly hard. Many heads of product report diminished profit margins and missed opportunities due to uncertainty. Despite these challenges, heads of product implement new processes and form third-party partnerships — and report these strategies reduced uncertainty more than 90% of the time.

While analytics and automation are effective, heads of product use them less than CFOs and heads of payment. This indicates there are barriers to implementing data and tech-driven solutions, suggesting an avenue for the 72% not battling uncertainty with analytics. Emphasizing strategic foresight and operational agility, heads of product can navigate uncertainties and seize emerging opportunities. Leveraging practical, collaborative approaches can enhance predictability and ensure their companies remain resilient and grow in an unpredictable market.

Methodology

“The 2024 Certainty Project: Middle-Market Heads of Product Battle Uncertainty with New Processes and Partnerships” is the fourth edition of the PYMNTS Intelligence Certainty Project. This monthly project monitors trends across operational areas of companies with $100 million to $1 billion in revenue last year. Each month, the project rotates through CFOs, heads of payment and heads of product to capture uncertainty’s sources and costs. The series also captures the strategies that executives use to navigate complex and dynamic business environments.

This issue explores how 60 surveyed heads of product handle uncertainty to keep their company’s product roadmap on track. Ninety-two percent of the businesses have operated for 10 years or more, with 7% operating between five and 10 years. The survey was conducted from April 4 to April 10.

For more, read the May 2024 report, “Report: Heads of Payments Zero In on Customer Behavior in Uncertainty Debate.”