Products are value propositions that solve relevant customer problems at a profit, whereas tools improve the efficiency of operational processes that may be required to operate the product. This does not make a tool less important than the product itself, even though without the product there would be no need for the tool. Unlike a product, a tool is intended to be used by a single customer only, namely the company that is running the operational process, and therefore typical PM tasks do not apply here. In this post, we look at similarities between product and tools as well as their differences. The differences specific to tools make them suitable to be maintained by Business Analysts (BAs) instead of Product Managers (PMs).
In Product and Operations: The Love-Hate Relationship and How to Make it Work in Your Organization we looked at different ways of how to best set up a team for managing a product in conjunction with an operational process. We saw that operational processes may require tools to reach the desired economies of scale. That begs the question to which extent a tool is different from a product and whether it needs to be managed differently than a product.
Products Are Value Propositions
The fundamental difference between a product and a tool lies in its capability to generate revenue for the company. A product or equivalently a specific feature of a product solves a relevant problem for your customer so that your customer is even willing to pay for it. For example, SuperStockApp includes a screening feature which determines a list of interesting stocks to invest in. If an investor would need to determine this list without the app, it would require lots of manual work, reviewing financial reports, and doing whatever computations and comparisons are required on the numbers in those reports. Obviously, an app that does all this with the tip of a finger provides tremendous value because it saves investors a lot of time and a lot of effort, which is why an investor would happily pay for it as long as the results are relevant for their investment strategy. In this case, the screening feature of the app is part of the value proposition and, since investors are paying for it, a product feature or a product is directly generating revenue for the company.
Tools Support Operational Processes
A tool, on the other hand, does not directly generate revenue for the company but it contributes to it. In our example, the screening feature requires data from financial reports. Without this data, the screening feature would not be able to function at all. Obtaining this data and making sure that it is accurate before it is fed into the screening algorithm does require an operational process to be in place. The purpose of a tool is to support that operational process in the most efficient way possible so that the product that is directly generating revenue for the company can scale better. Theoretically, you could run this operational process completely by hand without any tool as we saw in Product and Operations: The Love-Hate Relationship and How to Make it Work in Your Organization but it would limit your capability to scale and grow your business. Thus, unlike a product, a tool is indirectly generating revenue for the company because it ensures that the actual product can be operated and scaled appropriately.
Always Do Your Market Research, Even For Tools
Companies offer a product to their customers for solving their problems and generating revenue for the company. A tool also solves a problem but this problem is internal to the company. Thus, the customers of the tool are internal stakeholders. A PM who is responsible for a tool shares certain tasks with a PM who is responsible for a product. In both cases, the PM needs to understand the problem that needs to be addressed and how a good solution to the problem could look like for the people using it. The product has external users, whereas the tool has internal users. Many PM techniques for working with customers apply in both cases, no matter whether they are internal or external. However, there are also key differences to point out. Since a company is looking for a tool to improve an operational process, market research is not about finding product-market fit, it is rather about finding tool-process fit. Still, it does make sense to research the market for existing tools that can be bought instead of being built as long as the operational process is not too unique for the value proposition. Even if it is unique, there may still be partial solutions available, so a PM should never omit market research for tools. For example, a company that needs to compare data between two parties is likely to find an existing tool in the market for this task (e.g. reconciliation tools), whereas a company such as SuperStockApp, Inc. that has a very specialized product will likely not find a readily available solution, even though a partial solution may exist, e.g. by third-parties already providing financial data in an easy-to-ingest format.
Conclusions
While a PM can manage both a Product and a Tool, you may want to consider hiring a Business Analyst (BA) instead for managing tools if the area of responsibility is focused on improving the operational process for which the tool is required. BAs do not need to be concerned with product-market-fit, competitor analysis, market trends and other typical PM tasks that are only relevant if you intend to create a new value proposition and monetize it. In the case of a tool, there is only a single customer, namely your company, and an operational process that needs to be optimized. Good BAs already excel here.
The following table summarizes the differences between a product and a tool:
| Product | Tool | |
| Contribution | Value Proposition | Operational Process |
| Customers | External | Internal |
| Revenue Impact | Direct | Indirect |
| Customer Research | Required | Required |
| Market Research | Product-Market-Fit | Tool-Process-Fit, Make-or-Buy |
| Managed By | Product Manager | Business Analyst |