Analysts believe we are on the verge of a global recession, and we have seen signs of this with many large tech firms cutting jobs and pausing hiring. Will this be a financial crisis on the scale of the GFC of 2008? Regardless of how bad the potential recession might be, one thing is for certain: if a recession hits, product development budgets will be cut. And there will be greater scrutiny on what teams work on. It could be a challenging time for product development teams, but there is something they can do to be successful during difficult economic times.
Identify the key business metric and use that to anchor your product decisions. This needs to be used to continuously demonstrate Return on Investment.
Business metrics to anchor product decisions
This might sound obvious, but I frequently come across product teams and product managers that are exploring problems and ideating on solutions without the appropriate framing. They are doing all the right things: finding a problem, exploring solutions and testing to see if they resonate with customers. Unfortunately, these teams are not successful, and in fact are often the first to have their budgets cut or even worse. To explain what some of these teams are doing wrong, I will provide an example of a recent product I worked on.
We were working with a healthcare provider in Australia. The CTO wanted to rewrite a core system in order to bring about consistency in terms of their technology stack. As we described the approach to safely rewrite parts of this core system, the CTO became convinced of how we planned to tackle the initiative safely without compromising security, data, and business continuity. We had the project won and just needed to mobilise a team. Success! Well not quite…
This didn’t feel right
How would we know if we were successful?
How much of the rewrite would be enough?
Was this the right thing to do for the organisation?
Something was wrong, so we began to ask more questions to figure out if there was a compelling business reason behind the rewrite. The more we asked the more we uncovered what was going wrong with the current system. We also started to pull a different stakeholder into the conversation, someone who understood the business impact caused by issues with the current system. We learned that due to poor process and design, many patients were not attending their appointments. This came at a significant cost to the organisation which we were able to quantify. We had now identified that the problem was costing the organisation over $10 million (AUD) per year.
Return on investment
Had we not identified this key business driver, we simply wouldn’t know where to start. There were many options, but everything we looked at was from a technical perspective. And had we gone live with anything we wouldn’t have been able to speak to any value of note, other than the consolidation of the technology stack. That did have benefits in terms of operating costs and hiring, but not to anyone in the organisation other than the CTO.
Quantifying the problem helped us prioritise and focus our efforts to a single area: namely, how many customers were missing appointments. The team stayed focussed on ideating for a single core issue and were able to demonstrate ROI and identify when we would reach payback after going live. The link to the key business driver ensured that the team was successful and the business unit saw value in what we were doing, which led to further rewrites of the core system.
Had we listened to the CTO and not identified the key business metric it is likely the initiative would have run out of funding.
In times of economic pressure, where organisations are looking to cut costs and increase revenue, it’s imperative product teams set themselves up for success with a key business metric. As teams embrace the lean start up methodology and iterative development, the concept of pivoting to a new solution has become predominant.
I would argue frequent pivots is a sign of not understanding the problem, which might be caused by not having a strong business metric identified. As budgets get tight product teams can not afford to do this; there is nothing wrong with adjusting your solution as you learn more, but large pivots late in the day usually signal a lack of an intended business outcome.
Avoid the vanity metrics
When kicking off initiatives, I have heard sponsors come up with measurements of success that aren’t meaningful and will not help the teams establish that laser focus they need to demonstrate ROI. For example, I have heard Net Promoter Score (NPS) used as a key business metric. There is a lot written online about the pros and cons of NPS, so I won’t go into that here; but one of the challenges is proving how anything created has influenced NPS. As a qualitative measure, it is one of the weakest.
I’ve also heard of scalable architecture, micro services based architecture, and I even heard a sponsor once say that “customers want this product to be in React.” Needless to say, none of these are key business drivers that will help product teams to make trade-off decisions. Some better metrics are straight through processing rate, customer conversion, recovery rate, and call diversion rates.
Better business metrics
When kicking off work or when taking over from another product manager or team, it is critical to ensure there is a formal kick off. In the kick off, ensure your sponsor attends with the team and look to gain alignment on the key drivers for the initiative.
Why are we investing in building something?
How can we justify this?
Ideally look for something you can quantify; this won’t be straightforward, and it will require assessing relevant data and agreeing on the key driver. This key driver will affect how the team explores the problem and solutions. For example, we worked on a large initiative with a Telco in Australia. Initially they told us they were keen on improving their NPS. On digging into a number of issues together, we were able to frame the problem to be the associated costs of phone calls to the call centre. We calculated that every call cost $20, and our key business metric became call deflection. The team came up with many ideas to deflect calls and we prioritised based on the greatest success rate. When we went live we were able to track how we did, saving several million dollars over 18 months.
Therefore, identify a metric you can quantify and gain alignment with the sponsor. If you can show a monetary value, this will help your teams ride out the economic downturn.
Dig deeper to uncover a key business driver, when kicking off initiatives be sure to identify a compelling reason and value sought from the initiative.
Ask the hard questions of your sponsor, you might learn that there are other stakeholders you need to be talking to and perhaps you have the wrong sponsor.
Quantify the opportunity, if you can put a monetary value to it even better.
Use this key business metric to drive product decisions and be laser focused on that.
Measure the value delivered and demonstrate ROI.