Measurement-Driven Product Management

By Mike Smart
May 04, 2010

If you are a vice president, director or team leader for a product management function, one of the biggest challenges you face today is how to demonstrate the team is making a significant contribution to top line or bottom line targets. If you can’t measure your team’s effectiveness, or if you are focused on the wrong metrics, your headcount and budget allocation could be at risk.

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Establishing and using operational measurements to evaluate the effectiveness of product management and the health of the product is critical, because it bridges the gap between company strategy and execution.

A company’s operational measurements are how high-level goals become grounded. They become “the vital few” for the product management team.

Relevant operational measurements include:

  • Market sensing—knowledge of market problems among customers, evaluators and potentials
  • Speed-to-market—putting the right product in the right market segment faster than a competitor
  • Product adoption—driving the uptake rate in a market at a lower cost and shorter time than a competitor
  • Product launch—improving the response rate from target buyers with fewer impressions
  • Customer satisfaction—increasing the “willing to recommend” percentage of existing customers

A crucial step is to translate the rearview or financial measurements into the appropriate operational measurements. The leader of the product management team must be fluent in both the financial and operational measurement paradigms.

Operational Drive Financial Outcome
Speed-to-market  Increase product revenue
Product adoption Increase product margin
Product launch Lower cost of sales

Above, we see that linking these measurements gives the product management team more context and better insight into their contribution to the company goal. It also gives product management leaders concrete and objective measurement to track interim results and key milestones.

As an example, speed-to-market is a metric that can be tracked in several ways. How fast did we reach the market with new product releases compared to last year? How many times did we beat the competition to market with comparable product releases? Where do we rank within our industry segment? Over time, we learn what effect improving this measurement has on increasing revenue. Every team member should understand these relationships and how their projects and key activities affect the outcome of the operational drivers.

Activity-based measurements

The next step in developing predictable measurements is linking activities, performance drivers and final outcomes.

Activity-based measurements are the execution side of the measurements fulcrum. While operational measurements are leading indicators to financial results, activity-based measurements are the tactical tasks that lead to the desired operational outcome. Using these allows team leaders to identify the crucial activities that drive the desired outcomes. Activity-based measurements reduce ambiguity and establish accountability for all team members.

Activity-based measurements that a product manager should be held accountable for are:

  • Onsite market interviews
  • Assessing impact to customers for existing or future products
  • Positioning to buyer personas

The table below illustrates how to close the gap between specific activities, operational drivers and financial results.

Activity-Based Targets

Operational Driver

Financial Outcome

On-site interviews

Speed-to-market

Increase product revenue

Assessing impact to customer

Product Adoption

Increase product margin

Positioning to buyer personas

Product Launch

Lower cost of sales

Properly conducted onsite interviews across the total addressable market enable discovery of unmet needs or market problems. Validation of these market problems through surveys demonstrates what percentage of the market has these problems and the value of solving them. The data from these activities gives product managers the facts to define the next release and a high degree of confidence that the proposed solution is the right product for the right target segment. This product development approach is fast and more efficient.

Establishing strong links between activity-based measurements and operational measurements may not be easy, but is critical in establishing the value of product management and to build credibility within the organization. The key is to develop reasonable correlation and monitor the accuracy of these relationships over time.

Here is an example of how a team could establish strong links between activity-based measurements and operational outcomes.

The annual operational goal for the product management team is to improve speed-to-market by beating competitor A to the market. What activity-based measurements must the team leader assign to each product manager to ensure this goal is achieved by the end of the year?
Consider these:

  • Conduct Strength, Weakness, Opportunity and Threat (SWOT) analysis against Competitor A
  • Complete customer impact assessment of Competitor A’s products vs. ours
  • On-site customer visits to validate Competitor A’s perceived product gaps
  • Complete Market Requirements Document (MRD) with Competitor A as key theme
  • Deliver 100% of something ahead of Competitor A

One caution to the team leader: Make sure the sum of these activities is greater than or equal to one or more of the team goals. This linking can provide the ability to benchmark and propose metrics that have predictive value.

The key to success with this approach is to continuously review data and trends to ensure the measurement remains relevant.

Best Practice Measurements

 Share of hearts, minds and markets

Most product management leaders would benefit from the ability to rigorously assess existing projects and new opportunities, identifying potential risks. This approach would guide investment and allow VP’s and directors to evaluate outcomes and reinvest to maximize contribution. The enhanced visibility would enable product management leaders to defend the allocation of resources with measurements that are tightly linked to the company’s income statement.

As a leader of a product management team, what should you measure?

Initially two things: product performance and product management effectiveness.

These are different but equally critical dimensions of the product management process. Team leaders must monitor people, process and market success for the product life cycle. To be successful, all three must be continually assessed.

Must be relevant

The most important outcome from Product Management are financial results, but product management leaders must translate the financial results into performance drivers that lead to the income statement outcome. Until a clear linkage between actions and outcomes is established, the measurements are theoretical.

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About the Authors

  • Mike Smart

    Pragmatic Marketing, Inc. has continuously delivered thought leadership in technology product management and marketing since it was founded in 1993.Today, we provide training and present at industry events around the world, conduct the industry’s largest annual survey and produce respected publications that are read by more than 100,000 product management and marketing professionals. Our thought-leadership portfolio includes the Pragmatic Marketing Framework, e-books, blogs, webinars, podcasts, newsletters, The Pragmatic Marketer magazine and the bestseller “Tuned In.”

    To learn more about our courses and join the growing international community of more than 80,000 product management and marketing professionals trained by Pragmatic Marketing, please click here.


Categories:  Leadership


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