Product strategy manifests as a collection of bets, investment decisions to do something or not, to do things now or later. A business case requires you to compare the predicted costs with the expected benefits. Your problem statement must articulate the expected benefit in economic terms to support your decision to place the bet.
This article is the second in a three-part deeper-dive on the importance of using economic measures when writing the problem statements which are the key unit of shaping and operationalizing a product strategy.
- Undermining Your Ability to Prioritize Your Portfolio
- Stunting Collaboration which Undermines Your Effectiveness
- Mismatching Your Scope of Effort with Your Level of Ambition (this article)
Answer if You Can (You Cannot)
In the first part of this three-article focus on using economic measures in problem statements I introduced the challenge of choosing among three different problem statements as the one to pursue first. Without an economic framing of the problem, the decision can only be made leveraging intuition – and the decision is unlikely to be one where intuition is a good approach. Whichever problem you choose to solve first you are choosing because it “sounds good.”
Here’s what the process looks like at a high level once the decision has been made.
- Decide to solve a problem
- Design a solution to the problem
- Estimate the cost of solving the problem
- Decide if that amount of investment is a good decision
Step 4 is where you’re in trouble again. Because you don’t have the information you need to make the decision well. Consider this example problem statement without an economic measure.
The Problem of… Our call center agents are unsupported in solving the problems customers ask them to solve
Affects Whom… Call center agents
The Impact of Which is… Our employee turnover rate is 40% per year.
The Benefits of a Solution are… Our call center employee turnover rate drops to 20% per year.
The benefit is clear, but not in economic terms. What is it worth to your company to cut call center agent turnover in half? You have to do some analysis. Far too many companies will say “yes” without having done the analysis. Steven Haines has been helping us all get better at product management for decades. The surprising lack of business acumen in organizations (and among product managers) inspired him to found the Business Acumen Institute specifically targeting this fundamental gap. The absence of financial reasoning within and about problem statements is one manifestation of this. Making good business decisions is making good decisions.
Deciding what to do is different than deciding how much to spend to do it. Using economic measures helps you decide what to do. Deciding how much you’re willing to invest without determining how much you expect to benefit is the problem. This is a bad decision process.
What Will It Cost?
Here’s how this plays out when you don’t understand the potential return which comes from solving a particular problem. You start with something which sounds good, like reducing agent turnover. You come up with an idea about what you need to do to achieve this (updated software, new training, higher pay, better conditions….). You can establish great clarity about a potential cost. Set aside for a moment that your cost estimate will be at least as wrong as your initial solution approach is wrong. The decision to place a bet is based upon what you believe at the time of making the decision.
The leader or product manager who has picked a problem to solve because it sounds good now asks “what will it cost?” Whatever the number is, the only other input into your decision-making is the budget. How much is available to be spent? Does this feel proportionally like a good use of some portion of the available budget? There’s no way to evaluate if it is “worth it.” This process is only a budget-allocation process, not an investment-evaluation process. With no mechanism for defending the budget from cuts, no frame for arguing to increase the budget. All of the decision-making is limited to a intuitive allocation of resources, in an environment where intuition is demonstrated to be an unreliable predictor of success.
This frame plays out as “how should we (best) spend what we have?” and I’ve seen it in everything from the annual budgeting process at companies like Dell to PI planning events in companies focusing on their operations ahead of the reason for their operations. “How best to fill the program increment” is a delegated, smaller version of annual planning – where the challenges of political reality must also be addressed. Too often, the leadership heuristic is “make sure everyone is busy” instead of “make sure we work on the right things to advance our strategy.”
What Are You Willing to Spend?
The earlier description of a four-step process is naive, it implies both linearity and sequence. That process description treats variables as if they were constants.
Rewriting the process like this provides a hint:
- Decide to solve a problem
- Design a solution to the problem
- Estimate the cost of solving the problem with the design approach from (2)
- Decide if that amount of investment is a good decision
Step 4 now becomes a bit more nuanced. Instead of a decision to say yes or no, you are faced with a decision of yes, or no, or not with that approach. You can loop back to step 2 to try and develop a more cost-effective approach which still solves the problem. Back to the drawing board. The first idea is unlikely to be the right one, and too often the urgency pressures on teams require them to pursue the first idea regardless, because there is too much to do.
How do you decide in step 4 if you should loop back? At a bare minimum, you should not be willing to spend more than you believe the benefit to be. The expected cost is an economic measure. You cannot determine if a reduction of turnover to 20% – even quantified – is worth $100K. You cannot determine if a 20% reduction of turnover is worth 50% of your available capacity for the quarter.
This should be enough to decide to estimate – even with uselessly broad estimate ranges – the economic benefit which you believe will come from solving a problem.
Conclusion
There is much more to making a good investment decision than simply assuring you have a positive return on investment (ROI). There are multiple improvements which can be made – all of which require you to use economic measures to express your beliefs.
That’s fuel for another fire. Describe your benefits, as well as the scale of the problems you might solve with economic measures. It is a step in the right direction.
