How does your CEO know that every product manager’s efforts are aligned with his business strategy?
How does your CEO clearly communicate to your product managers the business priorities?
How does your CEO know which product managers are making good decisions and making true progress in carrying out the business strategy?

It’s remarkable how many companies don’t have an answer to these fundamental questions.  In most companies I find there is lots of talking and hand-waving and no shortage of PowerPoint decks, but little real clarity on exactly how product managers are doing, and whether their work is truly aligned with the business.

The behavior that usually results is that we chase feature ideas (“once we finally add Facebook Connect then users will really love the product”).  Yet it’s not entirely clear how these features actually contribute to the business strategy.  But no worries as there’s a long list of product ideas waiting in the wings if this doesn’t work.

We’ve all heard the old adage that you can’t improve what you don’t measure.  But beyond measuring, establishing clear benchmarks and objectives is about driving behavior and driving results.

This is not only essential for product portfolio planning (ensuring alignment and transparency), but also for managing your product managers and your product teams.

A “Product Scorecard” is the term I personally like for establishing the Key Performance Indicators (KPI’s) that each product manager, and the overall product organization, uses to make decisions and drive products.

Let’s start with an example:

Suppose you’re the product manager responsible for the high-volume seller solutions for an e-commerce marketplace.  Depending on your company, you could have different business strategies, but let’s suppose that the company gets the majority of its revenues from these sellers, and they’re key to growing the business.  Your product scorecard might look something like this:

  1. Average revenue/seller – because we want to encourage sellers to sell more goods
  2. Average promotional revenue/listing – because we want to encourage sellers to promote their listings as aggressively as possible
  3. Absolute number of high-volume sellers – because we want to grow the number of high-volume sellers
  4. NPS of high-volume sellers – because we want the sellers to consider ours their preferred marketplace

Now, the specific KPI is not the real point here as much as the fact of establishing specific KPI’s, and the fact that they’re prioritized.  You can and should debate the specifics of each KPI and its priority, to ensure that you are encouraging the right behavior as you interpret the business strategy.

You’ll often hear product managers complain that they’re not in control of all of the factors so how can they be held accountable for the results?  There is some truth to that.  If you have a product essentially at the sustaining level (no real engineering investment other than critical bug fixes) then it’s not reasonable to expect the product manager to deliver improved results.  But normally the target KPI’s are directly related to the level of investment.   If you’ve got a dedicated team of a product manager, designer, 6 engineers and 2 QA, and they’re working on this product for a solid year, then you should expect something pretty significant in response to that investment.

It’s not an excuse that the product manager isn’t in control of every factor, as this comes with the territory.  If the product manager is not satisfied with the customer acquisition strategy, he needs to evangelize to marketing and prioritize instrumenting for online marketing/SEO.  If there aren’t resources for user documentation, he needs to work with the designers to reduce or eliminate the need for this documentation, or make the solid business case for contract help there.

One of my favorite benefits of these product scorecards is that they can often help you eliminate a good portion of your backlog/roadmap.  If a feature idea doesn’t speak directly to one of the top KPI’s on the product scorecard, it’s generally off the list.

A few other notes:

– The business strategy can and should change over time.  For example, back at our seller product manager scorecard, if the business matures to the point that it’s no longer about adding new sellers but rather about further monetizing existing sellers, then the KPI’s should be adjusted to reflect this.

– There is something out there called the “Balanced Scorecard” which is similar in nature.  I’d argue that it’s the right idea, but it’s a very specific and formalized approach to a scorecard, which in my experience is too complicated for most teams.   But if your organization uses them then great, but if not, you can get the key value with a simple set of clear, concise, measurable KPI’s.

– Some teams do these scorecards and they have a list of 20 or more KPI’s for each product manager.  A big part of the value of a product scorecard is focus.  So you only want a few – ideally no more than 5 or 6.  The product manager can track lots of data, but should only have a few priority objectives at a time.

– Defining these scorecards often helps teams get a better understanding of how they should break up the product management work of their web site.  It’s important that each product manager have a clear area of responsibility.  If you find that at the product manager level that there are too many shared KPI’s, you may want to consider slicing the pie differently.

– Every KPI should map directly to one or more of the key business priorities.  There should be no confusion about this mapping.  Every executive should be able to look at the KPI’s and understand why they are the focus.

– It’s not enough to just create and track these KPI’s.  You need to socialize them across the organization to make sure everyone – marketing, sales, execs, engineering, customer service – understands why you are focused on these measures.  You may find you need to adjust the KPI’s to better align with the efforts of the rest of the organization.  This is especially true between sales, marketing and product.  But skip this step at your peril.

Once the senior management agrees on the KPI’s and their priority, and the product manager has a very clear understanding of the measures and their priority, then you can use this to measure and drive the performance of that product manager.

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