Prioritization and Trade-offs
If there is one thing that product managers get paid for is the “prioritization”. Prioritization, however, doesn’t come without a Trade-off. Various prioritization tools and frameworks are at the product manager’s disposal. However, when there is a lack of information to effectively apply the theory of prioritization to practical there comes critical reasoning. The vision that guides any prioritization is the success metrics. In this article, I have explored prioritization and trade-offs in the light of metrics and critical reasoning. I have also written notes at the beginning of each topic for the busy bees.
As a product manager consider yourself a clown juggling with three balls at the same time. Strategic initiatives, low hanging fruits, and business as usual
When a product manager prioritizes a vision over the other that means for that month, quarter or fiscal the de-prioritized vision is traded-off. This gives rise to the following questions 1) How does a product manager decide the priority order? 2) What tools or tactics are available for product managers to decide the priority? 3) Are the theoretical tools enough to decide the priority?
Theoretically, there are various tools and frameworks available to prioritize. My favorite is the simplest of all Impact/Effort matrix.
As a product manager consider yourself clown juggling with three balls at the same time. Strategic initiatives, low hanging fruits, and business as usual. Sometimes in order to keep the churn rate low, you have to trade-off strategic initiative in the air and sometimes in order to grow your top-line, you must keep the low-hanging fruits in the air. This brings me to a very important topic that prioritization is not possible without linking it with a metric.
Not everything has a direct impact on P&L but if the business of business is business then each metric ultimately should have the vision to impact the P&L.
What is a metric?
Metrics are a quantitative way to measure success. Success can be defined in various ways and formats. Not everything has a direct impact on P&L but ultimately if the business of business is business then each metric ultimately should have the vision to impact the P&L.
There are various product metrics and I have just divided them in two levels
· Level 1: Direct impact on P&L
· Level 2: Indirect impact on P&L
At a very high level three things make a P&L. Costs, Sale (new, upsell) and Profits which ultimately impacts either top-line or bottom-line.
Some of the Level 1 metrics are mentioned below
· Churn/Downsell
· Upsell rate
· ARPU and AOV
· Revenue (new, upsell)
Some of the Level 2 metrics are mentioned below
· User engagement
· NPS
· Performance
· Automation vs manual ratio
Below I have stated some examples of how level 2 metrics translate to level 1 metrics
- Increased user engagement -> increases user stickiness -> reduces churn/downsell
- Increase perceived value of product -> increased upsell -> increases top line
- Increase NPS -> increases user stickiness -> reduces churn/downsell
- Improved performance -> reduces churn/downsell
- Increase integrations -> increase new sale -> increases top line
- Automation -> reduces costs -> improve the bottom line
Critical reasoning sits at the foundation of “company’s vision and strategy” and “Market and competitor’s movement”
When a metrics is associates with every priority it makes the trade-offs empirically backed-up however not every time we get the empirical data available to help us make the decision of prioritization and trade-offs. There comes critical reasoning. When the impact/effort matrix fails because of the non-availability of information or data at the moment of decision making then comes critical reasoning. Critical reasoning sits on the foundation of hypotheses and assumptions. The skill of making hypotheses and assumptions comes with knowledge of competition, market, and a thorough understanding of your company’s vision and strategy. Therefore, it’s essential that the information is flowing top-down thus avoiding the bullwhip effect.
Some people also call it gut feeling, but I prefer to call it critical reasoning.
Finally, I have created a framework that summarizes this article in one-shot.
Metrics sits at the heart of this prioritization framework. It’s the “why” of every priority and every trade-off
In the above framework, the priority and trade-offs sit on top of
a) Any tool or framework which uses the numbers and information as its foundation to define the impact and estimate the efforts. I have used the impact/effort matrix as an example
b) Critical reasoning when data or information is missing
Prioritization tool or framework sits on top of
a) Customer needs to understand the short to mid-term impact
b) Company’s strategic vision to understand the long-term impact
To estimate the efforts, we need another framework but let me save it for another day.
Critical reasoning sits on top of
a) Strategic vision of the company to define the logic behind the mutually exclusive and comprehensively exhaustive reasoning
b) Market and competitor’s movement to understand the time criticality of the priority and the trade-offs
Each of the triangles in the framework is glued at the very foundation with metrics triangles to create the thought-through and exhaustive priority and trade-offs.
