Top-down prioritizing: markets and portfolios

In most organizations, development teams have dramatically less capacity than the appetites of the business units and sales teams. That’s why I continue to hear things like “how can we get the developers to work harder?” or “why aren’t they giving me what I need?”

The big thing is this: you only get the development your organization has chosen to afford. [tweet this]

Many cannot understand why this feature or that one can’t simply be added to the list. Here’s why: adding a feature means moving or deleting another feature; satisfying one customer (and their sales person) usually means disappointing another customer (and their sales person).

Product marketing or market owners should focus on a market full of customers, and generate a prioritized list of what is needed by their markets; portfolio owners should direct those market stories to the appropriate product. And company leadership prioritizes these with the budget.

To do this successfully, your leadership needs to do two things: allocate investment by market and then by portfolio.

Allocate investment by market

Allocation of development spend reveals your market strategy and provides guidance throughout the organization. In practice, this means approving or revising the recommendations made by the product marketing and product management teams. It means signing off on a portfolio strategy for products and sticking with the strategy in each part of the business.

Allocation of development spend by market sends a clear signal of the company’s priorities. For instance, perhaps education is your top priority, then health, then Europe. Allocation by market ensures that each market gets funded in sync with the overall business strategy. If your #3 market priority is Europe, this market will still get funding for their requirements (although perhaps not as much as they want) instead of just hoping to get some of the other markets’ funding.

Allocate investment by portfolio

Perhaps some of an organization’s frustration occurs when executives cannot see or do not understand how product trade-offs are made today. In a company with multiple products in varying stages of their lifecycle, leadership must decide where to put their investment dollars. This top-down approach reveals the relative importance of each product in the portfolio. Once the decision is made for levels of funding, the product management team can show what features can be delivered for the allocated budget.

If you allocate dollars for development in one product, product management can tell you what you will (and will not) get for that money.

Product management can help focus the allocation by clearly articulating the portfolio positioning. One product is for this market; another is for that market. The portfolio positioning must be enforced companywide; we cannot allow sales people to sell products outside their intended markets—and if they do anyway, it means rejecting those contracts.

The Three Horizons model (advocated by Clayton Christensen, Geoff Moore, and others) reminds us to redirect profits from old products to fund development of new products. It means the older products don’t get all the development spend they may want because their profits are paying for innovation in future products. I know that many product teams are frustrated when they don’t get the funding they want but we’re trying to run a company, not just a product.

Remember, if we only focus on this year’s revenues, we’ll have last year’s best product. [Tweet this]

I recommend an allocation that includes, for each product release, something that will appeal to new buyers, something for existing customers, something that furthers your vision, and something that upgrades your infrastructure. (See more on this at Politics and your next release)

And don’t forget services! We need to extend the view of “product” to include services and support in addition to software and hardware. After all, your customers buy a solution that is often much more than the product. In future, services should be defined (by product management) and promoted (by product marketing) as clearly as your products.

Take the example of the Nest Thermostat. It comes with all the tools and instructions necessary to install it but they can arrange for your installation if you aren’t comfortable installing it yourself. Nest also sends an email periodically reporting your power consumption (and reminding you how much you’re benefiting from their product).

Within the portfolio, given a total dollar amount of funding, you then allocate the development funding to the products.

Look to your current spending on the product. How much is spent on maintaining code and fixing defects versus adding new functionality today? Let’s assume you’ll spend the same next year. And let’s also add some amount, like 10-15%, for innovation or other internal improvements.

The challenge you’re likely to face is the market owners and sales people and others may want to allocate all the funding to new functionality but we also have to playbook for maintenance, defects, and innovation. If you want to change these allocations, you’ll need to be able to explain why this year will be different from last year—new techniques, new priorities, new team members may indeed justify changing your previous allocations.

Next steps

I used to work for a company that generated 15% of their revenues from one product. Because of this, the president said he didn’t focus much on the product—he never spent more than 15% of his effort on it. However, if the product currently generates 15% but could generate more, you’ll need to convince your leadership why they should allocate more attention and funding to this emerging product.

Market and portfolio allocations can be estimated by product marketing (or market owners) and product management (or business owners) respectively and presented to the leadership team for revision and approval.

Your company leaders signal their top priorities with funding. They can tell us the relevant importance of specific markets and products by showing the percentage of money allocated to each.

Need help prioritizing your portfolio? Make it part of your product playbook.