Part1: KPIs - Key Performance Indicators strategic approach

KPIs - Key Performance Indicators-
a strategic approach or just a means to an end?

The following article "KPIs - Key Performance Indicators" is the 1st part of our series "KPIs for Product Managers".

Product managers deal with a number of challenges every day: the next requirement, the most important customer and his requirements, the development is behind schedule, sales and marketing need information, the boss sits on his neck and wants a reason why his product idea is not implemented, ...

A multitude of tactical and operational measures regulate the daily routine of many product managers. At the end of a day, product managers and product marketing managers cannot really answer the question: "What have I done today to make my product more successful?"

What is frightening is the fact that most product managers have not defined the essential KPIs or KPIs, i.e. key performance indicators, for the product or do not understand them, do not measure them, not to mention action plans that have to be initiated if targets are missed.

KPIs serve more than just control; they must reflect the corporate and product strategy. Coherences and deviations must be analyzed and understood. How to proceed, which KPIs gain relevance at which point in time, where the data is collected and some practical examples are the subject of this series of articles on KPIs.

In order to convey the basics, the strategic approach, the operational implementation as well as the stumbling blocks in the analysis, the following topics are considered:

  1. Why KPIs are strategically important for product management
  2. KPI basics: What to consider when defining KPIs
    • Goals, comparison values, categorization
    • External key figures and key operating figures
    • Data collection, measurement and dashboards
  3. Financial and corporate key figures - KPI examples and explanations
  4. Sales key figures – KPI examples and explanations
  5. Market key figures – KPI examples and explanations
  6. Marketing key figures – KPI examples and explanations
  7. Product key figures – KPI examples and explanations

Why KPIs are strategically important

Answer the following questions before reading this article:

  • Do you want to be the (professional) leader of your product?
  • What is the product profitability of your product?
  • How has profitability developed in the last 6 months?
  • Which KPIs do not develop according to your planning?

You answered the first question with yes, but you cannot give any or only inaccurate answers to one of the following questions ?

This is not good! But you are not the only one who feels this way!

According to our practical experience almost 90% of the product managers claim to be product leaders and answer the first question with yes. Exceptions are technical product managers who mainly write specifications and have a "business" colleague in product management. In the same breath, of the 90% who answer yes to the first question, more than half can answer subsequent questions only partially or not at all, and only about 25% can answer relatively accurately or precisely.

We always ask the first group the following question afterwards: "If a successful CEO today receives a new attractive sounding offer from another - so far unknown - company, what do you think is the first thing he informs himself about?"

These are the key figures of the company! How is the profitability, sales, margin, compared to the market, how have the key figures developed over the last years, besides other aspects like innovation, brand awareness, area of responsibility, size and maybe salary.

A managing director will not blindly accept a new challenge without knowing roughly what the general conditions are like. It makes a difference to lead a company that has been highly profitable for several years to the next peak than to join a company that has been making losses for years and is on the verge of insolvency.

Good sales managers act similarly, they know their current sales figures very well and know what results to expect, at least they should.

Why do good product managers know so few key figures of their product? An incomprehensible phenomenon, because - according to the hackneyed phrase - they are supposed to act as "the manager of their product". All those who have been in the role of a product manager for a little longer know that in practice they are often not "the CEO" because "after all, they do not make the final decision". This is correct, but even managing directors do not make every decision themselves.
When you make decisions, this information is ideally based on facts and solid decision making. At the same time, product managers should consider very carefully "why they don't have the final decision authority for their product".
Probably because nobody trusts them with this competence. Is that a miracle?

If the product manager is not even familiar with the most important key figures or the profitability of his product? Being the leader of his own product means that colleagues and employees follow. They will do so as long as they recognize a strategic direction and the value of the strategy - this also includes the management.

Product managers, who are professional leaders of their product, know the current status of the most important KPIs, can analyze them and explain how they support the current strategy.

That is why it is important to first define the strategy of your own product. This can be learned in the Course "Strategic Product Management", according to the Open Product Management Workflow™.

Product Management tasks Strategic Product Management Technical Product Management Go-to-Market

Questions that product managers should answer to identify the relevant Key Performance Indicators (among many others):

  • What is the overall goal for my product in the next 6, 12, 24 months?
  • Should a large user community be built up first, or should the turnover grow from the first day on?
  • How much margin or profit should the product generate?
  • Do we have to save to become more profitable ?
  • How is the sales pipeline built up?
  • What is the roadmap of the product, in which direction (target markets, problems of new customer groups, functionalities, market share) does the product develop - and why?
  • As soon as new functionalities should help to address new markets or customer groups, at what point in time will realistically generate sales with new customers at the earliest ?

These few questions alone show that from a multitude of KPIs, the most important ones should be selected to reflect the current strategy while keeping an eye on the medium-term.

A good product manager acts strategically like a CEO, better like a leader.

It is interesting to note that product managers in the private sector can act "strategically" when making investment decisions, "do I invest in a house or do I continue to pay rent?", "do I take out insurance or do I consciously take the risk?", etc.

Why don't they do it for their own product? Or why don't they give the management and top management the necessary foundations and reasons for good and strategic investments?

We hope the questions will show the necessity to act strategically. If the explanations are not sufficient, we recommend the further articles from this series. They not only point out dependencies, but also stumbling blocks that the product manager can better avoid, and thus increase his reputation in the company.

Where should product management start with KPIs?

First of all, every product manager should know and understand the company's key figures and balance sheets. He does not have to understand every single cost element and accounting methodology, but he does need to understand the most important data that is available - usually also externally. Our recommendation: sit down with the financial director or controller to understand your company's key figures and also the goals behind the key figures (sales, large profit, margin and margin target, costs and their allocation, Cogs, Opex costs, etc.). …).

First of all, there is the "understanding of terminology", next the application of this terminology in discussions and decision papers. The CEO will understand it and expects the same language. If the product manager does not manage to use this language in decision papers or meetings with the management, he will not be seen by the management as the "entrepreneur of his product" and will lose the reputation he needs to be successful. The latter points lead to micro management and management interference in detailed decisions and ultimately to reactive action by the product managers in response to management inquiries.

The Elevator Pitch

With the following example we want to show the importance of speaking the language of the management.

Imagine you are standing at the elevator in the morning, just before work starts, and you want to go to your office on the 7th floor. As you get into the elevator, your CEO joins you, which will take you to the 15th floor. You are alone with him in the elevator. The CEO knows your face, knows that you work in product management, but does not know exactly which product you are responsible for.

CEO asks: "How is your product?"

You answer: "Great, we are currently planning the new release, ... cool new technology, hot features in the next version, semantic intelligence, SOA based, ... technology & feature bla bla..."

Before you can explain more or go into other topics, you have to get out of the elevator and say goodbye. The CEO still has 8 floors to go in the elevator alone.

What's he gonna think?

Probably the following: "What the hell is he talking about? Does he know what he is doing? Is this the right guy for this job? I really need to talk to his manager... It seems to me that the product management has no idea what they are there for and what they do..."

You missed a huge opportunity to position yourself as an "entrepreneur" or a leader with the CEO.

Therefore our tip - as trite as the "elevator pitch" may be - you should have all the information "short and sweet" ready for the relevant company "buying" personas, decision makers, influencers and team members. In addition to management, you have at least the following roles for which you need to have a short and concise story. Each of them speaks a different language and has a different perspective on the topic.
Just as you create the positioning per buying persona for external communication, you should create an "elevator pitch" internally for your own product and cover the interests of the target person. (See also Product Management courses & Open Product Management Workflow™)

  • CEO or top management: performance, growth and strategic impact for the company. (Why is your product relevant for the company in the future)
  • Sales and/or Marketing Manager: How can these people achieve their goals through you and your products, e.g. sales target, marketing program success. Why exactly does your products help these people to achieve or exceed their goals through you and your products?
  • Development Manager: Needs a good feeling that his team is well involved, that planning and communication is going well, so that he can deliver the products in the given time and quality. The planning is strategic and priorities do not change from one day to the next
  • Sales Representative / Account Manager: How can he sell more, "he himself makes more money because he exceeds the sales targets". How can he better serve and support his customers.
  • Developer: How is his work recognized by management and customers? What comes next, how do we solve the "time problem"?

Although there are much more than just these five personas (your direct superior, colleague from support, colleague from PM, ...), at least for these five you should have an up-to-date overview - a positive one, mind you!

As soon as the product manager understands the language and goals of the decision-makers and can speak them, he selects key performance indicators, i.e. KPIs, that are important for the defined strategy.

For continuation go on reading part 2 KPI basics: What should be taken into account in the definition of KPIs?

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