Product Management and Revenue Accountability
Introduction
Calls for product management to be accountable for the monetary performance of a product, namely, profit, loss, and mainly revenue, have been published on social media over the last decade.
This review explores possible reasons for such arguments and makes a case that product management should not be accountable for any monetary performance metrics of a product.
Misguided Approach
The most likely explanation for why people try to make product management accountable for financial performance is a misguided understanding of product management.
Reviewing the four distinct schools of thought that have emerged in product management reveals two approaches open to the interpretation that product management is accountable for financial performance.
These two are the Generalization and Business approaches to product management.
The Generalization approach views the product manager as doing everything and anything related to the product.
This approach was common in Silicon Valley during the 1980s and 90s.
The Generalization approach was modeled after people like Bill Gates and Steve Jobs, who were chief executive officers (CEOs) of one-product startups.
As startup founders, Jobs and Gates did everything around one product: sales, marketing, financial, funding, product management, engineering, and other core company activities.
Company CEOs are accountable for the company's financial performance, and their compensation is directly tied to the company's or the product's financial metrics.
Thus, the CEO of the Product or Product CEO or Mini-CEO designation was born.
Having executives responsible for financial performance doing product management associated financial responsibilities with product management.
Some people and companies subscribe to the Generalization approach and thus believe that product management is accountable for financial performance, just as a CEO would be.
The Business approach to product management is heavily focused on the product's business aspects with a broad emphasis on all monetary issues.
Sometimes this approach labels the product manager responsible for managing the "business of the product".
Consequently, this approach resembles a scaled-down executive management function.
Naturally, this approach views revenue management, financial metrics, costing, pricing, profit and loss, budgeting, accounting, and stock prices as part of a job now associated with product management.
Similarly, some companies subscribe to the Business approach and believe that product management, as a variation of executive management, is accountable for financial performance.
The Generalization approach was replaced in the early 2,000 by the Technology approach to product management.
The Technology approach, common in the software industry, considers product management an extension of product development and, at times, even subservient to product development.
The Technology approach has caused some companies to attempt to assign product management a whole range of unrelated responsibilities, from scrum product ownership to financial accountability, for all the wrong reasons.
The Business and Generalization approaches to product management incorrectly measure success in product management by the product's revenue and profit and loss (P&L) results. This thinking needs to be revised.
Done correctly, all financial metrics are reserved for the executive management, which has corporate authority, responsibility, and accountability for all of the company's monetary matters and financial performance.
Workplace Politics
Politics is one of the oldest games in the world. It is unavoidable and present wherever people are found.
When it comes to a product, politics manifests itself in a struggle for resources and budget, authority over the product strategy and the feature set, and gaining favor with the executives.
Product development is product management's main rival in this struggle.
Many tales and jokes about product management's relationship with product development have been made.
While some dismiss the disparaging talk as humorous banter, others seriously discredit product management.
Statements such as "product engineering overtaking product management" are ostensibly an attempt to centralize all ownership and control of product delivery in the hands of the development team.
One way of invalidating product management is to demonstrate that it is failing.
Failure can be demonstrated if product management fails to achieve any financial metrics.
So, it is plausible that those trying to straddle product management with financial accountability are advancing a risky political trap.
Another political reason to straddle product management or anyone with financial accountability is to cast blame and create a scapegoat in case of failure.
Accountability Challenge
The inherent speculative nature of doing business makes many avert assuming financial responsibility unless a high reward is associated with the increased risk.
Yet, let's assume for the sake of argument that product management should be accountable for revenue and other financial metrics.
How will this accountability be measured? Who will determine this accountability? Who will decide the metrics to be measured and the goals to be reached? Will there be a reward for obtaining those goals? What will this reward be?
Suppose product management is deemed accountable for revenue.
One can only be responsible by having autonomy and authority.
Will product management now have authority over budget, hiring and firing of staff, supreme decision-making, and vetoing power, just as executive management?
Also, if product management is accountable for revenue, then it needs to be able to manage and govern sales and product marketing activities.
Will Sales and Product Marketing now report to Product Management? Highly unlikely.
Building a structure to hold product management accountable for revenue is possible but utterly complicated, especially when it requires demonstrating direct causation between product management work and revenue.
Metric Challenge
Is revenue the correct financial metric to judge product management performance? Likely not.
Strategically, revenue generation lags corporate activities sometimes by months and is affected by multiple ongoing economic, political, and geographical issues.
Revenue is calculated by multiplying the product's price by the units sold.
According to the Blackblot PMTK Methodology™, product pricing is a cardinal product management responsibility.
But only sometimes product management is in control of product pricing.
Product marketing, sales, or executives determine product pricing at some companies.
In other scenarios, product pricing is externally fixed and not determined by market forces.
Examples of external forces that manipulate prices are government tenders or regulatory price controls.
So, therefore, how can product management be accountable for revenue if only sometimes it controls product pricing? It cannot.
Furthermore, if a quest for revenue guides product management, then many, if not all, product decisions will be based on such.
For example, to increase revenue, product management will mandate that customers pay a fee for every feature, large or small.
Putting a price on every feature could theoretically drive revenue but undoubtedly will be viewed unfavorably by customers.
Forcing revenue accountability on product management may cause skewed short-term product decisions that neglect long-term customer or product-related considerations.
According to the Blackblot PMTK Methodology™, product management aims to plan a product that provides the required functionality and value the market needs.
Making money or losing money is actually a by-product in the process of solving the market problem.
Revenue Generation
Multiple factors contribute to revenue generation, and many corporate functions are involved.
Company strategy, resources, market knowledge, technical know-how, messaging, pricing, budgeting, and distribution are some factors affecting revenue.
Corporate functions such as executive management, product management, sales, marketing, program management, release management, user experience, and product development contribute to revenue generation.
If so many factors and corporate functions are involved, one would need to allocate a percentage of accountability for revenue generation to each factor and corporate function.
Calculating the percentage of accountability or contribution someone has made to generate revenue is impossible and not worth the effort.
If revenue is not the correct metric to hold product management accountable for, then the obvious question is, what is product management accountable for? How can we measure the contribution that product management makes to a company?
In the Methodology approach to product management and according to the Blackblot PMTK Methodology™, success in product management is measured by the level of customer and user satisfaction with the product.
This means the customers have their market problem satisfactorily solved, and the users are provided ample product functionality to complete their required tasks.
Incentives and Rewards
Incentivizing through money and other benefits is a standard corporate way to reward accountability.
The rewards that come with accountability are meant to motivate and instill a sense of commitment to achieving success.
Let's entertain the idea of motivating product managers by making product management accountable for revenue.
If product management were made accountable for product revenue, then a commission scheme would need to be devised along with the necessary autonomy and authority.
Ignoring the complexities of building such an incentive structure and a reward plan, doing so could harm product management and the company.
Direct commissions and personal bonuses create stress, competition, and self-interest at the expense of teamwork. All are unproductive.
Commissions are traditionally paid to those directly responsible for revenue, executive management and salespeople.
Product managers, engineers, UX Experts, etc' could be incentivized through yearly bonuses that measure global corporate performance but not through direct accountability to revenue.
A better way to incentivize and motivate product managers and other roles is through:
- Job enrichment
- Promotion ladder
- Positive work culture
- Coaching and Mentoring
- Definitive job description
- Camaraderie and teamwork
- Supportive work environment
- Plain old recognition and appreciation
Summary
Statements calling for revenue accountability on product management are likely based on misguided perceptions of product management, internal company politics, or an honest desire to motivate.
However, being responsible for the success of a product does not mean being accountable for profitability or revenue.
This review put forward the case that product management should not be accountable for any monetary performance metrics of a product.