Often, companies struggle with the decision on what metrics to measure to evaluate the performance of Product Managers. They should resist measuring outputs (e.g. promoting the Product Manager that delivers the highest number of features).
Measure of outputs are “busy” measures: they quantify how much work we have done or how many widgets we have produced. The problem with outputs is that they may not have any correlation with value (in fact, many examples exist of products that have a ton of features, but still deliver no value).
Product Managers are knowledge workers. And knowledge workers cannot be measured by output. Meaningful outputs for professionals include ideas, strategies, information, and problems avoided. These outputs are very difficult to measure. So companies resort to measuring the number of features (or something similar) and follow in the trap of measuring output versus value.
Instead, Product Managers should be measured with valuable metrics against the outcomes that their product delivers to both the customers (primary outcomes) and the business (secondary outcomes).
Metrics drive behaviors
“Tell me how you measure me, and I will tell you how I will behave.” – This quote from Eliyahu M. Goldratt highlights how metrics can shape behavior and outcomes.
Chicken Efficiency is a ratio of how many pieces of chicken are sold to how many are thrown away. This is an important metric for fast-food restaurants that want to limit waste.
In this story, a fast-food chain had a very strict quality standard on how long a piece of chicken could sit under the heat lamp before being thrown away. This measures tries to optimize profitability.
What behavior is this Chicken Efficiency measure going to drive?
If you want to increase your Chicken Efficiency, you don’t put any piece of chicken under the heat lamp at all. You wait for a customer order, and then you cook the chicken. This makes your Chicken Efficiency jump to about 100% and you become the best in the company.
However, waiting for an order to come before cooking the chicken increases the wait time for the customer. Instead of being a “fast-food”, now your restaurant becomes a “cooked-to-order”. Customers may still get their order serviced, but they may not like waiting for the food to cook. And this may lead to lost customers.
Chicken Efficiency measures drive behaviors that cause dissatisfied customers. Ultimately, this leads to a loss of revenue, negatively affecting profitability.
(Story adapted from “Keeping Score”, by Mark Graham Brown)
How to measure performance of Product Managers
Measuring the performance of Product Managers can be challenging, as it often involves both quantitative and qualitative factors. The key is to steer away from measures of outputs, and instead focus on valuable metrics that influence the expected behavior. Some key areas to consider:
Quantitative Metrics
Product Success Metrics:
- Revenue: Track the product’s revenue growth and profitability.
- Market Share: Measure the product’s position in the market relative to competitors.
- Customer Satisfaction: Use surveys and feedback to gauge customer satisfaction.
- User Engagement: Monitor metrics like daily active users, time spent in the app, and feature usage.
- Retention Rate: Track the percentage of customers who continue to use the product.
Team Performance Metrics:
- Project Completion: Measure the Product Manager’s ability to deliver projects on time and within budget (or ability to adjust the scope and timeline as requirements change).
- Team Morale: Assess the morale and productivity of the product team or of the development team building the product.
- Cross-Functional Collaboration: Evaluate the Product Manager’s ability to work effectively with other teams and across departments.
Qualitative Factors
- Strategic Thinking: Assess the product manager’s ability to develop and execute a clear product strategy.
- Problem-Solving: Evaluate their problem-solving skills and their ability to identify and address product challenges.
- Communication Skills: Assess their ability to communicate effectively with stakeholders, team members, and customers.
- Leadership: Evaluate their leadership skills and their ability to motivate and inspire their team.
- Innovation: Assess their ability to come up with innovative product ideas and solutions.
A balanced approach that combines both quantitative and qualitative metrics is often the most effective way to measure a Product Manager’s performance. It’s also important to set clear expectations and goals with Product Managers to ensure they are aligned with the company’s overall strategy.