Companies that get confused, that think their goal is revenue or stock price or something. You have to focus on the things that lead to those. — Tim Cook
At what level should we set goals for products, product managers, and product teams? At the output level in the form of products, features, and services? Or at the impact level, in the form of revenue, market leadership, etc.?
I struggled with this question for a long time, and I struggled to get people to understand it once I figured it out! How to set goals for products, product teams, and even for individual product managers.
Manage by Impact
In the past, a company I worked with decided to diversify its revenue streams by introducing a new product offering. The new product was new to the team with many unknowns. The goal the company aspired to achieve was $1 million in the first year. The leadership team proposed a tactical approach to achieve that. The team debated it and came up with a better solution to test and validate the assumptions. The debate didn’t go well, and the team struggled to achieve the goal.
Issues with this approach
- A lot of options to choose from and no clear criteria on what to prioritize
- No clear connection between what you or your team is doing and the impact. It might take years before realizing it
- It is more likely to choose the wrong things to do first, leading to a lot of disappointment and frustration
Manage by Output
Another company I worked with decided to launch a mobile app to support the existing web app. The plan was to launch it in a quarter! Five quarters later, the company launched the mobile app. As far as the team concerned, they launched an app, even if it didn’t create real value for the users and customers.
Issues with this approach
- You are building a lot of things, but you don’t know why you are building them
- You might finish the features, and they might work as planned, but not deliver any value. Users might not even use them at all.
- No clear way to debate or be creative on what to build
Both approaches were wrong.
In retrospect, both approaches were wrong. Manage by Impact was a very high-level revenue goal that didn’t provide specific and tangible information to the team to use while strategizing and executing. Team members felt disconnected to the revenue stream and weren’t able to form any connection to what they were trying to achieve. Manage by Output, on the other hand, was so specific that it left the team a small room to be creative to get it done faster or, at least, on budget. Again, the team members felt no connection to what they were trying to achieve.
- Team members have no direct connection to the intended outcomes of the goals.
- Team members have no room to be creative in both situations—either too much room with no guidance or a very narrow room with no clear path to the Impact.
Characteristics of a good management style, the missing link
There should be something in the middle, that is at the right level that:
- Provides enough room for the team to be productive and creative
- Predictive of an impact
- Provides specific criteria on how to measure success
- Success should be something the team members can get excited about and connect to
Manage by Outcome is the key to success for Product Managers and their Teams.
An excellent framework to identify and prioritize the right metrics for your product is GAME. GAME (Goals, Actions, Metrics, Evaluations) helps you understand your product or organization's underlying goals, the Actions the user goes through to use your product, and the metrics you track to ensure it is working intended. Finally, the evaluations step to understand and prioritize which metrics you should focus on.
For more information about the GAME framework, check this article.
To improve a product, you need to affect the prioritized metrics positively. In order to do that, there should be a change to the user’s actions that will lead to the metrics change. The product managers and product team should focus all of their energy on that action(s), not on the metrics itself.
For example, suppose Airbnb wants to increase the experience booking in a specific area. In that case, the product team needs to identify the user actions responsible for that, and then focus their energy to increase or change that action(s) in a way that will lead to more bookings. Let’s assume that the users booking houses in LA are not booking enough experiences. The product team might find out that all interesting experiences are not available — booked, so they should improve the product to encourage more people to offer a particular set of activities in LA. This is Manage by Outcomes.
Outcomes: The observable change in the user’s actions that creates a positive change in product success metrics. As you notice, outcomes are:
- Observable and tangible changes to the user’s actions
- They are lead indicators, not lag indicators.
- They provide enough room for the team to be innovative but very specific to help the team focus.
To produce the outcome, you need to do a set of activities, such as requirement definition, writing code, deployment, product launch, etc. Those sets of activities will produce an output, such as a feature, a new product, a launch plan, etc.
Activities are the things we do. Collecting requirements, interview customers, write code, etc. Activities will produce an output.
Output: is the thing we produce. It is the direct result of an activity. Examples include features, products, product launch plans, roadmap, etc.
Impact: is the short or long term results we aspire to achieve. The impact is not necessarily a change in the user’s behavior, and it is always a lagging indicator.
A key thing to remember about outcomes is that they are changes in the user’s actions, such as more time on the site, open an email, click on a link, add a product to the cart, share a picture, send a message, etc. Those are things the customers/users/employees do, so it is easy to track, observe, and measure them. Outcomes are a leading indicator. Impact, on the other hand, is a lagging indicator and could only be measured after the fact. Focusing on outcomes, the leading indicators, is powerful since it gives constant feedback and allows you to evaluate and pivot if needed.
Here is an example of an online store that sells dog products.
How to become an outcome bases Product Manager/Team
- Use the GAME framework to find the key metrics you want to track to ensure product success.
- Brainstorm what actions need to change in order to improve the metrics. Remember, actions should be the user’s actions that are observable and predictive of the impact.
- Brainstorm a list of outputs: features, products, activities, that will affect the user’s actions.
- Quantify the user actions and add them as Key Results (or Metrics) to your OKRs (or goals)
- Test your assumptions. Design a quick experiment to figure out if you can affect the actions and whether they affect the metrics
Good senior leaders will help their teams focus on outcomes. Some leaders might choose to break down impact-level targets to a more specific, observable outcome targets for their teams. This is powerful when you have multiple teams working toward the same impact. In OKRs terms, multiple teams will have their KRs as outcomes, in a way that all of the outcomes combined, contribute to the Impact OKRs.
Manage by outcomes is the best way to set goals for the product teams. Outcomes are specific, observable changes in the user’s actions that will lead to a positive change in the product key metrics. Using outcomes, the lead measures, as your KRs or product goals, will help you stay focused and get feedback very soon in the process.
- Unlike manage by impact, which is very high level and leaves much room for confusion, outcomes are specific and predictive of the Impact.
- Unlike manage by output, manage by outcomes gives the team enough room to focus on what matters while enabling them to be creative and innovative.