Strategies and Functions

Management of any given Digital Product will involve monitoring an extensive range of metrics unique to the product. Even Digital Products closely similar in architecture may involve significant ranges of unique metrics. Poorly organized reporting of these metrics can make the analysis of a given Digital Product, much less entire product portfolios, virtually impossible for anyone outside of the Product team.

An ideal solution is to establish common product performance areas and require Product Managers to aggregate and align their metrics with these common categories. Best practices for the designation of common performance areas dictate they should be well-rounded, ensuring a holistic consideration of the product ecosystem, and resonate with business leaders. In practice, this means the business leaders can assess common performance areas even while they may not fully understand each of the technical metrics that have been aggregated within the performance area. For some areas, the value management strategy can define common Key Performance Indicators (KPIs) while also allowing Product Managers to elevate and report on product-specific KPIs within each performance area.

The strategy may also designate product performance areas, as well as their common KPIs, by portfolio. The implicit Digital Product types detailed in Funding Models, as well as customer-base, or other inputs may also be leveraged to inform the ideal strategy.

Improving and transforming customer experience represents a powerful value proposition for many Digital Products, but can also reflect highly subjective concepts that can be difficult to consistently quantify, qualify, or assess over time, especially across different products. While there is likely to always be an element of subjectivity as well as specificity for a given product, it is important that the value management strategy requires all Product Managers to dedicate effort to understanding and qualifying this critical value element. The Digital Value Management Office should take the lead on education and the sharing of best practices, conducting research of emerging practices, and canvassing the industry for platforms and tools to measure and qualify customer experience.

Failing to understand and manage the technology supply chain of a given Digital Product can result in a wide range of negative outcomes from delivery delays, decreased quality, unexpected costs, and even overlooked risks. Failing to accurately forecast future demand, as well as prioritizing and shaping demand, is likely to lead to similar outcomes. Another concern is if delivery far exceeds consumption, and whether the overall delivery and support of the product is right-sized. Finally, target adoption rates should be weighed against current operating costs and future investment.

A well-rounded value management strategy should require qualification by Product Managers that demand management is being performed, the technology supply chain is healthy, and that the leveraging and adoption of available delivery is fully optimized.

Traditionally, technology costs across the business were distributed to a list of approved projects and to operational budgets aligned with organizational silos rather than to the Digital Products they supported, making it difficult to demonstrate the value received by the business as a result of these investments. Distributing costs to Digital Products and Digital Product lines across the business linked to clear value propositions resolves this, but also demands that Product teams take on responsibility for cost management, which in turn requires an understanding of costs and finances across a broader community of Digital Practitioners.

Understanding, managing, and communicating Digital Product costs are likely to represent a significant and potentially complex set of responsibilities for Product teams going forward. The Product Manager is explicitly accountable not only for reporting these costs, but for ensuring all of these costs are continuously optimized throughout the entire product lifecycle.

The TCO for a given product can best be understood as a set of costs directly associated with developing, delivering, operating, and supporting the product over time. These direct costs can be further sub-divided as the ongoing costs of delivering and operating the product in its current state (Continuous Delivery (CD)) and, separately, the costs of scaling, optimizing, and transforming the product over time (Continuous Improvement (CI)).

In addition to these costs, many Digital Products today leverage a technology supply chain in which they consume other supporting Digital Products for their own delivery and operation, and it is typically beneficial to view and manage these costs separate from product-direct costs as either chained or indirect product costs.

One of the most significant areas of these chained or indirect costs for many Digital Products is likely to be consumption of cloud services. These services play a significant role in the delivery of many Digital Products, and the specific selection of compute, storage, and other services can have an outsized impact on the ongoing costs of delivery. Even the high-level selection of vendors and environments across hybrid and multi-cloud environments can have a significant impact. Also consider that the best mix of these environments and services to optimize product value will likely continue to change overtime, requiring regular re-evaluation by the Product teams. The FinOps Foundation, which provides a framework for cloud financial operations, is a well established body of knowledge dedicated to the expansive and evolving practice of managing cloud costs. More information can be found at finops.org, a community program under the Linux^® Foundation.

Below this highest-level view of costs lie added layers of complexity that will have to be managed by the Product teams. Differentiating between Capital Expenditure (CAPEX) and Operating Expenses (OPEX), fixed versus variable costs, depreciation reporting, accurate forecasting, and many other elements play an important role in product cost management and continuous cost-optimization. It is important that the Product Manager and/or members of the Product team have the appropriate level of expertise and support to manage these responsibilities.

Failing to effectively manage Digital Product costs can have significant consequences for the long-term value of the Digital Product, and even to the financial performance of the business itself. The costs of operating internal, business-enabling Digital Products can be reflected in the companies’ Costs of Goods Sold (COGS), or even have a major effect on product-pricing for external-consumer Digital Products. In fact, the potential impact on final product pricing resulting from underlying cost management, both in margin opportunities and in lost revenue, cannot be understated. Even poorly managed costs for internal end-customer Digital Product types and digital foundation product portfolios can result in a significant drain on business funding.

Managing costs at the product-level is critical to product value management, but it is also part of a broader strategy to fund value creation, innovation, and the Digital Operating Model itself. These portfolio and enterprise-level considerations and solutions are the focus of Funding Models, which provides details on funding models to enable the Digital Operating Model.

Here, again, the Digital Value Management Office will play an important role in standardizing a common process for modeling the total costs of product ownership and making supporting platforms and processes available. Support will need to cover all areas of Digital Product cost-management; for example, maintaining a small practice and supporting platforms for performing FinOps. The Digital Value Management Office will also need to partner closely with Procurement and Finance teams to develop and optimize all of these processes and, over time, ensure supporting platforms and templates are widely available and leveraged, and drive appropriate levels of education around finance and costing to Product teams.

Proactively understanding and managing the risks associated with product delivery, improvement, and ongoing operation is a major element of value management. It is critical that Product teams, stakeholders, and consumers recognize that decisions relative to risk management will almost always be associated with tradeoffs in other areas of the products value management (costs, performance, experience, etc). Product Managers own the ultimate accountability for managing overall risks associated with development, delivery, and ongoing operation of their products. While they may delegate some responsibilities to select Product or Delivery teams and rely on a central digital security practice for advisory support, final accountability always ends with the Product Manager.

Digital security, while significant, is only one element of a holistic risk management strategy for a given Digital Product. A complete strategy for risk management should consider risk to areas including business performance and conformance, strategic and operational, regulatory and legal, internal compliance, health and safety, and even risks associated with social and company perception. Across each of these areas, Product Managers must assess the current and appropriate levels of compliance, exposure, supportability, and resiliency. Product Managers need to regularly evaluate each of these areas to identify risk, measure and assess those risks, monitor and report, and associate each risk with plans to avoid, mitigate, and respond to risks. Finally, these considerations will need to be made within each phase of the Digital Product lifecycle. To be successful, Product Managers will need to work closely with central Digital Value Management and/or the Risk/Control & Audit office to develop and maintain their risk strategy. A central Digital Security team will establish the process and architectural governance that Product Managers will need to incorporate throughout the product lifecycle, and they should also be leveraged as advisory partners to develop a digital security strategy purpose-fit for a given Digital Product.

The business-wide product value management strategy does not represent an all-encompassing set of responsibilities for Product Managers. It should, instead, only be presented and thought of as a common starting point.

Successfully owning accountability for a Digital Product will require the continuous evaluation of its evolving value proposition and ecosystem and engagement with consumer and stakeholder groups, which is likely to dictate efforts and activity not surfaced by the initial value management strategy. In fact, in some cases, these requirements may represent the sole determining factor for whether value was received by the consumer or not. Continuously searching out, identifying, and then prioritizing these elements within the broader value management strategy is an important activity for the Product teams.

Risk management relative to a given Digital Product was detailed earlier in this section. The business-wide strategy for digital risk management leverages end-to-end Digital Product lines and the explicit accountability for managing risk aligned to the Product Managers as its mechanism for ensuring risks are managed for all Digital Products at all times.

Here, again, it warrants highlighting that the Product Manager holds final accountability for any risk related to the development, delivery, and ongoing operation of the product. Digital security represents only one element of that strategy, and Product Managers will need to leverage a centralized digital security practice as advisors to develop a purpose-fit security policy, including assurances that the product adheres to all applicable digital security standards set by the practice. The Product team will also need to collaborate closely with the Control & Audit team to identify controls for managing risk and allowing the team to perform audits, which can supply critical feedback to Product teams and provide key data in qualifying the broader value management of the product.

A centralized function for Digital Security is responsible business-wide digital security governance; for example, standards and practices for secure coding. They will act as advisors to Digital Product teams across the business, and will need to engage regularly with a separate Control & Audit function to identify risk controls.

It is also important not to forget that in end-to-end Digital Product lines the digital security practice will host a number of Product teams of its own, responsible for the delivery and operation of a practice-specific set of Digital Products. These digital security products may include firewalls, intrusion detection systems, or company-wide architectural solutions such as Zero-Trust (refer to: G21f). As designated Digital Products, each is assigned a Product Manager who then owns accountability for the long-term value of the product in the same manner as Digital Products delivered across the business.

A separate function and team dedicated to identifying controls and performing audits must be established, with full independence from both Product teams and the central Digital Security function. Control and audits must now be applied at the business/enterprise level, to individual Digital Products, and across the central Digital Security function. The explicit designation of Digital Products end-to-end across the business creates a significant opportunity to identify new control and audit points that are capable of more directly impacting business performance goals and conformance requirements.

Auditing of the development, delivery, and operation of Digital Products from the central Digital Security team must also be audited by this independent function. For example, as Zero-Trust architectures are deployed by the central Digital Security practice to support the enterprise strategy, this office will be responsible for regularly auditing those solutions.

This central group may alternatively own the common strategy for the risk management of Digital Products and drive relevant education and training for Product teams.