PM-Product ratio is directly proportional to firm competitiveness
In the software products world, we are all familiar with a situation where a single Product Manager (PM) is responsible for an entire product. Some of us have also worked in companies where there are multiple product managers working on a product. In this case, each PM oversees a small UX module of the product or is responsible for a small piece of the overall customer journey. Often, each of these PMs reports to the same Group PM who handles the overall product. Why this difference? Why do some firms have an army of Product Managers for each product whereas other firms have a single PM per product? What does this tell us? The answer is industry competitiveness.
Competitiveness and PM-Product ratio
In highly competitive industries, software products tend to focus on micro-innovation or design optimization to drive conversion, retention and other metrics that matter for the business. For example, it is not uncommon for an e-commerce company to have product managers focused on SEO, item recommendation, price optimization, cart addition, purchase completion, etc. This micro-management of features across the product requires multiple product managers.
In less competitive industries, typically there is a single product manager focused on the whole product. This is a risky proposition, but the company is able to handle this risk due to its (current) superior competitive position. Often, the single PM has to prioritize few operational metrics to focus on based on available PM bandwidth. It is all about identifying the key levers that matter depending on the overall product strategy.
Thus we see that in a highly competitive industry, we need multiple PMs to optimize multiple components of the product. The converse of this is also true. That is, if you want to improve the competitive position of your product, there is a lot you can do. But in order to do a lot, you also need an army of Product Managers to focus on improving each of these operational metrics.
Measuring competitiveness
Economics provides industry competitiveness measures like Concentration Ratio and Herfindahl–Hirschman Index (HHI). But these indices are of little value to a product management leader designing PM organizations. A better metric would be one that measures the direct competition your product faces in the market.
One of the best measures of relative competitiveness is pricing power. If you can increase prices and still maintain market share then your product is operating in a less competitive market. For enterprise products, talking to sales will give you an idea of the number of deals you are losing primarily because of price.
Even if your product is operating in a duopoly (with just 1 other competitor), your competition is high if the competitor offers a similar product and is gaining market share. Porter’s five forces analysis can provide a good overall qualitative analysis of competitiveness as it focuses on many factors affecting competition such as the threat of substitutes and new entrants.
PM-Product ratio of a firm
If the ratio of all PMs in a company to all the Products they manage is high, then the firm is operating in a competitive market. Or, to put it differently, the firm is doing its best to stay ahead of the competition. Have you seen this relative variation in the PM-Product ratio across companies? Let me know your thoughts in the comments.
PM-Product ratio influences the Innovation Strategy of a firm
Product Managers are customer advocates and having many PMs on a product will make that product more responsive to customer needs and competitive pressures. This increases bottom-up innovation which is required for sustaining competitive advantage for a product in a competitive marketplace.
On the other hand, a lower PM-Product ratio means that customer responsiveness is given less importance and innovation is generally dictated from the top-down.
PM-Product ratio shouldn’t be an afterthought
Often, PM-Product ratio is increased after seeing how the new product performs in the market. This reactive way of investing in product management function for new products can have a significant negative impact on new product success. This reactive approach may work for investing in support and sales functions but is not the right approach for the PM function. This is because PM work is important prior-to-launch and having the right number of PMs focusing on the right areas of the product pre-launch is absolutely critical.
ABOUT THE AUTHOR: I love taking a theoretical approach to strategy, with frameworks that can be applied to every business problem. Specializing in product and corporate strategy, I hold an MBA and MS in Strategic Management from Kelley School of Business. I work in the Product Management function at Adobe India. I also advise companies as part of the Stanford Seed program. The views expressed in the blog are my own.
