Inputs and Their Significance on Outcome-Based KPIs: Understanding the Value Chain
Obsessing over Inputs is just as crucial as Outcomes in effective product delivery, enhancing strategic impact.
The debate around outcomes over outputs is not new. It's a topic that has received its fair share of attention in recent years. However, this remains a challenge in most product organizations, and product and delivery teams need to take a systemic approach to deliver impactful outcomes. This essentially means obsessing over inputs and not just emphasizing outputs and outcomes in product delivery. Having measurable outcomes via KPIs is a crucial aspect for this system to be a well-oiled machine.
First off, let's look at one of the interpretations of this. An image from Christophe Achouiantz puts things in perspective around outputs, outcomes, and impact.
Output: This is the immediate result of your team's efforts—the "stuff" you produce. In the context of product development, outputs are the tangible items like features, user stories, epics, or products. It's what your team has directly created through their work.
Outcome: Outcomes are the changes that occur as a result of using the outputs. They reflect how the outputs have actually solved problems, created new possibilities, or changed customer behavior. Outcomes are customer-centric, focusing on the needs and problems of the customer and how well they are addressed.
Impact: Impact is about the broader effect your work has on the organization, often measured in financial terms such as revenue or cost savings. It's the big-picture view of how the outputs and outcomes contribute to the organization's bottom line and overall success.
Now, the question arises: which of these is more important? There are many arguments in favor of an outcome-based approach over focusing solely on outputs, primarily because it is centered around customers and fosters a customer-centric perspective. However, it's crucial to acknowledge that teams cannot achieve desired outcomes without producing high-quality outputs. Changing a customer's usage patterns or encouraging the adoption of a new feature (outcomes) cannot occur without delivering well-defined outputs that are specifically designed to facilitate these changes in behavior or adoption. Therefore, these concepts are not mutually exclusive but rather components of a cohesive unit that necessitates systemic thinking at the level of the entire system.
To put this into perspective, the ultimate business goal is impact. Product teams ought to define KPIs to gauge outcomes and understand how the features they deploy co-create value for customers (such as reduced costs and enhanced efficiency) and for the organization (including increased subscriptions, revenue, and customer satisfaction). We will revisit the topic of KPIs shortly.
However, the system outlined above overlooks a crucial element: it does not address the foundation for delivering outputs. To put it simply, what constitutes the "inputs"?
Input refers to any resource, information, or feedback that informs and guides the creation or improvement of a product. Inputs can include customer data, market research, competitive analysis, stakeholder feedback, and strategic business goals. These inputs are crucial for developing a product roadmap and for shaping the projects that the product and engineering teams will undertake. They set the foundation for the outputs and outcomes, ultimately influencing the impact on the business.
In essence, inputs are the raw materials that fuel the decision-making and creative processes within a product development cycle.
Here is a representation of the value chain involving inputs, outputs, outcomes, and impact, as presented by Paul Adams from Intercom.
At the top of the product development hierarchy sits the Product Engineering Team. This team is the driving force behind the conceptualization and execution of various projects aimed at enhancing the product. Each project undertaken is not an end in itself but a means to a transformative goal: to alter the product in a manner that will, in turn, modify customer behavior.
For instance, when the team introduces a new feature, the expectation extends beyond mere usage. The anticipation is that this addition will seamlessly integrate into and positively affect the customer's interaction with the product. Similarly, when an existing feature undergoes modification, it's not done in isolation. The change is orchestrated with the intent to streamline, enhance, or redefine the way customers engage with the product.
It is this value chain —from project inception to product alteration, culminating in behavioral change—that encapsulates the core objective of a software team's endeavors. The conversation around monetization, though not the focal point here, is intrinsically linked to this chain. The underlying premise is that a well-run business will see these methodical changes not just resonate with the users in terms of their experience but also reflect positively on the business's financials. As user behavior aligns with the envisioned use of the product, increased revenue is a natural byproduct, signifying the commercial success of the product engineering team's strategic initiatives.
It's imperative to note that the KPIs should directly link the outcomes of product and engineering efforts to business results and customer-centric goals.
Remember, "Garbage In = Garbage Out." Therefore, selecting the right inputs, such as an informed and validated product roadmap, creates the opportunity for desirable outputs and meaningful measures.
Here are a few KPIs that product and engineering teams can track based on the outputs delivered:
Feature Adoption Rate: Measures how quickly users start using a new feature, indicating the success of the feature in meeting customer needs.
Customer Satisfaction (CSAT): Assesses customer happiness with the product, providing immediate feedback on the outcome of recent changes or additions.
Net Promoter Score (NPS): Gauges customer loyalty and the likelihood of product recommendation, a strong signal of the product’s market fit and value proposition.
Churn Rate: Monitors the percentage of customers who stop using the product, revealing the long-term appeal and potential areas for improvement.
Revenue Growth: Tracks increases in revenue as a direct impact of product changes, showing the financial success of projects undertaken.
Operational Efficiency: Evaluates the ratio of outputs (features, bug fixes) to inputs (time, resources), indicating the productivity of the product and engineering teams.
Time to Value (TTV): The speed at which customers gain value from new features, reflecting the efficiency of the product in delivering solutions.
There could be many other KPIs that can be tracked, and the ones mentioned above provide a good indication of how effectively the product and engineering teams' outputs translate into meaningful outcomes for both customers and the organization. This alignment underscores the principles of business agility and customer centricity.
To encapsulate the concepts discussed in this blog, the following visualization explains the relationship between features, inputs, outputs, outcomes, and the associated KPIs that drive value in product delivery.
In summary, it is clear that a strategic approach to product and engineering, grounded in outcome-based KPIs, is indispensable. By prioritizing a systemic view of the value chain, from thoughtful inputs to significant outcomes, we underscore the necessity of agility and customer focus in product development. This comprehensive strategy is vital for fostering meaningful change and delivering substantial value in an economy that is increasingly centered on outcomes.