Value-Based Product Roadmap Prioritization in AI & SAAS

Product roadmap prioritization through a “Value Lens” is a critical part of overall product roadmap prioritization process that is rarely employed by product development professionals.  Typically, if a formal iterative prioritization process has been employed, prioritization is driven by perceived product portfolio or feature/function gaps, actual market feedback, revenue pipeline impact, new market strategic objectives, and possibly customer-specific customizations.  What these prioritizations factors lack is an assessment of where the greatest strategic value is created.  Often short-term demands predicate the deferral of strategic value development at an opportunity cost that is difficult to measure.

What is Strategic Value?

To simply answer this question, you must ask in your product roadmap prioritization process; If we have one dollar to invest in new products, which products/features/functions position the company to capture new revenues while establishing competitive differentiation, defensibility and “stickiness” or switching costs.  Strategic Value looks at not just revenue or market obtainment, but de-risking the revenue you have obtained to create sustainability and market momentum.

Measuring Strategic Value involves assessing how a product/feature/function, action, asset, initiative, or decision contributes to long-term organizational goals, business imperatives, competitive advantage, and sustainability beyond immediate financial returns.  Measuring Strategic Value is a multi-dimensional concept that blends quantitative and qualitative metrics.  It is also an iterative two-stage process where prioritization scenarios produced in stage one is run through a competitive prediction analysis based on detailed understanding of competitor target market advantages, weaknesses, sourcing methods, estimated cost models, and ability to replicate help refine sustainability assumptions.  This process will be overviewed in the next post.

So how do you measure Strategic Value?

Strategic Value = Strategic Fit + Financial Value + Customer Adoption Value + Option Value + Resilience Value

The primary components of measuring Strategic Value include:

1.     Strategic Fit - Alignment with Core Strategic Objectives (Qualitative)

a.     Strategic Fit Score – Involve a group of diverse executive and operational stakeholders to provide their relative rankings of planned roadmap items quantifying their perception of strategic impact on currently defined corporate strategic objectives/imperatives.  This is not to democratize product roadmap prioritization, but to build consensus around perceptions of strategic impact.  This is largely a qualitative exercise, so the objective is to impart an organizational view in a controlled process to capture organizational congruence/incongruence to better understand organizational perspectives and diversify analysis inputs.

b.     Goal Contribution Index - % of impact on KPIs tied to strategy (e.g. revenue from new markets, customer lifetime value growth).  Like the Strategic Fit Score, GCI should represent a broader perspective of how the product impacts vested organizational members’ KPIs. 

2.     Financial Value - Long-Term Economic Value Assessment (Quantitative)

a.     Net Present Value (NPV) – This traditional assessment should still play a role but lacks a lens that assesses strategic value or product type.  New platforms and products will certainly have a negative NVP versus new features but may open new markets and revenue opportunities that NPV ignores.

b.     Real Options Valuation (ROV) – Consider ROV to be an assessment of risk reduction if the market does not respond or corporate directives change.  ROV defines the value of flexibility (e.g. ability to scale, pivot or abandon) and establishes realistic assumptions of investment return timelines.

c.      Economic Profit / EVA – Measures value after covering cost of capital invested.  This should include revenue assumptions tied to the corporate, division or SBU financial business plan, but with positive and negative scenarios that drive best case and worst-case acuity inclusive of immediate and long-term revenue booking/realization.

3.     Customer Adoption Value (CAV) - Target Market Differentiation Impact (Quantitative & Qualitative) – This is one of the most challenging areas of product marketing that is most measured in Customer Acquisition Cost (CAC) which completely misses the most critical aspects of CAV.  Customer value realization is not predicated on “what makes you special” or “what you think you do differently” or your cost of acquiring customers (CAC), it is based on what impact your product makes to customers adopting the product and what that means to their life, operations, compliance, cost reduction or revenue growth.  CAV is focused on measurable impact, not perceived value, and is rooted in problem-driven product development and benefit impact measurement.

The strategic aspect of CAV is measured in target customer adoption, customer longevity and lifetime customer value, and this can take years to refine, but establishing a baseline and using data driven strategies can evolve and refine that baseline to productive commercialization.  But at the heart of a revenue growth engine that allows that introspection is messaging that effectively articulates how your product is solving a unique problem uniquely (i.e. Value).  CAV is a process of measuring value impact in the immediate and long-term and is core to both building and extending product lifecycles.  The alignment of market-driven product development and value-focused messaging is fundamental to effective product commercialization.

Why this approach is so critical is that to build effective market messaging you must be able to articulate and accurately depict the problem being solved for and the measurable benefits of your solution.  This is especially so in B2B commercialization, but the same principle applies in B2C messaging.

4.     Option Value - Optionality & Resilience (Switching Costs) Impact (Quantitative & Qualitative) – Option Value is all about risk.  How do you reduce investment risk given the inevitable unknowns of commercialization, while proactively reducing risk of customer loss via increasing customer switching costs via increased value delivery and lack of market optionality.

a.     Investment Risk Reduction (Quantitative) – If estimated development costs have been assessed, the risk prioritization can be centered on the highest investment projects.  The challenge is if there are “known unknowns” how do you reduce investment until the unknowns are addressed.  While this is difficult, especially in regulated markets, reducing your investment risk profile is important.  If a situation forces investment viability decisions, what is the risk profile/exposure the development effort will face and how do you minimize exposure.

b.     Switching Costs - (Quantitative & Qualitative)– Does the product development project drive unique value by reducing the optionality of multiple vendors/suppliers or impart an operational efficiency value that would decrease if switching to a substitute?  Switching costs are specific to the market, product and solution, but should be core to the product roadmap strategy because it is the most tangible measure of “stickiness”.

5.     Resilience Value - Sustainability (Barriers to Entry) Impact (Quantitative & Qualitative) – Resilience Value requires the ability to define the ability of competitors to replicate your solution.  This requires an assessment of primary competitors and substitutes to copy your capabilities to solve the defined market problem, and understanding relatively what investment, changes to architecture/organization/value-chain would be required to achieve parity in the market. 

Use weighted scoring models for decisions under uncertainty, and narrative scenarios to capture intangibles.  The best leaders quantify the unquantifiable – without pretending precision where it does not exist.

Summary

The products/platforms/Features/Functions that create the greatest separation in terms of Differentiation, Switching Costs, and Resilience will generate greater value for the company and the customer.  Adding a “Value Lens” to your product roadmap prioritization process builds lasting and sustainable value to the company because a dollar invested in value generating priorities yields more than a dollar invested in projects that cannot define value.

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If your organization needs assistance in finding your revenue and/or building customer value contact https://www.VeaAI.ai.