Using Product Economics for Feature Prioritization
When planning for feature prioritization, it’s crucial for you to take into account product economics. In my view, product economics, even more so than relying on business value, helps us to understand if it is financially viable to develop a product.
Don Reinertsen, a thought leader in the management of product development, explains the importance of product economics in his presentation titled “Understanding the Magic of Lean Product Development.” Reinertsen describes that holding cost and transaction cost are the two main factors in product economics. This means that for a product feature, the holding cost is related to delayed customer feedback; the transaction cost is related to the effort of creating releases.
In Reinertsen’s view, the more features we ship in one release, the lower the transaction cost and higher the holding cost will be. Accordingly, we must prioritize so that the highest-priority features are slated to be released.
If you were to rely on business value to determine product features, remember that many thought leaders disagree on the definition of the term. For example, Chris Sims, the founder of Agile Learning Labs, explains multiple views for determining business value in his article titled “Estimating Business Value.”
In contrast to Sims’ views, Reinertsen says that business value is defined by how many dollars the customer pays for our product after it is shipped. This means that an upfront estimate of business value can be a futile endeavor, because ultimately it is up to our customers to determine it. Instead, Reinertsen has suggested using the cost of delay as a better approach for determining feature prioritization during development.
Similar to Reinertsen’s conclusion, Luke Hohmann, the founder and CEO of The Innovation Games® Company, has written an article titled “Why Prioritizing Your Agile Backlog for ROI Doesn't Work,” in which he says, "In all of the years I’ve been doing Agile, I’ve never seen a product backlog where each backlog item slated for the release has an associated ROI analysis."
Hohmann disregards the use of business value for prioritization similar to Reinertsen's view. Furthermore, Hohmann lists several problems for prioritizing features based on business value, including return on investment (ROI). Despite those problems, many agile pundits still insist on prioritizing features based on ROI.
To sum up, we developers need to change our minds about relying on business value for feature prioritization and take into account what both Reinertsen and Hohmann have said on the topic.
I'd like to encourage the reader to comment below on their own experience of using business value for prioritization.