"Decide on three things at the start: the rules of the game, the stakes, and the quitting time," Chinese proverb.
A disruption of product development flow results in an unbalanced portfolio. Innovation becomes an exception instead of a sustainable core capability. These are the common pipeline problems:
1. An innovation funnel does not exist. Low demand for innovation (Horizon 3).
2. Ideas are never canceled in H3 or H2. They are either not thoroughly validated or not audacious enough.
3. No product transition from scaling (H2) to optimization (H1). Some companies create R&D or innovation labs to focus on the first two horizons. A lab is constrained by real estate capacity (office space) and by the availability of qualified and interested talent. What happens if new products are on-boarded to the lab but never leave? Because of limited capacity, the lab cannot tackle any new problems to solve. Moreover, the products in the lab reach maturity (H1) and do not belong to the lab anymore. Employees head for exits since the inspiring vision they had bought in when they had joined evaporated.
4. No product sunsetting at the end of sPDCL (H1). Many traditional enterprises do not measure the economic value of software products separately. Thus legacy products accumulate in H1 by hundreds and thousands, which has these adverse effects:
Complexity. When a significant disruption (for example, cloud migration) or a crisis (like an acquisition or a security breach) strikes, the sheer number of products that need to be evaluated and modified is overwhelming.
Lack of resources. A company cannot afford to have product-focused teams, so it opts for project teams instead. An inadequate number of projects leads to firefighting and mercenary mentality among employees.
While a bathtub analogy (1) above is deceptively obvious, it underscores the existence of not one but two leverage points of flow required to regulate the level of water in a "bathtub". The rate of outflow is just as important as the rate of inflow. Systems thinking directs us to look at product portfolios holistically.
Another useful method is the theory of constraints (2). A "constraint, or bottleneck, restricts the output of the entire system and at the same time represents the primary leverage point for improving it" (3). We can never remove all bottlenecks from a system. Constrains will move to a different part of the system. At some point, we may be satisfied with the system performance. We can manage the known constraint to regulate the flow.
Imagine that the level of water in a bathtub represents the funding of products in your portfolio. Furthermore, the tub is subdivided into three sections to represent horizons, each with a different level of water. The challenge is to create a balanced product portfolio with all three horizons represented at healthy investment levels and to maintain the balanced flow in and out of the system as well as between horizons. Let's look at the leverage points in more detail.
Let's look at the numbered leverage points of the plumbing metaphor above in more detail.
A product portfolio needs a large backlog (the funnel). It should consist of problems to solve, some with potential solutions. Big "I" innovative ideas are large disruptive and risky "moonshots" or "10x" ideas. Small "i" innovative ideas are incremental improvements to existing products; they are sometimes called "roof shots" or "2x" ideas. Problems and unvalidated ideas to solve them may come from any source: executives, product management, or internal crowdsourcing. Crowdsourcing may take different forms, such as pitch competitions, hackathons, or self-guided free time. A separate miscellaneous portfolio and funnel need to exist for problems/ideas that don't fit the existing portfolios. A portfolio board prioritizes the backlog based on some well-defined criteria, such as potential business value, strategy alignment, etc.
Innovation funnel ideas should have a kill rate of over 50%.
A critical transition from product discovery (H3+H2) to delivery (H1) for products that have survived market validation and adoption by an early majority of users. The corresponding changing in goals, software re-architecture, team structure. The timing for this transition should be just right: too early, and your growth rate slows, too late, and you delay profitability. For a successful handoff, all three aspects must be ready:
The product is in a healthy state. It reached a breakeven point, evolved necessary supporting business functions, won an early majority of customers, implemented engines of growth, and achieved industry standards in pirate metrics.
The receiving team (H3) has been hired and trained in the product and technology. The H3 team will not be pulling H2 resourcing when the transition occurs. Resources from the H2 team will take the next problem from the portfolio innovation funnel (H3) or will join help teams scale (H2).
A suitable office space exists for the spin-off.
Individual products need to be measured separately in terms of their business value. Low-value products should be retired. Freed up resources will take on new products from H2. Many mature enterprises struggle with legacy systems, which still bring a ton of value. Mainframe systems are still alive and well in insurance, airline, and other industries. Replacing these core systems is risky and expensive. However, maintaining them is costly and inconvenient as well. It is not easy to find talent for outdated technology. When laggards have adopted a product, it may be a sign that the product is ready for re-invention and positive disruption.
A balanced product portfolio requires thoughtful management to achieve sustainable long term growth. Transitions between horizons as well as in and out of the portfolio represent system leverage points (constraints) where the software PDLC can be effectively regulated.