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Milos is an Account Strategist at <a href="http://alpha-ux.co/">Alpha UX</a>, a platform that helps product teams gain customer insights throughout the product lifecycle. Before Alpha UX, Milos worked as an associate at a boutique M&amp;A firm and at Jazzya Investments as a venture analyst.

Milos Peluffo

<p>Reid Hoffman once <a href="https://www.linkedin.com/pulse/cs183c-technology-enabled-blitzscaling-visible-secret-reid-hoffman" target="_blank">remarked</a>, “As the networked age has increased the competitive importance of speed, the key secret is now scaling up at speed.”</p>
<p>In other words, the internet has enabled consumers to rapidly and easily access and assess new technologies that in turn become exponentially more valuable via network effects. It’s therefore more important than ever to get a validated product to market and iterate effectively before the competition. Therein lies the potential and promise of lean methodologies: the ability to learn what users want in the most efficient manner possible.</p>
<p>But that begs the question: from a practical perspective, what progress has product management as an industry made to reduce the waste during throughout the development lifecycle? And what opportunities are there still to improve? We asked more than 100 product managers to establish some benchmarks, and we found five points of interest.</p>
<h2>1. Moving fast isn’t cheap</h2>
<p>Contrary to what you may have thought, large organizations on the whole don’t take longer to develop digital products than smaller, supposedly more ‘nimble’ companies.</p>
<p><a href="//wp-content/uploads/2016/01/AlphaUS-DigitalCost-2.png"><img loading="lazy" decoding="async" class="aligncenter wp-image-7795 size-large" src="//wp-content/uploads/2016/01/AlphaUS-DigitalCost-2-1024x617.png" alt="Project duration breakdown by company size" width="1024" height="617" srcset="/wp-content/uploads/2016/01/AlphaUS-DigitalCost-2-1024x617.png 1024w, /wp-content/uploads/2016/01/AlphaUS-DigitalCost-2-300x181.png 300w, /wp-content/uploads/2016/01/AlphaUS-DigitalCost-2.png 1127w" sizes="(max-width: 1024px) 100vw, 1024px" /></a></p>
<p>But that speed comes at a significantly higher cost. And in case you’re wondering if product teams have been able to reduce monthly costs by spreading development out over a longer time horizon, just the opposite happens.</p>
<p><a href="//wp-content/uploads/2016/01/AlphaUS-DigitalCost-4.png"><img loading="lazy" decoding="async" class="aligncenter size-large wp-image-7797" src="//wp-content/uploads/2016/01/AlphaUS-DigitalCost-4-1024x739.png" alt="Monthly costs breakdown by company size and project duration" width="1024" height="739" srcset="/wp-content/uploads/2016/01/AlphaUS-DigitalCost-4-1024x739.png 1024w, /wp-content/uploads/2016/01/AlphaUS-DigitalCost-4-300x216.png 300w, /wp-content/uploads/2016/01/AlphaUS-DigitalCost-4.png 1442w" sizes="(max-width: 1024px) 100vw, 1024px" /></a></p>
<p>As project durations increase, apparently so does complexity which leads to additional costs. Product managers at large organizations should expect that moving faster will come at a cost, and that the best way to lower costs is to decrease the scope of projects into smaller chunks.</p>
<h2>2. Building products in-house can reduce costs</h2>
<p>In our study we found that more than 80% of respondents develop products in-house while less than 20% outsource to agencies for either parts of or the entire process. Making the digital investment in digital product capabilities seems to be a priority, and it costs less on average per month.</p>
<p><a href="//wp-content/uploads/2016/01/AlphaUS-DigitalCost-3.png"><img loading="lazy" decoding="async" class="aligncenter size-large wp-image-7796" src="//wp-content/uploads/2016/01/AlphaUS-DigitalCost-3-1024x499.png" alt="Monthly cost breakdown of in-house vs agency development" width="1024" height="499" srcset="/wp-content/uploads/2016/01/AlphaUS-DigitalCost-3-1024x499.png 1024w, /wp-content/uploads/2016/01/AlphaUS-DigitalCost-3-300x146.png 300w, /wp-content/uploads/2016/01/AlphaUS-DigitalCost-3.png 1306w" sizes="(max-width: 1024px) 100vw, 1024px" /></a></p>
<p>Although building product development capabilities in-house is capital and effort-intensive upfront, it could pay off if your organization intends to invest in developing more than just a couple products.</p>
<h2>3. Investments in tools grow as companies get bigger</h2>
<p>Of the tools our respondents reported most commonly using, the top 15 were dominated by project management, collaboration, cloud, and source code management. And spending on tools begins very modestly before increasing rapidly with company size.</p>
<p><a href="//wp-content/uploads/2016/01/AlphaUS-DigitalCost-5.png"><img loading="lazy" decoding="async" class="aligncenter size-large wp-image-7798" src="//wp-content/uploads/2016/01/AlphaUS-DigitalCost-5-1024x525.png" alt="Monthly tools spend breakdown by company size" width="1024" height="525" srcset="/wp-content/uploads/2016/01/AlphaUS-DigitalCost-5-1024x525.png 1024w, /wp-content/uploads/2016/01/AlphaUS-DigitalCost-5-300x154.png 300w, /wp-content/uploads/2016/01/AlphaUS-DigitalCost-5.png 1272w" sizes="(max-width: 1024px) 100vw, 1024px" /></a></p>
<p>Interestingly, the percentage of respondents who reported “I don’t know” also spiked in step with number of employees. For large organizations, product managers aren’t necessarily expected to budget for tools, and it would seem that sharing tools and resources across the organizations becomes increasingly common. Considering tools that can scale with the organization should be a point of focus for product managers in growth stage companies.</p>
<h2>4. Engineers are apparently chief estimators</h2>
<p>When it comes to budgeting, over half of our respondents rely on an estimate from engineering teams, despite the fact that such estimates are notoriously unreliable. Best practice would dictate an iterative approach to budgeting, so that products can be validated in steps, but only 12% of respondents reported budgeting that way.</p>
<p><a href="//wp-content/uploads/2016/01/AlphaUS-DigitalCost-6.png"><img loading="lazy" decoding="async" class="aligncenter size-full wp-image-7799" src="//wp-content/uploads/2016/01/AlphaUS-DigitalCost-6.png" alt="Budgeting process for product design" width="634" height="305" srcset="/wp-content/uploads/2016/01/AlphaUS-DigitalCost-6.png 634w, /wp-content/uploads/2016/01/AlphaUS-DigitalCost-6-300x144.png 300w" sizes="(max-width: 634px) 100vw, 634px" /></a></p>
<p>In the coming months, we’ll further explore if budgeting methodologies have any correlation with product development efficiency. For now, we know that product managers with iterative budgeting structures are a potentially cutting-edge minority.</p>
<h2>5. The stress of failure isn’t confined</h2>
<p>We asked product teams to tell us about the other departments that were impacted by a recent product failure. Marketing and sales departments were the most commonly affected, while the C-suite was surprisingly insulated.</p>
<p><a href="//wp-content/uploads/2016/01/AlphaUS-DigitalCost-1.png"><img loading="lazy" decoding="async" class="aligncenter size-large wp-image-7794" src="//wp-content/uploads/2016/01/AlphaUS-DigitalCost-1-1024x556.png" alt="Departments involved in product design" width="1024" height="556" srcset="/wp-content/uploads/2016/01/AlphaUS-DigitalCost-1-1024x556.png 1024w, /wp-content/uploads/2016/01/AlphaUS-DigitalCost-1-300x163.png 300w, /wp-content/uploads/2016/01/AlphaUS-DigitalCost-1.png 1244w" sizes="(max-width: 1024px) 100vw, 1024px" /></a></p>
<p>No matter how many best practices you adhere to, failure is always a possibility. Product managers that want to limit the potential fallout would be wise to build rapport and buy-in from the teams that could be seriously impacted (not to mention the fact that sales and marketing teams are also instrumental to a product’s success).</p>
<h2>Where do we go from here?</h2>
<p>The findings above from <a href="http://info.alpha-ux.co/benchmarking-digital-product-development-costs-2015" target="_blank">our report</a> provide insight into how product managers are currently working toward and/or missing opportunities for limiting waste in product development. As speed to market becomes increasingly important, it’ll be worth tracking these benchmarks in the coming years to better identify how companies increase efficiency. In next year’s report we’ll be looking for indicators to determine whether large organizations are able to find ways to develop products quickly without encumbering proportionately large costs, and whether budgeting methodologies will evolve with lean methodologies.</p>
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