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Product Profitability: Which Development Methods Favorably Impact Profitability?

In 2015, Agile, Business Analysis, Disruptive product, Innovation, Lean, Product Management, Product Management Facts, Product Owner, Product Teams, Project Management, Scrum, Take Charge Product Management, The Study of Product Team Performance, Uncategorized, User Experienceby 2 Comments

Back in 2012 I was presenting findings from our first annual study of product team performance when I was asked by a product manager “how does the choice of product development methodology impact a product’s profitability?” At the time we did not have the answer to this question but we began investigating how the choice of a particular product development methodology impacts a product’s profitability.

Setting Context

In order to fully understand survey respondents responses to the question about product profitability I want to provide you with some data on 2015 adoption rates for various product development methods that are currently in use. (You can read our prior blog post on this topic here.) When asked which product development methods their organization was utilizing survey respondents told us the following:

Which of the following methodologies best describes the way your organization develops products?

Actuation Consulting, the World's Leading Product Management Consulting and Training Organization

43% of survey responders – by far the highest percentage – indicate that their company utilizes a Blended approach to product development that combines both Waterfall and Agile methodologies. Agile/Scrum is the second most recorded answer, representing slightly more than a fourth of responses at 25.9%. Waterfall, with 13.6% of responses, is a trailing third. Nearly as many respondents (10.6%) indicate they did not know the methodology their organization employs in the development of products. Kanban, representing just 3.2% of responses, came in last among preferred methodologies listed.

Now Onto Product Profitability

It is clear from the previous bar graph that Blended methods continue to dominate as the primary method organizations are using to produce their products. Agile, particularly Scrum, methods come in second place. However, when we look at the perceptions that survey respondents have about which method most favorably impacts profitability the picture shifts.

Which of the following methodologies do you associate with increasing your product’s profitability?

Actuation Consulting, the World's Leading Product Management Consulting and Training Organization

For the third year in a row, dramatically more respondents (36.4%) believe Agile/Scrum would increase their product’s profitability than actually use it (25.9%). There are also more who believe Kanban would increase their product’s profitability than actually use it. Over half of Waterfall users would choose something else. With a third of Blended users opting for something else for profitability’s sake, it’s clear they think it is not the best method when the measure is profitability.

The Bottom Line

It is quite clear from this year’s findings that many organizations realize that the actual product development method that they are using is not the optimal one for enhancing a products profitability. This is particularly true of those organizations utilizing Blended methods. This will not come as a surprise to many who recognize that organizational constraints, such as annual planning processes, may preclude some organizations from fully implementing an Agile approach. Waterfall also drops precipitously. Many organizations utilizing this product development method do so for other valid reasons such as the ease of documentation (E.g. highly regulated industries). Regardless, survey respondents clearly view Agile methods as the hands-down winner.

 

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Comments

  1. Hi Greg, as you know I am big fan of data-driven decisions. And it’s interesting that some people believe that they are using the wrong methodology to maximize their product profitability. This doesn’t tell me however, which methodology is actually more profitable, as the title suggests — just what people (who apparently are not using that method) believe.

    Maybe they should try it and test their assumptions, but until they do I don’t feel I can use this data to make a case for one methodology or another. Am I missing something?

    1. Author

      Hi Bruce, this aspect of our most recent survey reflects the perceptions that people have regarding which method has the most favorable impact upon a product’s profitability. So, I agree with you that perceptions are not necessarily facts. Although it is surprising how many times perceptions do indeed become or reflect reality.

      As you and I have discussed in the past, we (Actuation Consulting) are not advocates for one methodology over another. In other words, each method to our mind has its place like arrows in a quiver. Picking the right arrow for the job at hand improves your chances of success.

      It is interesting to note that over the last several years the perceptions of survey respondents have been pretty consistent. With approximately 10% of the Blended respondents indicating that they believe that Agile/Scrum would lead to improved product profitability. Our conclusion is that there are a bunch of constraints organizationally impeding teams to move in this direction but the demand is there.

      The actual pattern is that teams that currently use Agile tend to think Agile leads to improved product profitability. Same holds true for Kanban. In the case of Blended the majority of Blended practitioners also believe that Blended is the way to go with about 10% of those Blended users aspiring to Agile. Waterfall users clearly don’t utilize that method for product profitability and this is reflected in the large year-over-year attrition rate when asked about product profitability.

      So while we cannot say with certainty that Agile IS the method of choice for improving a product’s profitability (statistically) it is clear that the majority of product professionals that we survey believe that it is.

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