I had the good fortune to attend the first Product Camp in Vancouver this Saturday. I was delighted that Sage was a sponsor for this event. We have a pretty low profile in BC considering we are one of the largest technology employers in the province. The quality of presentations was a little mixed but I will definitely sign up again next year. For me the pick of the bunch was a session I attended on categorizing R&D spend by a VP of Product Management at McKesson. This post is my interpretation\understanding of some of the key ideas in the presentation “Buckets of Stuff.“
The two key hypothesis from the presentation were:
1. If you can effectively explain how much money the R&D work will cost you are far more likely to secure the funding you need to be successful.
2. To maximize the productivity of your R&D spend you have to a solid understanding of how much of your money you spend in various categories.
He identified several key categories you need to know about:
Really new stuff
This is the amount of your R&D revenue spend that you allocate to work on innovation or new products. His example was that Apple may not spend more as a % of total revenues on R&D than their competition. They do spend a much higher % of their R&D budget on new product development though. The result, a series of innovative and user-friendly products that helped them become the largest tech company in the world. The corollary of course, is that if companies don’t spend enough on innovation or new product development they risk losing access to new exciting growth markets that constantly emerge in the hyper competitive technology world.
Stuff to keep your existing user base
This is the amount of your R&D revenue spend that companies allocate to keep your existing customers. For example, a key strength of Sage is our massive install base of 2.3 million small and medium size customers in North America. We need to make sure we continue to deliver new features in strategic products. For customers on sunset products we need to deliver robust and easy to use migration tools to strategic products.
Stuff to keep selling your existing products
The SMB business solutions software market like many others is becoming increasingly competitive. We need to invest in compelling new features in strategic products in our portfolio to attract new customers. A great example of this is the new Connected Service Strategy currently being evangelized by senior Sage leaders. These new services up in the cloud allow customers to maintain control and leverage the deep functionality of our on-premise desktop applications like Sage Accpac. The first of many connected services for Sage Accpac is Sage credit card processing is scheduled for release imminently.
What most people outside of R&D do not realize is the amount of money and resources (taxes) required to compete in the market. Great examples of these “taxes” include operating systems upgrades or compliance issues. Once Windows 7 is released the perfectly reasonable expectation of our customers is that Sage will deliver products to run on this platform (amongst several others). This is more expensive particularly in terms of QA testing resources than most realize. QA can never test all aspects of a mature product on any operating system. A comprehensive audit is required to ensure the product performs at an acceptable level and is not released with a plethora of bugs that would undermine the brands promise of superior quality. After the financial meltdown of 2008 there has been an unprecedented surge in regulatory requirements which keeps customers on software assurance contracts but is also becoming increasingly expensive to maintain in terms of R&D resources.
This can often be another form of stealth tax for R&D organizations. For a variety of reasons many integrations or OEM products do not deliver the revenue projections promised. The net result is that costs continue to be incurred to maintain this “stuff” in future releases without the revenue to support them. R&D departments face a prisoner’s dilemma type challenge. R&D leadership must often choose to absorb the cost of ensuring quality of this “stuff” meets the quality of the core product because the “other player” does not have the incentive or technical capacity to do so OR take the hit to the brand and accept lower quality. (I don’t mean to suggest this applies to all OEM\integration products)
My personal conclusions
- The stereotype that many folks in R&D are trapped in the inward looking “not developed here syndrome” exists for a reason. It is often true. It is often not though. We (R&D) don’t do a good enough job of surfacing the “taxes” and hidden costs in our work when we have legitimate concerns. The more R&D pay in taxes the less resources we have available to go after the high growth opportunities.
- R&D folks need to move past the “entitlement” mentality as well. We are not owed a job. Our focus must be to deliver value to the business that pay our salaries. A great way to do this is to understand our company’s strategy and upgrade our skills to maximize our productivity. ( Staying relevant in the technical labor job market happens to be a huge bonus incentive as well!)
- We need to do a better job of highlighting the opportunity cost of technical and quality debt. R&D’s ability to rapidly respond to market pressure is severely restricted the more debt we are carrying. A principal developer recently sent me a blog called Bad Code isn’t technical debt, it’s an unhedged call option which explains this concept well.
- We need to work closely with and support PM identify the really attractive opportunities that will bring in the big bucks. R&D developing products in isolation without a clear understanding of the potential profit is a recipe for self-destruction. No profit opportunity, no R&D budget to justify…….