Product management: the key to unlocking the return on your software R&D investment

This article is part of Bain’s 2022 Technology Report.



As companies across all industries struggle to generate meaningful returns on their software research and development (R&D) investments, many overlook a handy solution: effective product management.

According to a 2022 survey by Bain & Company, only 25% of CTOs believe the return on their software development investments meets the expectations of senior management and the board. Leaders know what derails these investments. It’s usually a combination of an underdeveloped product roadmap that doesn’t truly embody business strategy, poorly prioritized product features, poor software development execution, launched products that do not solve customer problems and opaque engineering activities that make it difficult to focus on the right priorities or even understand what those priorities are.

While some of these challenges fall squarely within the realm of the CTO or engineering leadership, effective product management can play an outsized role in solving them. Bain evaluated more than 60 factors and found that strong product management is perhaps the most important ingredient in achieving software development goals. And this leads to better performance in the market. Our analysis found that companies that excel at product management are over 40% more likely to beat the rule of 40, the principle that a software company balances growth and profitability well when its rate of revenue growth and its combined profit margin exceed 40%, regardless of company size, stage of growth or market (see sidebar “About the rule of 40”). This is important because software companies that beat the 40 rule have valuation multiples (measured by the ratio of enterprise value to revenue) on average 50-60% higher than those of companies that underperform the rule, according to Bain research.

Most executives understand that product management plays a vital role in software development. After all, product managers essentially own the product. They are responsible for building product roadmaps, coordinating development, and prioritizing features to be added. They also bring a valuable cross-functional perspective to development activities.

However, when we assessed seven capabilities essential to a world-class product management organization (see sidebar “How we measure product management maturity”), we found that very few companies did them all. good. More than 40% of the companies in our survey self-reported significant deficiencies in two or more of the critical capabilities in our Product Management Maturity Index, saying they rarely or only occasionally demonstrate these capabilities.

At the start of a business, product management often has a leadership role, or at least a strong partnership. As the number of products grows and product management becomes one of many functions in a very complex organization, capacity often atrophies. Too often, just when product managers are most needed to deal with complexity and simplify the product line, their role is reduced to program management, with important decisions made by engineering, finance and sales. This can leave product managers frustrated, disenchanted and more likely to leave.

Indeed, attracting and retaining the best talent in product management has become more difficult. In this year’s survey, about 40% of product management leaders reported attrition rates of more than 15% in the previous 12 months, and 60% said attrition was worse now than three years ago (see Figure 1).



Software product management leaders report high attrition, and it’s getting worse