Annual Planning for Chief Product Officers

Welcome to October, or as is true for so many Chief Product Officers: annual planning season. This is the time when we get together and say what we are going to do in the coming year, and make a plan for how we are going to do it.?

The Chief Product Officer is in a unique position when it comes to planning. As a member of the C-suite, the CPO is leading the setting of the company’s goals and is in the position to provide important insights to the leadership team, including the CEO. At the same time, as the head of the product team, the CPO must solicit bottom-up strategies from the PMs who will be in charge of implementing plans.

The focus of this article is how Chief Product Officers are involved in annual planning, including revenue and spending concerns, the difference between urgent and strategic plans, and the CPO’s key responsibilities here. Above all, the purpose here is to share tools you can use right now to improve the current round of annual planning at your organization. Now is the time to cement the vision – and budget – for the year ahead.

From a macro perspective, it’s important to emphasize this point: planning is a continuous process. Or, as one CPO told me, “always be planning.” This is the best practice, because while we only tackle our annual plans once a year, the reality is that our planning and prioritization are constant. Product launches, releases, development, and the product life cycle all follow their own organic cadences. In that sense, the annual planning period is a snapshot of the plan, and a great time to align the impact of that plan to key business stakeholders.????

Revenue and spending

From a budgetary perspective, the two key components in an annual plan are revenue and spend. Product impacts revenue because it controls what is available to sell in the next year. ? This includes existing products and possibly new ones. The key stakeholders that you need to have strong alignment with are Sales and Finance.?

Product teams need to determine what they have today that they will continue to support, what they want to enhance, what they may want to take away, and what (if anything) they are building that is new. And CPOs need to have revenue assumptions against all of those. A key stakeholder on timing here is Engineering. For example, let's say the product team is on a January to December planning cycle, but Engineering can’t deliver a new product or feature until July. It then becomes necessary to account for the fact that sales may take another 90 days to ramp up, so you’ll only be able to assume a maximum of 3 months of revenue in this year’s plan.

When it comes to budgeting, it is important to identify what it will take to deliver the product that is planned. In some companies, the budget is given top-down, by the CFO. In that case, product will then figure out what it can deliver. Prioritize everything on your list, align with your stakeholders on the highest impact elements, and make a commitment against those.?

In other companies, spend might be a product led process. In this scenario, figure out what revenue your products will create, and then what % of the revenue you should be reinvesting in R&D. That would be the starting place.??

A final note on resources: don’t forget about headcount, a common point of friction. Top line goals may be set without a true commitment to the number of people needed to reach the objective. If you foresee the need for more people, now is the time to make that case.

In the end, what is key to a CPO’s success is having a solid plan of what you want to build, how much effort it is going to take to build it, and what the outcome will be once it is in the market. Stack-rank these planning items using a prioritization model, such as RICE (Reach, Impact, Confidence, Effort).

Effective prioritization in this regard is only possible by keeping the macro view in mind: always be planning. In my experience as a PM and Chief Product Officer, the well-oiled product organization revisits plans quarterly. Some use even shorter cycles, such as 2022 Product Award finalist Intercom , according to whom 6 weeks is the “goldilocks” of planning cycles – long enough to get substantial work done, but not so long as to weigh down the process. Intercom VP of Product Brian Donohue argues that team confidence is directly related to the length of the planning cycle, and planning out 6 months in advance has “compound negative interest” – too much overhead (in terms of up front planning), loss in credibility due to frequently missed targets, and a decrease in team engagement.

Personally, I think 6 weeks might be a bit too short. But the point, again, is that the Chief Product Officer simply cannot wait until the end of the year.

Urgent vs. strategic

Most annual planning is spent on short-term, urgent needs. These are items that need to happen within the next year, the next 6 months, or the next 6 weeks to make the company's financial plan. However, and this needs to be emphasized: it is the responsibility of the Chief Product Officer to ensure that the organization continues to invest in longterm product strategy. The long term growth outlook will be significantly hindered if you’re not taking care of needed investment in the next year. Sales teams or the CFO will make sure that the short-term, revenue-driven plans are funded; these tend to be low risk while achieving incremental gains. So it is the job of the CPO to plan for higher risk – and higher reward – longterm bets.

This means that during the annual planning, make sure to set aside budget and resources for strategic bets. Knowing how much to set aside is highly dependent on your portfolio strategy, which is not unlike a personal financial portfolio which allocates a certain amount to low vs medium vs high risk investments. In product, longterm investments may be planned and worked on up to 3 years out. They are risky as they may involve a brand new product, customer segment, or region/market. But the returns can be exponential and enable much higher growth than the short-term updates. If you are looking to outgrow your competition and are not making those investments, you may soon find yourself running out of runway. It is the job of the CPO to fight for strategic bets to avoid those limitations on future growth.

That conversation must begin early. The groundwork for those strategic bets is best laid months in advance of any annual planning sessions. Trying to build that framework at the same time as the annual plan will likely result in a short term plan that underinvests in the long term. During annual planning your colleagues will be so focused on the year ahead that you will have a hard time getting alignment on the longterm view. But if you haven’t already laid that foundation, then use this time to at least set aside a slice of the budget to devote to strategy.??

In terms of a framework for sharing the vision of longterm strategy in relation to short-term tactics, I recommend a “vision, strategy, execution” (VSE) framework. Here, the top line – vision – can be 4 to 6 years out; the next line, strategy, is 2 to 4 years; execution is next at 12 to 18 months; and a bottom row is devoted to planning within the next year.

After the plan

So the annual planning has wrapped up. Now what? First off, a good process should result in a clear and well-defined plan. That means cross-functional teams have been involved in the process, perhaps even a steering committee, so everybody is on the same page when it is time to roll out the plan. That plan should be clearly stack-ranked, requiring strong prioritization skills – and that will be the subject of my next article.

Suffice it to say that the Chief Product Officer absolutely must be devoted to facilitating a good plan, one that satisfies and unites both top-down and bottom-up interests. That is the only way to not only avoid a year full of friction, but also to set up the organization for meaningful longterm growth.?

Good luck out there to all my planning Chief Product Officer friends!

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