What does that really mean?

When a firm’s CIO looks at a decision about enterprise software purchase and deployment as a “project” that needs to be completed, the Journal says, they’re thinking about it as moving the business toward a specific task with specific objectives. Expansive (read: expensive) resources would then be dedicated to ensuring that the project is kept on track. A “product”-based approach, in contrast, suggests a more future-facing vision –– one in which getting specific tasks done on time and on budget is still important, but isn’t the primary indicator of whether the software investment is really driving the business forward.                        

Rather than measuring against milestones (as project managers are often tasked with doing), product managers focus on creating enduring value for their customers. That value isn’t constrained within the parameters of an individual project.

I think the “product” mindset makes natural sense for today’s CIO. Even more importantly, it makes sense for the business unit leaders who are ultimately responsible for using those software products to bring about digital transformation within the firm. When considering a long-term contract with an enterprise software vendor whose product is integral to the future of their company, CIOs and business unit leaders need to know that onboarding and integration (technology, people, and processes) isn’t a one-time sunk cost, but a long-term investment that goes beyond a single project.

And what does that imply for how CIOs should look at competitive vendors? I think the answer here also needs to focus squarely on the future. The CIO has a vested interest in the financial health of their vendor, and as such, should care a great deal about that vendor’s future prospects even more so than its past.

That kind of crystal ball gazing isn’t easy. Typical financial statements can be a little less informative than you’d expect, and they are inherently more backward-looking.  While it’s possible in principle to extrapolate leading indicators from publicly reported information, it’s not so easy in practice. Analysts make careers out of attempting to triangulate new bookings momentum and project a multi-year P&L by studying a company’s reported financial statements. It certainly isn’t something the average CIO should be tasked with.

In reality, the operational KPIs that are more indicative of a company’s trajectory (and consistent with a product-based mindset) aren’t easily available to the public market investor. Software customers could, at least in theory, glean into what’s ahead for their vendor by looking at what are called "leading indicators.' While those forward-facing metrics are sometimes available in public disclosures, it’s a rule, not the exception, to hone in on them in the world of private equity.  

The leading indicators I tend to focus on include signals such as product roadmaps and investments, team continuity, market share changes, net promoter scores and future (not historical) cash flows. Other indicators like renewal rates, new bookings momentum, late-stage pipeline development and recent win-loss rates by product are similarly indicative of where the vendor is going rather than where it’s been.