Profit Center or Cost Center? Assessing the Value of CTOs and CPOs - CTO Craft Fireside Chat
In today's fast-paced business landscape, the roles of Chief Technology Officer (CTO) and Chief Product Officer (CPO) have gained significant importance. While these roles can be distinct and separate, they can also overlap or even merge into a single position, depending on the organizational structure. In this blog post, we will explore the dynamics between CTOs and CPOs and how they can be perceived as either profit centers or cost centers within different business contexts.
In a Business-to-Consumer (B2C) company, where the technology being built is the product itself, the CTO or CPO is often viewed as a profit center. When the tech product performs well and meets customer demands, it directly impacts the company's profits. In such organizations, successful technology initiatives are celebrated, and the CTO or CPO is rewarded with increased budgets to further enhance the product and accelerate its growth. The focus is on building better technology that drives customer satisfaction, leading to increased profitability.
On the other hand, Business-to-Business (B2B) companies usually offer non-tech products that require substantial technological efforts for manufacturing or delivery. In this scenario, technology plays a supportive role rather than being the core product. Here, the CTO and CPO rely on data from sales, marketing, customer success teams, and customer feedback to shape their technology initiatives. However, even if their technology performs well, it may not directly translate into increased profits. Consequently, CTOs and CPOs in B2B organizations often face budget constraints and are expected to achieve better results with limited resources.
While both profit-center and cost-center structures have their advantages and disadvantages, it is essential to understand the organizational context in which CTOs and CPOs operate. B2C companies often benefit from perceiving their technology leaders as profit centers, enabling them to drive innovation and growth. Conversely, B2B organizations see technology as a supportive function, making CTOs and CPOs function as cost centers focused on optimizing resources.
Ultimately, the success of CTOs and CPOs, regardless of their perceived center, lies in their ability to align technology initiatives with the company's strategic goals and adapt to the unique demands of their respective industries. By understanding the dynamics of their roles within the organizational structure, CTOs and CPOs can effectively navigate challenges, deliver value, and drive growth for their companies.
[00:00:13.290] - Megan
Hi. Welcome, everyone, to the latest Cto craft bytes. Today we are joined by David Subar. If this is your first time at CTO Craft Bytes, let me tell you a bit more about this group. CTO Craft is a mentoring and coaching community for technology leaders around the world, focusing on supporting technologists in their leadership growth. Community managers are over 8000, and CTO Craft provides them with one on one coaching, mentoring groups, a curated stack community, and events just like this one that happen every week. If you're not a member of the CTO Craft community and you're interested in becoming one, or you'd like to get updates on these events via email, I'll post some links in the chat and show you where you can do that. Huge thanks to CTO Craft sponsors for making these Bytes events possible. Partners like AWS, Google, Cloud, O'Reilly, and Pentalog, amongst others. CTO Craft membership gives you access to these unique benefits from some of these members, so click the links in the chat to find out more. I'm Megan and I'm community manager at CTO Craft. Joining me today is David Schubar, who believes in better products faster. He's helped companies innovate and grow as an interim CTO and CPO coach, advisor, speaker, and founder of Interna.
[00:01:24.070] - Megan
David, I'll give you the stage after you explain a bit more about how to be a profit center rather than a cost center. And then we'll be opening up the platform for questions. But please do feel free to ask questions anytime in the Ask a Question chat or in the main chat, and I will make sure that David gets them. Thank you so much.
[00:01:48.210] - David
Well, thank you.
[00:01:49.810] - Megan
[00:01:50.340] - David
I'm glad to be here. I'm getting a little feedback, by the way. I'm getting echo I'm not sure if you're hearing on your side. No.
[00:02:00.680] - David
[00:02:01.590] - David
So we're talking today about a cost center versus a profit center and trying to switch from one to the other. Let's define what they mean, what a cost center is and what a profit center is and why it is that you want to be one and not the other. A cost center is a group in a company that doesn't create profit for the company I guess that's obvious. Doesn't create revenue for the company, is necessary for the company to function, but doesn't grow the company's value. And this is not meant to denigrate anyone in a company. But examples of cost centers might be the finance operation. It might be almost anyone under the chief operating officer. It could be marketing, could be a cost center doesn't create new profit for the company. It's necessary, but doesn't add unique value. It's like electricity. Every company needs electricity to run, but the electricity, unless you're a power company, doesn't create profit. It's not the product. And so the problem with being a cost center is people every year want you to reduce your cost, want you to generally invest less in what you do and want you to be more impactful.
[00:03:50.890] - David
It's not often that people go to a cost center and say I would like to give you more money to do your function. Which means that cost centers are very hard to live in. A profit center on the other hand is something where investment goes in, more investment comes out. So let's give the example with electric company again where electricity for most companies is a cost center. But if you're electric power company, people will invest in power plants because the more power creates more product and the.
[00:04:32.010] - David
More product creates more revenue.
[00:04:35.690] - David
So you want engineering to be viewed.
[00:04:39.620] - David
Profit center, not a cost center.
[00:04:41.400] - David
Unfortunately for many, many companies engineering is considered a necessary cost but not one that someone wants.
[00:04:57.710] - David
If you're a pure technology company, if.
[00:05:00.140] - David
You sell technology, if you sell a SaaS service you would expect.
[00:05:05.570] - David
[00:05:06.630] - David
Technology should be a profit center but usually it often is not. How do you know? How do you know if you're a cost center or a profit center? Part of it is the method of the conversations you're in and who you are responsible to. If you find that most of your conversations maybe you're talking with sales and sales says I just need this new feature. If you give me this new feature I can close this important sale and if we don't have it, the sale is not going to close and it's going to be engineering's responsibility that we didn't get this. And those conversations happen over and over again and the majority of your things on your backlog or a good percentage of things your backlog are organized like that where you are beholden to marketing or sales for tactical items you might be a cost center. If your internal conversation says our customer is someone internal to the company like sales and I hate to keep picking on sales but that's very typically the way this happens and you are at the beck and call of some internal customer and those people produce profit.
[00:06:42.990] - David
You might be a cost center. And so why do I care? Why do I care that I'm a call center?
[00:06:50.280] - David
[00:06:50.470] - David
I mentioned part of it a few.
[00:06:53.180] - David
Moments ago you're at someone else's second call.
[00:06:57.510] - David
But that's not the most painful thing. The most painful thing is build this feature, build this feature, build this feature, build this feature. You're constantly having to write code and.
[00:07:14.830] - David
You probably don't typically have the time.
[00:07:17.710] - David
To consider architecture or refactoring or scalability.
[00:07:24.990] - David
It's feature on top of feature on top of feature and do it as.
[00:07:29.170] - David
Fast as possible all the time and.
[00:07:33.320] - David
We'Ll worry about good engineering later.
[00:07:39.570] - David
Side effects of this might be not.
[00:07:42.890] - David
Just bad code and lack of architecture and lack of scalability. It might be not being able to think about things like a secure infrastructure.
[00:07:56.890] - David
Working tons and tons of hours, lots of burnout, turnover of staff. All of these are ramifications of being a cost center, of being beholden to someone else. What's the alternative?
[00:08:15.350] - David
Well, obviously a profit center.
[00:08:17.040] - David
That's the name of this conversation we're having now. But what's a profit center? A profit center is where the product that you're building in engineering and I'm going to say it more broadly a minute, because it's not just engineering, it's.
[00:08:35.360] - David
Engineering and product management. Generate new opportunities for the company.
[00:08:43.990] - David
Generate new markets to go into, generate larger number of customers to sell to. A profit center, you're in a conversation with the C suite about how we can use technology and product as leverage to create new company value, which generally means selling broader, deeper into a market, decreasing churn, selling into other markets. If you're a profit center, you can.
[00:09:23.590] - David
Help drive the company forward. The CEO will want to engage you in conversations about what you can do.
[00:09:35.850] - David
Next as a company, as opposed to.
[00:09:39.130] - David
Being the servant of sales, you're the colleague of sales, you're the colleague of.
[00:09:44.490] - David
Marketing together your margin to draw the company into its future. So that's the difference between being a cost center and a profit center. Whether you're the servant of some internal group at the company or whether you're.
[00:10:07.100] - David
The colleague and be able to drive the company forward. If you're a profit center.
[00:10:17.430] - David
You get to have conversations like, here's the future.
[00:10:22.730] - David
Of where we're building the product.
[00:10:24.440] - David
Here's the market we're going to serve.
[00:10:27.330] - David
We need to do some investment to get there.
[00:10:31.370] - David
We've got to refactor this component. We have to build the scalable architecture. We need to be concerned about security.
[00:10:41.870] - David
Now because we have to build that in from day one.
[00:10:45.390] - David
And if we do those things, we can expand into other markets. If we don't build those things, the.
[00:10:52.690] - David
Infrastructure we have isn't going to let us get there.
[00:10:56.610] - David
And the reason CEO that you want to do that is that will drive this revenue as opposed to being a costner that you say, we have security problems. Those kind of things. You can't say to the CEO, if we invest this much here's, how much additional revenue?
[00:11:21.530] - David
You can only say if we invest here, it will be less painful. We'll increase velocity.
[00:11:29.390] - David
That's the only conversation you can have when you're a cost when you're a.
[00:11:34.930] - David
Profit center, you can say, if we.
[00:11:36.290] - David
Invest as much here's the additional revenue.
[00:11:40.490] - David
Or profit, or tolo digital market space.
[00:11:43.960] - David
That we can create. In the first case, it's about pain reduction, internal to engineering. That's not necessarily obvious to the CEO. In the second case, it's about giving the CEO a conversation to have with the board and to paint a future. Okay, so those are the two worlds.
[00:12:09.750] - David
The cost center and the profit center.
[00:12:12.570] - David
Let me just pause for a moment.
[00:12:16.410] - David
It looks like we have about 51.
[00:12:19.470] - David
People in the audience registered anyway. And I don't know if I'll be.
[00:12:26.940] - David
Able to see it, but just how many folks in the audience feel like they're a cost center versus a profit center.
[00:12:33.470] - Megan
If you feel free to just pop like a little thumbs up or something like that in the chat and I can relay it to David whilst you do that. Maxim has said, one would like to think that if one features a feature requested let me start again. One would like to think that if one builds a feature requested by sales, that is exactly for the reason of generating more revenue, of course one would generalize and improve on the feature request to turn it into a widely sellable part of the product. And that's usually an artificial division.
[00:13:07.050] - David
That's correct sales.
[00:13:10.090] - David
Here's the problem.
[00:13:12.250] - David
If sales is generally tactical, they're incented to close this month or this quarter sale. Just think about getting this quarter's revenue.
[00:13:25.740] - David
That's all you got to think about. Sales team just close these sales. They're not intended to think about the.
[00:13:33.750] - David
Long term scalability of the company.
[00:13:38.790] - David
They're not incentive to think about the long term health company.
[00:13:43.510] - David
And so the features they tend to push are ones that address how they're.
[00:13:50.420] - David
Incentive this month or this quarter. Sales you can think of like they're coin operated. You put a coin here, you pull a little and you get the candy out the bottom. That's the way the sales team are incented in almost every company.
[00:14:07.150] - David
[00:14:10.130] - David
So Max point is exactly right.
[00:14:13.170] - David
So if you're beholden to sales, you're.
[00:14:17.180] - David
Beholden to being in a coin operated kind of environment. Do we get results back on.
[00:14:26.790] - David
[00:14:28.710] - Megan
Yes, I've just popped a poll in, so just to give some time to check the poll, maxim has said yes. The job of turning request from sales into a widely sellable feature is definitely on my department, which includes products as well. At the moment on the poll, we are 50 50 split on oh, I say that. And now it's changing. We're not no longer a 50 50 split. Yeah, I'm going to leave it for a bit because every time I'm about to say, it jumps up. So we'll move to Jan. Jan says, I can't say my role as CTO is entirely cost center, but the conversations and examples mentioned by you are experienced in a balanced way. So it's both. But there's no or little room for refractoring, reviewing architecture, et cetera. That happens once in a blue moon or if the company decides to drastically rethink the value proposition.
[00:15:25.370] - David
[00:15:25.840] - David
[00:15:28.650] - David
That'S not surprising to hear.
[00:15:31.610] - David
Let me talk for a moment about.
[00:15:34.490] - David
I talked about this world of cost.
[00:15:36.160] - David
Center versus profit center. Let me talk about how to get.
[00:15:39.460] - David
From one to the other. And then I'll talk about how to arrange a world where not only a profit center, but you get to invest in architecture and refactoring. So moving from one to another, the reason CEOs often force engineering and product management to a cost center is they don't know differently if your CEO came from technology or product management, they might. But oftentimes it's not the case.
[00:16:15.130] - David
They don't have the tool.
[00:16:18.730] - David
[00:16:19.520] - David
About how engineering might grow the company, how product management might grow the company, how it might get into the next step.
[00:16:31.390] - David
Your job is to give the CEO those tools to help the CEO of management.
[00:16:41.890] - David
How product management, engineering. I'm talking about this together. I often talk about this together.
[00:16:46.840] - David
As one team. I'll make it more obvious.
[00:16:52.130] - David
Can grow the company here's where someone.
[00:16:56.820] - David
Had thought about everyone. Eventually, in a conversation like this mentions Amazon or Apple.
[00:17:03.030] - David
I'm going to mention Amazon.
[00:17:06.810] - David
[00:17:11.210] - David
BEZA, and Jassy recognized they.
[00:17:16.970] - David
Could take the infrastructure and sell it.
[00:17:20.270] - David
[00:17:20.670] - David
[00:17:22.990] - David
AWS is an example where they took.
[00:17:27.180] - David
Technology and moved it from a call.
[00:17:29.710] - David
Center to a profit center. As a matter of fact, AWS is.
[00:17:33.410] - David
The biggest profit generator in all of Amazon. A giant company.
[00:17:40.050] - Megan
Sorry, just interrupt you, David. But the sound seems to be coming in and out a bit.
[00:17:49.110] - David
Let me switch my audio and see if that makes any difference. I'm still getting the echoing.
[00:18:00.970] - Megan
It's not echoing on this end, but it's just in that as you were talking about Amazon, it was coming in and out.
[00:18:16.690] - David
Is this any?
[00:18:19.970] - Megan
It was until you said the word better. Typical.
[00:18:26.950] - David
Yes. I'm trying to find the audio controls here.
[00:18:37.060] - Megan
I mean, you're coming through clearer now. Definitely.
[00:18:39.690] - David
[00:18:40.400] - Megan
[00:18:42.490] - David
Okay, so let's go on. So I was talking about helping the CEO envision Proc Management Engineering as a profit center and how you do that. The first thing you need to do as an engineering or product management executive leader is to understand how the business is trying to grow. It's incumbent on you to understand that, to ask questions about that, and not.
[00:19:24.920] - David
Expect the CEO to understand you. Your job is to understand the CEO's job. So if the problem with the company.
[00:19:34.620] - David
Has if what the company is trying to do is expand I've pointed this I've mentioned this a moment ago already. The total address, market space, number of companies that your company can sell to, you need to engage in how you can expand the product for other markets. If the question the company has is to decrease Churn, the number of people that stop using the service, you need to analyze with products. Why does Churn happen? What can we do? What product features? What engineering tools or features can we produce that will decrease Churn? If you're talking to your CEO about Velocity, our Velocity is slow because we have this tech debt and we could do things a lot faster. Wouldn't that be great? The CEO is not likely to be able to understand how that produces effects the CEO wants. Velocity talks about, we're going to run faster in some direction. CEO that you would like us to run, the CEO should want that, should want you to do that. But that's one step removed from the CEO's problem. The CEO's problem is to increase the total overall sales, the total overall profitability.
[00:21:25.800] - David
Whatever those revenue, those metrics are the CEO wants. You need to directly address those problems.
[00:21:36.130] - David
Not the problems that engineering has. And so to move from a cost center, from a profit center, you need to help your CEO imagine what investments into engineering, into product management will directly relate to the metrics the CEO wants. How's the audio?
[00:22:09.690] - Megan
It's working okay for me. Please do put in the chat if it's not working for you. I have a question from Mark here. Does this mean when the CPY roadmap, et cetera, is driven by concrete milestones to meet artificial quarterly targets, it is a cost center? But when the organization is focused on value outcome based on feedback reality, it is a profit center?
[00:22:38.550] - David
The answer is mostly quarterly goals could be profit center as well, right? If a quarterly goal stands alone just by itself, it's probably about two short term too. Cost center like quarterly goals could be in a plan for an overall goal. Quarterly goals might be about revenue for this quarter, but they also could be about market penetration, value creation, things like that. So I would be less concerned about the cadence of the goals as opposed.
[00:23:28.460] - David
To what the goal focused on.
[00:23:31.350] - David
Peter Drucker talked about the goal of a company is to create customers. The corollary to that is, revenue is a side effect for a company. It's a side effect of creating value for customers.
[00:23:52.350] - David
So as opposed to the cadence of.
[00:23:54.510] - David
The goal, whether they're monthly or quarterly.
[00:23:58.180] - David
Or annually, I would ask what are those goals about?
[00:24:02.340] - David
How are we measuring them? Certainly the CEO will want to measure revenue and profitability and cash flow. Those are lifeblood of any company. But revenue is a side effect of value creation for others. So to Mark's question, I would measure the output of the company, of product, of engineering, of value creation for the customers. If you're not familiar with epic statements epic statements are a way of expressing value creation of things on the roadmap. Value creation for customers, of things on the roadmap. And I would want actually, I regularly suggest the majority of things on the roadmap should have an epic statement against it. How do you know you're creating value for a customer? We believe by doing this feature for this customer, we'll create that kind of value for them. And we'll know it when we see this metric move. That's what an epic statement looks like. If people want to know more about this after this, feel free to contact me later. I'm glad to spend a lot of time on that. So to answer Mark's question, it's about how are you measuring the value you create? But it's not just that. You have to know how that value creation for customers creates a value for your company.
[00:25:56.470] - David
So my suggestion is also look at North Star metrics, and this is the conversation you have to have with the CEO. We're creating this value for customers, and that's moving our internal metrics, getting us to what the customers need it. When you engage in this conversation, you'll now have the ear of the CEO. That doesn't mean that you shouldn't be concerned about velocity.
[00:26:26.760] - David
You should that you shouldn't be concerned about debt. You should security and architecture, all of those are important.
[00:26:35.800] - David
But that gives you an umbrella over your head where you can manage your craft, your department in a more organic and natural way. I want to get to that conversation.
[00:26:54.230] - David
Proc management, engineering and how you actually get to a healthy engineering environment from that. But I want to make sure there's no more questions before I get there.
[00:27:02.730] - Megan
So just to jump back to the poll, and hopefully me not saying that word causes it to jump around again, but it seems to have settled at 60% cost center and 40% product profit center.
[00:27:18.350] - David
[00:27:18.820] - David
Okay, that's not surprising. So let's assume that you understand the market and the company's strategy and the company's goals. Let's assume for a moment you have an offering that you can present to the CEO. Here are the new features or products that we should create that will help us with our strategy. And I'll take questions about how to think more about that in a moment. But I just want to get on to the next component. Your CEO is not going to say, day one, you have carte blanche. Spend money any way you want. You're now a profit center. Whatever you want to do is get done. You're going to start by being powered in a small area, and you're going to win by fulfilling your promises, engineering and product management promise on how to grow the company.
[00:28:32.300] - David
And over time, you're going to get more empowered. That's the way these kind of things work.
[00:28:42.570] - David
But once you're empowered, even in a small way, what becomes important here is the relationship between product management and engineering. As I talked about before, engineering and product management are in the same boat. They feel the same pain about being a profit center or profit center. And so you have the same incentives. Product management, you might even want to be the forefront of that conversation or developing that conversation with the CEO. But once you have that empowerment, sorry, you have to have a conversation with product. And here's the way the conversation goes. Product, you get to put most of the stuff on the roadmap, all the stuff that gets the epic statements, we're going to talk about it together. But some 80% of the roadmap is going to be product driven. That's creating value for the company. 20% is not. That ratio might be a little different for your company. 20% of the engineering effort I'm going to drive as the engineering leader.
[00:30:13.350] - David
I'm going to decide where to refactor.
[00:30:19.270] - David
I'm going to decide where to rearchitect. I'm going to decide that because that's the craft we do in engineering, and we're best able to decide that. Now, you might negotiate between product and engineering.
[00:30:37.970] - David
What that ratio is 20%. That's not written in heaven. Maybe it's 15%, maybe it's 25%.
[00:30:47.330] - David
But what you want to do is you want to have an agreement that's pretty stable over time. You don't want to negotiate at every Sprint, because if you negotiate at every Sprint today's, revenue will always take priority over the long term value for the company. Here's some examples. In worlds other than engineering, I'm driving my car. The most efficient thing for me to do is never go to the gas station. I got to stop, fill the car up with gas, and that slows down my trip. But we all know if I don't fill my car up with gas or if I have a Tesla, if I don't plug it in for electricity, my car will stop. As a driver, you have the craft of knowing when you have to refill.
[00:31:54.150] - David
Product managers generally don't have that craft. The engineers have that craft.
[00:31:58.880] - David
And so you need to have that.
[00:32:00.730] - David
Conversation with product management of, I'm responsible for this craft of refilling the car.
[00:32:10.010] - David
And you're responsible generally for the craft of thinking about what the market wants, what consumers want. We're going to come together. We're not going to measure our value by the beauty of our code or the beauty of our user stories. We're going to measure our craft in general about whether we did or didn't fulfill our promises to the market and to the CEO. We're going to retro our releases, not just our Sprints. And we're going to ask ourselves, did we fulfill the promise we made to the CEO when we said we're a profit center? We are a team together. And so the relationship between product and engineering is critical to not becoming a profit center, but to be retaining our status of the profits and to be able to expand our empowerment, which we do by fulfilling our promises to the market and to the CEO. It's a measure of respect between product management engineering. Now, that doesn't mean I don't expect proc management to have an opinion about our architectures. I want them to I want them to know how we're developing things.
[00:33:52.440] - David
[00:33:52.910] - David
They can say, oh, I understand how you're developing that. Why are you developing it that way?
[00:34:00.700] - David
Are you over specifying for what we need today?
[00:34:06.860] - David
And similarly, in a similar manner, I want engineering to understand the what.
[00:34:14.720] - David
[00:34:15.120] - David
I want engineers to say, I've understand what you've asked me to do. What you've asked me to do is going to take three weeks. I can get you 80% in three days, not giving you everything, but in three days I can do much because our goal as product management engineering is to deliver value to the customers. Because of that, I want engineering to deeply understand the what, and I want product managers to understand the how. I don't want the classical differentiation. People say this all the time. I think this is terrible for companies, particularly if you want to be a profit center. Product managers are not the what and who. Don't worry about the how. Product managers are not sorry. Engineers are not the how that don't worry about the what. They need to understand each other's work so they can bond together to create value. And that's how you move from small amount of empowerment to be a profit center to creating value for the company to increase your empowerment. It only happens by those teams working together and measuring their effectiveness together to.
[00:35:52.310] - David
Retro release is not just print. I'll pause that for other questions.
[00:36:00.230] - Megan
Yeah, we've got a couple of couple of questions come through. I mean, there is a lot to think about, so I'm not surprised if people are going to take some time to digest before diving in with some more. So Reese says our frameworks such as Dora accelerate any use in this cost profit center conversation with the CEO, given they are proven to correlate engineering outcomes with business success. And I should say that proven is in quotes.
[00:36:28.070] - David
Yes. So I think Dora metrics are very interesting as internal metrics for engineering because they talk about arbitrary input to arbitrary output.
[00:36:47.030] - David
They talk about efficiency. And as the owner of the craft.
[00:36:51.520] - David
Of engineering, it's your responsibility to know how efficient you are. But it's one level abstracted from what.
[00:37:03.310] - David
The CEO cares about, which is particular to your company.
[00:37:09.070] - David
Doormatrics are great and smart, and I.
[00:37:12.480] - David
Suggest you use them.
[00:37:15.730] - David
But they don't directly answer the CEO's question. So I agree with the quote. I don't say you should abandon them. I just don't think that's the conversation.
[00:37:29.490] - David
You have with the CEO.
[00:37:35.540] - Megan
It seems that David has just dropped off. Please bear with us while there's some technical issues.
[00:37:48.200] - David
Can you see me?
[00:37:49.480] - Megan
Bro? Yes. You are back. Oh, your sound is gone, though. You always need to have some fun technical issues with a virtual event. Otherwise it's not really a virtual event.
[00:38:08.720] - David
Tell me if you can hear me now.
[00:38:10.560] - Megan
Yes, you're coming through now.
[00:38:11.830] - David
Okay. What was the last thing you heard about Dorometrics? When did I drop out?
[00:38:17.940] - Megan
You dropped out when saying how you didn't agree with the quotes.
[00:38:21.460] - David
Oh, yeah. What I'm saying is actually I agree with the quotes there were to say. It's not a general business metric. It's a very good engineering metric. You should use Dora metrics and similar, but it's not going to be evocative for the CEO. It's about efficiency, not effectiveness. Of course, overall efficiency increases effectiveness. That's why we care about efficiency. But it's not the conversation to have with the CEO. Other questions.
[00:39:08.190] - Megan
Brill. So Mark says this is just a follow on from his earlier question. Yes, I think this is what I meant. Revenue profit is should be a side effect of outcome rather than a target with features as a side effect.
[00:39:21.890] - David
That's Right. To Mark's point, this is all about outcomes, not about output. You need to have the conversation between Proc Management Engineering and between those groups and the Clevel execs the CEO. Here's the outcome we produced with these features, which were the output. Other Questions?
[00:39:59.000] - Megan
He's just pride.
[00:39:59.850] - David
[00:40:00.100] - Megan
Thanks. Exactly. Outcome not output.
[00:40:03.640] - David
Yes, I see.
[00:40:05.800] - Megan
I've got a question.
[00:40:07.320] - David
[00:40:08.300] - Megan
So sometimes you will have to be a bit of a cost center. Even if 80% of the time you're a profit center, how do you prioritize? Which area gets the attention? Because I imagine sales say they need this thing. Marketing says, well, this campaign highlights this feature, so that needs to go. And Community is saying another thing of like all users are saying this. So how do you sort of refine those voices and decide who gets what? Resource.
[00:40:42.660] - David
Lovely Question. I suggest mechanisms. If marketing has a campaign, that campaign, at least theoretically, is there for a reason. To increase leads or increase brand recognition or something like that. Hopefully, that's consistent with the company vision. To the extent that it is, then you can have a conversation about we're doing this feature to expand the company in this way. Marketing. You're doing this campaign to expand the company in this way. Which is more important. If the conversation that marketing is having with the CEO is elevated in the same way that you're trying to elevate.
[00:41:48.120] - David
The conversation of product management engineering, then.
[00:41:51.420] - David
You can have a trade off. If it's not, then you have a conversation with Marketing to say that's not as important. Or you have a conversation with the CEO that says, help me understand relative.
[00:42:10.140] - David
Importance of this tactical thing marketing is trying to do. And the strategic thing that we're trying to do.
[00:42:17.680] - David
You'll win that conversation.
[00:42:21.300] - David
The conversation with sales.
[00:42:25.300] - David
Tends to be.
[00:42:26.050] - David
A little more tricky. And this all eventually comes down to relationships.
[00:42:33.320] - David
I've talked about the relationship between product management and engineering. The relationship between the leaders of product management engineering engineering and the relationship of the leader of sales should also be one of respect. And here's how I've worked out. In the past, I was running Technology and Product Management, an online media company. And there was someone who ran sales and a relationship started out very much about this. Coin Operated. We need to close this sale. Give us this feature. We need to close this sale. Give us this feature. And I sat down with him. His name was Andrew. And I said, Andrew, I'm not giving you every feature you ask. I can't. Here's Why. Here's Why. It's not in the benefit of the company. Andrew is a really good guy. And he said to me, but you can't give me zero because. Some of these sales are strategically important or create so much revenue, they change the game for the company. I thought that was reasonable. I thought that was valid. And so we came up with a metric. How big does the sale have to be for it to really move? The needle for the company is $1,000.
[00:44:11.060] - David
We came up with a number, and Andrew promised never to bother me with the sale that was under that number. And we agreed to measure how often they actually closed those sales that were above that number. I don't want to incent someone to say the sales number is much higher than it actually is on a particular sale. We were both aligned to the interest of the company, rather the interest just of our group. So just as we measured the effectiveness, the outcome of what we released in product and Engineering, we agreed to measure the outcome of the sales when we invested as engineering to do something tactical. And then every quarter we said, how are our metrics? How are we doing? Are we evaluating the right way? Because Andrew was a good person. He was incented for the general, for the corporation. I was as well. And we brought the CEO into the.
[00:45:32.740] - David
Conversation who was also incentive in the same way.
[00:45:36.800] - David
So it's a matter of all parties.
[00:45:40.620] - David
Looking in the same direction, not just at their department.
[00:45:50.500] - Megan
I just have a follow up from that question before I move on to some questions in the chat. Because you've talked a lot about relationships with peers, with your CEO, with the CPO, CTO, if you're the CPO. But what about relationships with people that you manage? Because as you're transitioning from a cost center to a profit center, I can imagine it can be quite demoralizing for certain teams. If they're just used to being a cost center and playing catch up all the time, how do you keep them motivated and keep that morale up for saying them, trust me, eventually we'll be a profit center, we'll be able to be doing these things. How do you approach those conversations?
[00:46:36.080] - David
Is the question about people that don't want to become a profit center or people that are in the coal mine of being a cost center and their.
[00:46:47.000] - Megan
Morale being down the coal mine and kind of being that sort of the light at the end and just needing them to hold out until you can become a for profit center.
[00:46:59.100] - David
Yes. My suggestion is be honest, is to say, and I've done this quite a bit, actually let me dig into what I do on a day to day basis now, because I'm no longer a CTO or Chief Proc Officer. I've been that through my career quite a bit of time. I run this company called Interna, and we help other companies solve this problem, and Interna we do. I didn't mean to make this into a pitch, but it's germane to this question we evaluate product management and engineering teams to help them get better aligned.
[00:47:43.630] - David
To the strategy of the company. That's one thing we do.
[00:47:47.020] - David
We'll get a call from a CEO or Board of Directors or divisional President who will say either we're just hitting scale and the stuff that got us here isn't going to get us there, or I keep putting money into product management engineering and not getting more out. Something seems wrong. Can you take a look? We'll do that? We'll do that for CTOs, for Chief.
[00:48:11.290] - David
Product officers, for CEOs.
[00:48:15.060] - David
And oftentimes it's this problem. We do interim CTO and Chief Product Officer work where we're asked to transform the department. We'll manage the department on interim basis.
[00:48:29.000] - David
Get it to the next level, hire someone. We coach CTOs, Chief Product Officers, engineering.
[00:48:39.110] - David
Executives, product management executives to help them live this life. And we do diligence for VCs and PE firms. So I often see these situations where people are living in the coal mine and we need help them get to.
[00:49:01.120] - David
Not to oversell this, I'm going to.
[00:49:03.760] - David
Shining on the hill I find if.
[00:49:07.800] - David
You're honest with people.
[00:49:10.980] - David
About where their state is, your life sucks right now. About where the goal is and what the path is, that people will tend to stay for the mission. I tend to find if you engage them in the solution to the problem, I want your help on understanding what features we can build that will drive value creation for our customers. They want to do that. I find that if you're transparent about the progress you're making, they'll stay for the vision. So few people I know want to live in a cold. People want to transform and change. Here's your obligation as an engineering or product leader. They don't always have the tools to imagine what the customer wants or how they can affect that. And your responsibility is to help them shape their thinking, critique what they're thinking or what they're saying and their communication. And that relationship between proc management and engineering which might be broken to help fix that and shape that communication and show both parties product management and engineering, how it's benefiting them by benefiting customers. It can be quite fun. And when you go and we're working company right now where it's just all a call center, all a feature factory, and we're about halfway through making the transition.
[00:51:21.280] - David
And the folks in the company in product management, engineering are seeing the maturity of what's happening, and they're not completely free from the constriction of being a cost center yet. But they're getting there and they're getting more empowered. Now as Spiderman says, with great power comes great responsibility. They're responsible for things now, for important things, for creating value for their customers. And they've got to be successful not on everything, but in the sum of the things they do. And they need to think about that and they need to care about that. And if they don't, they should probably find another job. But most people actually do care.
[00:52:24.900] - Megan
Brill well, we've only got eight minutes left and I have two more questions. So first question is from Reese. Can internal platforms ever hope to be seen as a profit center, given that even the best product ideas in these areas tend to be highly focused on efficiency metrics rather than revenue? If so, how?
[00:52:48.060] - David
Lovely question, Reese. I love this question because I actually haven't talked about any of that in this previous 50 minutes if you're doing platform right. So Team Topologies, which if you haven't read, I suggest you read, talks about four kinds of engineering groups.
[00:53:12.920] - David
One is the platform group.
[00:53:17.320] - David
My conversation that I've just had breaks down for the platform group, which is to say there's not a direct measurement for building a platform to direct service to a customer. But what you can measure is the facilities, the products that the stream aligned groups, what I would call product squads can now build that they couldn't build before one level extracted.
[00:54:04.840] - David
And I would particularly think about it.
[00:54:08.520] - David
About the enablement that happens to build that. So one of the problems with team Topologies is it doesn't scale for platform groups. Platform groups become a bottleneck for everyone they serve. Because platform groups have they typically have their own roadmap. And I'm serving group A. I can't serve group B. I've interviewed folks who have made platform groups scalable, and then you can directly align it with feature creation on our website. Go to interna.com blog. Look at my conversation with Tinder speak from Cornerstone on demand. It's an hour conversation. The last 45 minutes we talk about this topic. If you can't find it, email me. Dsubar@interna.com D-S-U-B-A-R. Sure we'll say it. I'm sure it'll be in the show notes at interna. Interna.com. I will point you to the conversation. I'm glad to have more conversation with you, but that abstraction that Reese is talking about is connected.
[00:55:38.340] - Megan
David, you're also on the Slack channel, aren't you?
[00:55:41.540] - David
Oh, yes, I am.
[00:55:43.620] - Megan
If you have any questions that don't get covered, please do ask them away in the Slack server. CTO craft slack server. And David will be able to help you out. So, last question with five minutes to go. This is from Toby. I love your approach, David. Product managers are sometimes called mini CEOs, but I think you are advocating that technology leaders should also invest time in becoming mini CEOs. What do you recommend tech leaders do to gain the market customer sales knowledge and insight needed to make relevant profit decisions?
[00:56:16.960] - David
Good question. Well, first, because the product managers are ahead of you on that, ask them what they know. That's where I would start. That's a B is read a lot. I read a lot about a lot of things all of the time. Don't have your reading. Be just about engineering. Read about your market read about how business works in general, read about what sales does, what all these components do. Spend time with your colleagues in other departments and ask them where the company is successful, where it isn't. Spend time with the CEO to ask the same thing. They know things. That's how you get the knowledge. Like CTO craft, by the way. Ask people there what they're seeing, what they're learning. Other places where people gather, ask them what they've seen.
[00:57:42.780] - David
Engineer is your craft. You should know that. But understand what people in other context with other crafts do as well.
[00:57:55.220] - David
And feel free to ask questions too. I'm glad to answer.
[00:58:04.270] - Megan
Brill so that's two minutes to go. I feel that we could just keep going, but I'll encourage instead that we move into the Slack server because I'm sure David will be happy to answer any extra questions that you may have when you think about this. Thank you so much, David, for taking the time to talk to us. Really insightful topic that has opened more doors, lots of learning, but also is like, oh, that's another way of thinking about it. You can connect to David via the links that I have shared in the chat and thank you all for joining. Next week, we'll be joined by Christina Forney for her talk on the data behind good engineering teams. When talking about good engineering teams, productivity and output metrics don't tell the whole story or inspire action, even Dora metrics, a widely accepted standard. Leave out key insights you need for managing healthy teams. In this discussion, Uplevel VP of Product Christina Forney will discuss why prioritization planning and burnout insights are the missing link to add context to the big picture engineering efforts, which I think is quite a nice follow through from today. The event page is posted in the chat, so please register your interest and I hope to see you there.
[00:59:21.020] - Megan
I'm also very thrilled to announce this number has even gone down since because I got a Slack message during the talk that we only have 14 tickets left for CTO Craftcon. So we actually had sold tickets where I originally written this document. So don't miss out your chance to attend CTO Craftcon in May in London. The link is in the chat and it'll be great to see all of you there. It looks to be a really fun two day event, so I hope you all have a wonderful rest of rest of your Thursdays and I will see you all next week. Thank you so much. Goodbye.