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Engineering and Product Operations Strategy & Planning

Engineering metrics: How to communicate with your board of directors

In a recent blog post, we explored some of the challenges engineering leaders face when it comes to measuring productivity and sharing those metrics with others. 

Measuring engineering productivity is challenging to begin with, but the problem becomes more complicated when you consider the different levels of stakeholders that need to be kept up to date. Engineering leaders are often called upon to report on their progress to a company’s board of directors — an audience that is often less experienced in the nuances of software engineering. 

Investors and board members will sometimes say that they don’t get what they need from engineering leaders, or that engineering leaders struggle to communicate clearly about what they’re working on. Why is this such a common problem, and what is it that boards of directors are actually looking for? 

What do board members prioritize?

The most common problem that engineers face when presenting to the board of directors is misunderstanding their values. In some cases, it can seem like they’re speaking two different languages: the engineering leader is talking about story points and PRs, while the board just wants to know when new features will be delivered, how much the work costs, and what return to expect. For an engineering leader to be successful, they need to communicate in a language the board and other executive leaders can understand.

Engineering leaders can prove they understand the company’s values by talking about things they care about: deliverable progression, business alignment, team effectiveness, and technical debt. Some board members may not understand the differences between different types of technical debt — explaining the difference between modernizing components and refactoring code can help them understand the decisions your team is making. Digging in on technical debt will allow board members to understand the impact of the work, as well as the risks of not taking care of these issues.

For large initiatives and features, give milestones that demonstrate incremental progress. Instead of committing to an annual number, commit to a quarterly number and communicate to the board how you’re derisking with certain trade-offs and decisions. Talking through the timelines of large features in this way gives the board the confidence that your team can be counted on to meet its goals and commitments. 

There are two major benefits of using incremental milestones when communicating with boards of directors:

  • Using smaller milestones fosters confidence in the company’s progress. It allows adjustments in the timeline to be understood and managed over time, rather than giving off the perception that things are slipping out of control.
  • Incremental milestones also allow the team to de-risk strategic bets: instead of sinking millions of dollars into a feature only to discover it was the wrong solution, engineering leaders can look for early testing points and make changes based on what they learn. This approach gives boards and executives a clearer look into the development of major features and reduces the perception that engineers are betting the business on a feature that might not deliver results.

Engineering leaders can also communicate more effectively by drawing comparisons to other areas of the business. Sales leaders talk about pipeline efficiency; you can tell an equivalent story for engineering by explaining your team’s velocity on feature delivery. Finance leaders will understand that there are different types of debt, and that a company should focus on paying down debt with the highest interest rate. Engineering leaders can compare different types of technical debt by explaining which issues are causing the most headaches for customers — those are the high interest pieces of tech debt that need to be addressed as quickly as possible. 

What metrics matter to boards of directors?

One of the most useful ways to talk about engineering work to board members is to break down engineering work into growth, keeping the lights on (KTLO) and support. How much spending is going towards driving revenue and new feature innovation, how much is being spent on ongoing maintenance and technical debt, and how much is being spent on customer-specific work or fixing bugs in production? This ratio is crucial for investors to understand the current state of the engineering organization and how engineering investment is aligned with company strategy.  

There are different ways to evaluate and compare those three buckets of work — how many full-time employees are being allocated to a new feature compared to support work? But that allocation is often highly nuanced. Most engineering organizations will have employees at different levels and in different geographies — your support team might cost pennies on the dollar compared to your Palo Alto data scientist. Analyzing this distribution according to dollars will give a more accurate measure to your board and will show that you’re optimizing work from a capital efficiency perspective. 

Your board will also want to know the breakdown of costs — how does your people cost compare to your software infrastructure cost? You can use those numbers to tell a more compelling story about technical debt, illustrating why that work is essential for driving down infrastructure costs. 

Of course, the board will also be concerned about feature delivery. This is a matter of clear communication: how much conviction do you have about delivering specific milestones? How many initiatives are in progress at the moment? What are you doing to lower the risks of missed delivery dates? Previous results can predict future performance, so you should be ready to point to your delivery track record to indicate confidence in your current projects. On-time delivery itself can be a thorny metric for engineering teams, but you shouldn’t run away from the topic entirely — choose the metrics that you feel will tell that story clearly and fairly to the board. 

Engineering leaders can talk about on-time delivery more effectively by thinking about it at a macro level. Instead of promising delivery on April 25th, talk about delivering within Q2. Instead of using “on-time” as a yes-or-no metric, think about it more as an order of magnitude. Delivery dates will always shift: by setting expectations at the right level and by providing appropriate updates, you can show you have command of where things are as opposed to guessing on where things will be.

Putting metrics in context

Another valuable approach to communicating with the board of directors is the use of benchmarks — comparing your engineering team’s performance to companies with similar industries, growth rates, and revenue figures. Each of these factors will impact the company’s distribution of spend — for example, an earlier stage company is going to invest more money into new features than support and technical debt. Benchmarks can reassure your board that your distribution is in line with what should be expected, and help give you a more strategic seat at the table by showing you understand the broader business strategy.

Other useful benchmarks have been suggested by consulting firms like Bain and BCG. The Rule of 40, as outlined in this article from Bain, states that “a company’s revenue growth rate plus its profit margin should exceed 40%.” That figure will provide a clear answer to the board regarding whether they can be confident in the company producing long-term value. BCG’s R&D Index provides a similar tool by benchmarking your company’s R&D effectiveness against a sample of publicly traded companies. Connect these tools to your organization’s higher level themes and initiatives — this will give board members holistic insight into current performance and what they can expect going forward.

The decisions made by your board of directors will have an outsized influence on the day-to-day operations of your engineering team. The more effectively you can communicate about your team’s plans and performance, the more likely you are to gain the support that will help your organization succeed. Show you understand what matters to the business and talk specifically about the things they value — you’ll soon win over their confidence and commitment. 

To learn more about Jellyfish’s approach to metrics and benchmarks, check out our previous article on five slides technical leaders can use when presenting to boards of directors.