Applying Shannon’s Information Theory to Product Management
Shannon’s Theory – a formula that stands the test of time
One of the most seminal theories in the 20th century in electrical engineering is Shannon’s theory: https://en.wikipedia.org/wiki/Information_theory
Within the last 80 years, this formula has been crucial to domains such as artificial intelligence, data compression, cryptography, and satellite design. Every year, it seems it is invoked in new areas. The theory states that the channel capacity (information) is proportional to the bandwidth (B) and log of the Signal to Noise Function (SNR).
This formula always stuck with me – as both a former payload shuttle designer and a product manager. If you fix one variable, you are left with a tradeoff. For example, if channel capacity (C) is fixed, then the greater the quality of the signal (SNR, or fidelity of signal), the smaller the bandwidth – B (how much of signal you can represent). One way to explain this is, that if you record a performance at Carnegie Hall, you would not be able to capture notes of the bass and violin recorded at the highest resolution, you would simply run out of memory. Below is an example of the tradeoff showing how changing SNR impacts Bandwidth and vice versa.
Shannon’s Theory – Tradeoff 1
As the Rolling Stones once said “You Can’t Always Get What You Want.”
Line of Business (LoB) decision making is changing the game – new tradeoffs emerge
Within the enterprise space, we find that LoBs are seeing an increase in spending power. Fewer approvals are required to make purchases as business objectives require immediate time to value. In addition, fewer external dynamics are factoring into decision making as companies go digital, they must react to competitors/startups with greater agility. Subsequently, business owners are looking for hyperfocused solutions at a smaller deal size so they can prove out the viability of projects. They are looking for solutions to emerging problems, not a panacea.
There are 3 fundamental tradeoffs that are emerging:
- Deal Rate vs. Deal Size. As LoB power increases, how many small deals/offerings can we create to address challenges of the customer?
- Solution Fidelity – the tradeoff between Ratio of Customer Requirement/Product Functionality
- Build for the long term or stay hyperfocused. The classic tradeoff between product stickiness vs. independent point solutions.
Perhaps a new application of Shannon’s theory is emerging.
If Capacity (Time) is fixed, it’s optimal to maximize Deal Rate/Deal Size and deliver focused customer solutions, especially as Customer Switching Cost increases.
What this means for product managers in this era:
- The cloud is more about delivering bite-sized business models incredibly focused on solving immediate pain points. Don’t fall into the vacuum of building an “uber” platform – start with something smaller.
- Set expectations from the beginning and avoid scope creep with customers. Iterate over time with them.
- As switching costs decrease over time (more likely to move to competitors), customers are less inclined for loyalty. Adapt to new technologies and deliver delight at every opportunity.
- Stay hungry and hire the best – if there are more tradeoffs than ever, find those product managers who can be disciplined to address every aspect of the product. In the end, the product manager is responsible for the success of the smiles on the customers’ faces (or lack thereof).
Within our SAP Digital Interconnect business unit, our product team is living this reality. With Programmable Digital Interconnect, we seek to serve the businesses that wish to interconnect their apps and business services to their consumers in minutes. Building incremental capabilities that can quickly be delivered is crucial to enable these customers to deploy apps and capabilities in days not years. Adopting weekly release schedules has been daunting. All this — while we continue to deliver over 300 Billion messages in 1000+ countries every year!
I guess The ‘Stones had it right in the end – ‘you can’t always get what you want…if you try you might find what you need’. Shannon’s Theory did show us why we are constrained, but also gave us the power to focus on what we as PM’s need to do to make our customers successful.
About the author
Vaibhav Vohra is the Head of Product Management for SAP Mobile Services IBU Group. He has launched award winning marketing solutions such as SAP Consumer Insight 365 (CTIA emerging technology award, Gold Medal for UX Design) and other mobile engagement products at SAP. SAP Consumer Insight 365 is an innovative audience discovery solution that creates marketing insights on mobile ambient data. Prior to that, he was involved in portfolio and strategy management for SAP’s innovation group. Before SAP, he managed and designed satellite payloads in the aerospace field.
About SAP Digital Interconnect
SAP Digital Interconnect, a division of SAP, provides interconnection services to help operators worldwide simplify and optimize connectivity, monetize messaging services, and reduce network costs without additional capital expenditure. Our cloud-based engagement services enable enterprises to connect the “last mile” with their customers, and anonymized mobile-sourced data and analytic services provide near real-time consumer insight to brands and agencies around the globe. In addition, SAP operates one of the world’s largest, most reliable cloud messaging networks, reaching 7.3 billion subscribers on over 1,000 operators in more than 220 countries and processing over 1 billion messages daily.
For more details about how SAP Digital Interconnect can help transform your business and improve customer experiences in the digital economy, please contact us at email@example.com or visit us on the Web at http://www.sap.com/mobile-services. To learn more about intelligent and interconnected mobile engagements, join the SAP Digital Interconnect Community at https://community.sapmobileservices.com/ and follow us on Twitter at @SAPInterconnect