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  • Writer's pictureHuub Rutten

Governance Charter for Managing New Product Investments

Updated: Mar 9, 2021

Dear Reader, Joe the CEO, Leon the Product Line Director and Emily the Product Manager are hard working people, very motivated to make their company successful. But each of them is a little powerless. Why powerless, and what can we do about it?

Joe is of course in a special position: as a CEO he has a series of steering instruments, like Strategy and KPI Setting, Strategic Initiatives and the Allocation of Budgets . The most relevant Steering instrument is of course that he can set the financial targets for his reports, his board members like the CTO, CMO and the Commercial VPs. And still powerless? I think so, because big organization are not like small startups, there is a big distance between the CEO (the boss) and the shop floor. How can Joe be confident that his organization will deliver in line with the targets, the timeline targets, strategic targets and of course the financial targets. There are so many layers between the Board room and for example a software developer or an industrial designer. How can the CEO be sure that these people contribute their ideas, designs, work, to the company strategies? How can he be sure that these guys don’t take decisions that have an unintentional substantial impact on the company plans? (Note: this risk is per definition embedded in several Agile methodologies. Agile gives a lot of power to the developers, the shop floor.)

When you look at the positions of the Product Line Manager and the Product Manager, you could say that they are in central management positions, but mostly they don’t own the budgets. As Leon said: “I don’t have the budget to enforce internal deliveries, I have to ask, agree and coordinate”. One level lower in the hierarchy Emily faces in fact the same challenge, she cannot enforce results, she has to coordinate and deal with unexpected events, lack of resources. Dependent on goodwill.

I do not expect that large companies will change their traditional budget allocations, they will continue to allocate annual budgets to R&D, Engineering Departments, Production, Marketing and Branding. So these departments are the resource owners and have traditionally an intrinsic powerful position. Compare it with IT. IT is a facilitating function, but because infrastructure is such a sensitive, mission critical function, IT is quite powerful in the decision making. IT can make or break initiatives, to a certain extend of course. The same is true for Engineering. Engineering can always call on technical problems, unforeseen conditions and events and therefore lack of critical resources, to justify delay and scope changes. The same is true for Production, I saw so often that Product Management had to wait a long time for a product trial in the plant. There is not always a pilot plant, so testing often has to happen while production has to continue, so product managers depend on the goodwill of the plant directors.

The only way that I know to create a so called “Balance of Powers” and put Product Line Managers and with them Product Managers in a better position to make their targets, is to introduce a so called “Rules of Governance Charter”, that is owned by the CEO, and is undersigned by the Board members. The Governance Charter defines who is mandated to decide what, who should review what, who can start or stop an investment, who is accountable for what, and for which data, and how internal agreements and contracts between the functions should be formulated. In a transparent manner. For example, it defines who has to commit what to the Product Line Roadmaps, in any case the delivering parties. If the internal delivering parties, departments, commit to timelines (deadlines) and specifications, for example of certain Features, as if they are 3rd party suppliers, and, if there is a management system to track the decision making and commitments, fully transparent also for the CEO, then the coordination and realization of new product roadmaps should be easier, not be built on collegial goodwill but on clear regulations. In the end the resources belong to the company as a whole, and the CEO has to have a decision making and accountability framework that gives his Product Line Directors who have revenue targets the means to coordinate with a real steer in their hands. And the Engineering departments have an analog engineering roadmap, a solid work agenda, to be efficient and effective. A clear Governance Charter avoids duplication of management structures. You don’t want unconnected strategies and agendas. These are very expensive and counterproductive. No news under the sun.

Decision making has to be transparent, well organized and systematic. Without this a company cannot have direction, agility and short lines between strategy and execution. Also a large organization can be flexible and agile, and be steered. A good Balance of Powers and Rules of Governance Charter are conditional if you need speed and agility, in complex technical situations, if you need to control cost, and if you have to go into one and only business direction, together, in harmony.

I will write more about Governance in my next blogs.

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