Applying Shannon’s Information Theory To Product Management

Vaibhav Vohra

Shannon’s Theory – a formula that stands the test of time

One of the most seminal theories in 20th-century electrical engineering is Shannon’s 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 trade-off. 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  signal you can represent).

Another way to explain this: 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 trade-off that shows how changing SNR impacts bandwidth, and vice versa:

Shannon’s Theory – Trade-off 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 trade-offs emerge

Within the enterprise space, 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 and startups with greater agility. Subsequently, business owners are looking for hyperfocused solutions at a smaller deal size so they can prove the viability of projects. They are looking for solutions to emerging problems, not a panacea.

Three fundamental tradeoffs are emerging:

  • Deal rate vs. deal size—as LoB power increases, how many small deals/offers can we create to address challenges of the customer?
  • Solution fidelity—the trade-off between ratio of customer requirement/product functionality
  • Build for the long term, or stay hyperfocused—the classic trade-off between product stickiness and 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:

  1. The cloud is more about delivering bite-sized business models focused on solving immediate pain points. Don’t fall into the vacuum of building an “uber” platform—start with something smaller.
  2. Set expectations from the beginning and avoid scope creep with customers. Iterate over time with them.
  3. 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.
  4. Stay hungry and hire the best—if there are more trade-offs 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  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.


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Vaibhav Vohra

About Vaibhav Vohra

Vaibhav Vohra is Vice President and Head of Product Management for SAP Digital Interconnect at SAP. Leading an organization within SAP that intelligently connects everyone, everything, and everywhere, he has launched award-winning cloud solutions in the fields of marketing, business continuity, and developer ecosystems. Most recently, the team launched SAP People Connect 365, which enables organizations to manage intelligent communications during times of planned and unplanned business disruption.