The first (and some would say the most important) principle of the Agile Manifesto1 is a priority on satisfying customers through early and continuous delivery of valuable work. It is through the delivery of valuable work, that by extension you will be creating business value.
While we all understand what those words mean in isolation, often understanding the true intent is more nebulous. Businesses are focused on using agile to deliver ‘valuable work,’ but how is real value measured – and by who? Is there a difference between value that satisfies customers, and business value? Does it actually matter, as long as something of value is created?
While this sounds like a semantic argument, it is essential to ensure that the path to progress isn’t lost or missed because of a vague and undefined sense of mission. And while value must have flexibility and be adaptable, most of all it must be clear-cut so that priorities can be agreed and set, particularly when faced with contradicting opportunities.
The challenge with how value has traditionally been measured
Charged with generating profit for owners or shareholders, organisations have traditionally focused on metrics like return on investment (ROI) and internal rate of return (IRR) when it comes to creating business value, and there’s no suggestion all attention from those areas should be done away with.
But it is an incomplete understanding of value, not least because it is like a Monday morning playback of the weekend’s game. “Our analysis shows we made the right choice in investing in project A.” “We made more profit this year than last year.” Anything based on future predictions of expected value put you firmly in the camp of all those ‘past performance is no guarantee of future performance’ disclaimers at the end of an investment ad.
In a modern environment, lag indicators like these do not help determine whether current activities are providing improvement or are adding value. And unless you have this understanding, you will be unable to learn and respond quickly.
Situations change. Challengers move in, and customer demand shifts. If value is being measured in a retrospective fashion it makes it difficult to prioritise investment, manage backlogs and coordinate teams.
More importantly, business value measured in these terms often conflicts with what customers value. Consider for instance the trend in the closure of bank branches that accelerated with the introduction of ATM machines in the early 2000s.
ATMs were welcomed by younger customers as an innovative way to engage differently with banks. Equally, banks saw it as an opportunity to cut costs by reducing bank branch numbers, which in turn did a good deal of damage to older customers’ perceptions of the banking sector.
Isn’t it the case that sometimes customers just have to accept what is on offer? Well, increasingly no. Ultimately revenue (business value) is an outcome of what customers are willing to pay for – what they value. And as more opportunities arise from smaller more nimble companies who deliver what customers are willing to pay for, they are shifting. This disruption means the days of companies being able to deliver what they like because “customers just have to accept what is on offer” are over.
True value is now in the eye of the customer
Agile recognises that value is determined by the person using the product or service, and unless it is being used, it has no value. Even if you don’t test and engage with the customer, they will still ultimately determine if your solution is correct or not. The complexity though is that it requires more than simply asking customers what they want and delivering. Many customers don’t know what they want before they are presented with it.
That’s why practitioners must focus more heavily from the very beginning on the customer value-side of the equation, using tools like the user story and the buyer’s journey to understand the customers’ perceptions of potential outcomes, to deliver smaller incremental steps which provide a quicker path to value.
And if you want to deliver something truly ground-breaking customers will need time to learn and you need will need to adapt too. This becomes an iterative process of showing the opportunity to customers, while you learn and revise.
Thus rather than a clearly defined superhighway of profit, Agile’s incremental improvements provide a stepping stone path towards customer value and learning – just not one easily recognised by the rest of the business as value. And without alignment of what is seen as valuable work, the organisation as a whole has a whole new competitor. Itself.
You either agree on creating business value, or you compete
Organisational culture suffers when there is lack of understanding surrounding how to progress. Where there is disagreement, a lack of alignment around priorities and poor communication, people will prioritise what they see as important – and it competes against itself.
If you make individual Product Owners responsible for components of value, whether they know it or not they will be more inclined to put their project first, and work can grow exclusive, rather than inclusive. They can’t help but consider whether what they are doing will help them deliver their project and meet their KPIs.
Clearly in smaller businesses this can be more easily identified and avoided. But in larger, more complex organisations where there can be multiple Product Owners it becomes difficult to balance the complexity. Faced with differing priorities and levels of uncertainty, increasingly the decision that is made make is the one the decision-maker is most familiar with.
This is exacerbated when there is an unclear understanding about what the organisation sees as valuable. Senior Management tend to use language that is very prescriptive, but as solutions are adapted and refined, management should expect to have their strategic intent confirmed or disproved through a feedback loop. After all, agile means being a learning organisation all the way up and down.
Conversely, while a company’s culture may suffer when there is a lack of understanding surrounding progress, it also grows when teams understand and can see the value they deliver to their customers.
So how can you expand the view of value and encourage people to see it from different perspectives?
When a business has a clearly identified approach to creating business value that is communicated to clients and staff alike, the benefits are widespread throughout the team. Clear and strong goals drive action. They foster ideas. They promote teamwork.
When clear goals do exist, managers can also be ‘hands off’ in the day to day of operations, and staff can get on with the job of actually delivering on its key aims. This is usually easier for a small team with a handful of staff than a multinational corporation with thousands of them. Yet it’s vital to remember that larger organisations ultimately have the most to gain from clearly determining the business value they are seeking and ensuring that it has been effectively communicated with staff.
So, what can you do to support a shared view of value, and align priorities?
- Be clear what you mean when you talk about value. Are you talking about commercial value that will appeal to the wallets of consumers or functionality which reduces their pain points?
- Communicate the strategy. Ensure that everyone understands the definition of value for the organisation and how their actions can contribute towards the outcomes. Recognise that your implementation requires a feedback loop so expect for that strategy to be questioned,
- Consider how you will measure progress beyond simple or lag business operational metrics like revenue. Company culture will suffer if there is no easy way to demonstrate the delivery of value
- Motivators affect behaviour. So, look at the basics; KRAs, job descriptions and team structure, to make sure they are aligned
- Encourage early exploration of customer insights. Customers now have the power and the options, so you need to seek out customer feedback and insights to see what adds value to customers build and measure progress towards that.
- Build in rapid feedback cycles across all levels. By seeking input from staff internally and customers externally, a business can pressure test the value and goals it has defined. These will not only be about the function but how you execute, how you work, and what you are planning.
- Create an organisational culture that allows for and supports a healthy level of conflict, where people are encouraged to ask questions, challenge, consider the answers, and play them back to ensure a shared or deeper understanding of the problem at hand. Don’t be scared of the complexity that this will create.
Regardless of how it is measured, once decided, try not to spend too much time debating and rehashing the definition. Remember the first principle of the Agile Manifesto also calls for early and continuous delivery. Real value won’t be realised until products are launched, and customers are able to experience them and find the value themselves.
Guest post by former Elabor8er, David Landry. David has been leading significant technology and business change projects for over 30 years.