Defining value: the most ambiguous word in product development
One of my favourite questions to ask any new client is, “How do you measure success?” I pose this question to product teams, discipline heads and executives to understand what the organisation values and what they reward. One hundred percent of the time the initial response is, “That’s a great question.”
After giving it some thought the responses evolve into some variation of “we shipped a [thing]” where [thing] is whatever that person is responsible for creating — a product, a feature, a system, a policy or an initiative. My follow-up question is then always, “How do you know that this was the right [thing] to ship or that it was designed and developed well?” At this point, the answers fall into two camps (in most situations). One half of the responses end up being, “We don’t.” I like this camp. They’re the honest ones. They know that beyond getting [thing] implemented there is no further evaluation of it. The other half inevitably say, “We know it was right because we delivered value.”
And this is where their story starts to fall apart.
“Value” is the most ambiguous word in business. It means something different to every person that says it, primarily based on where they’re positioned in an organisation. Executives talk mostly about business value. Customer-facing product teams use the phrase customer value though there are still many teams I come across who speak in terms of business value. Finally, internally-facing teams — this includes teams like HR, DevOps, security, performance, infrastructure et al — will speak of organisational value as their measure of success.
Which is right? They can’t all be right, can they? Before we can choose a winner (there always has to be a winner) we have to define each of these terms. Let’s take a look at the following:
Term: Business value
Who says it: Executives and other leaders
What do they mean: Something that makes it easier for the business to be successful
What does it look like: In most cases this equates to making money
What gets rewarded? (examples) Increasing profit margin
Term: Customer value
Who says it: Product development teams
What do they mean: Something that makes the customer more successful
What does it look like: In most cases this equates to features or new products
What gets rewarded? (examples) Launching an app
Term: Organisational value
Who says it: Internally-facing teams
What do they mean: Something that makes the job of other teams within the organisation easier
What does it look like: In most cases this equates to features or systems used internally to automate or simplify tasks
What gets rewarded? (examples) Implementing a continuous deployment system
With customer value and organisational value organisations are clearly talking about creating output as a measure of value. “We made a [thing] and the [thing] works as designed therefore we have generated value.” Interestingly, with business value we are speaking about outcomes (in most cases). However, the metrics most executives use to measure business value are so high-level (e.g., revenue, profit, cost of goods sold) that understanding the correlation between what the teams are doing and business health is hazy at best. We call metrics like profit, revenue and sales “impact” metrics. These are high-level measures of business health and, while they’re important to measure, they are impacted by many lower-level metrics. (I have covered output, outcome and impact in previous posts.)
It’s these lower-level metrics that are the true indicators of value. If you’re a regular reader you’ll know that I talk about outcomes — measurable changes in customer/user behaviour that generate business value — as the true definition of success. It should come as no surprise then that when I work with teams to help them define value, I coach them to use outcomes.
Meaningful changes in customer behaviour — i.e., outcomes — are the only way to know if we’ve delivered value. Can customers complete a task faster? Can users be more productive in the system? If the answer is yes, we are delivering value. If the answer is no, we are not. Here’s the best part: if we ARE delivering value then our impact metrics — those high-level measures of business health — start moving in the right direction as well. The connection here is explicit and, especially with digital products and services, easily correlated.
At it’s most basic level, the relationship between output, outcome and impact looks like this:
If you look at it this way, defining value becomes clear. If we are making our customers or users more successful we are delivering value. And, here’s the part where most organisations trip up, if we measure success simply as creating products or services we are risking bloating our systems, frustrating our customers and losing them to competing organisations or tools.
Once an organisation — top to bottom — speaks of value in the same terms, many other things fall in line including incentives, prioritisation, and decision-making. Try redefining the value of your next initiative in customer-centric terms — i.e., outcomes — and let me know what changed.
Smart Scrum Product Ownership — London — February 7–8, 2019 — (3 seats left for this class) join Jeff Patton and me for 2 days of hands-on learning on how to bring together scrum, lean ux, product management and customer-centric product development. These workshops sell out well in advance and this one is no exception.
Smart Scrum Product Ownership — New York City — April 22–23, 2019 — Jeff Patton and I are back in NYC to teach our 2-day class. Early bird rates are on sale now.
Smart Scrum Product Ownership — Denver — April 25–26, 2019 — We’ve got a class coming to Denver as well in April. We’re in the process of finalizing details so keep an eye out for a registration link shortly.