Ask someone about business value and you will most likely get a blank stare or many different answers. Is business value the same thing as Shareholder Value or Customer Value? OK—if all else fails, let’s go to Wikipedia; it is always a trusted source right? Here is the definition of Value in Wikipedia:
In management, business value is an informal term that includes all forms of value that determine the health and well-being of the firm in the long run. Business value expands concept of value of the firm beyond economic value (also known as economic profit, economic value added and shareholder value) to include other forms of value such as employee value, customer value, supplier value, channel partner value, alliance partner value, managerial value, and societal value.
Wow, I don’t think this helps much. Let’s look at another source. IIBA’s new BABOK (Version 3) that will be published this year is heavily focused on value. IIBA recently conducted a webinar on Value and posted it on YouTube. According to the IIBA and the new BABOK, value is defined as “The importance of something to a Stakeholder in a Context.” I am not sure that I agree with IIBA’s definition of value but I definitely agree with the IIBA when they say “Value is not understood.”
At first look, this definition is nebulous, but it has components that are very important. There are three key words here that we have to focus on: Importance, Stakeholder, and Context.
- Importance – Importance allows us to compare one option to another and make decisions in terms of what delivers the most value.
- Stakeholders – Understanding the stakeholders is key for any project. Satisfying stakeholder needs is delivering value.
- Context – We must understand the context in order to deliver value. Delivering value in a business context may mean money. Delivering value in a non-profit may mean saving lives and helping people in need.
Product managers are more often expected to deliver more value on projects. This is a tough task if we cannot even define what value is. Product owners are supposed to prioritize the backlog for business value, but what does this really mean?
Here is my definition of business value for a software project (notice the Context):
Business value is achieved when users use software to perform meaningful work resulting in better business outcomes.
There are four perspectives for delivering value on a software project:
- Solution Delivery – We must be able to build the product in a cost effective way and in a timeframe that is acceptable to the customer. The key measures are Cost, Speed, and Quality. If we don’t deliver a high value solution that meets the need of the customer on time and at a reasonable cost, then we have a value problem.
- User Adoption – We can have the best and most reliable software in the world, but if we do not get the users to use the software, then our solution delivers no value at all. User adoption is absolutely essential for delivering value.
- Customer Outcomes – Customers have expectations when they purchase a product or service. For most organizations, this usually equates to money, meaning producing a good ROI by increasing revenues or reducing costs. If our product does not help the customer achieve this, then our product is not delivering value.
- Business Results – To deliver value, we expect the solution to deliver positive results for our own organization. The results are generally measured as increase in market share or increased profits.
So why do we care about value? We care about value because it helps focus us on the right things to build. For software products and projects, we need to focus on the things that deliver the most value. According to Standish Group Research, 64% of functionality that is built is rarely or never used. Focusing on value helps us reverse this trend. In moving forward, we must discover and validate what delivers value. Creating value hypotheses and using validated learning methods such as Lean Startup go a long way in helping us deliver better software products.