Facettes of Business Value
The notion of Business Value has multiple facets.
"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. Many of these forms of value are not directly measured in monetary terms."
Christiaan Verwijs drills it down into five dimensions (Verwijs 2014, Feb. 24). I summarise them as follows.
- Commercial Value is the functionality or work that translates into profit directly. The key question to ask is "How much revenue or profit does this work result in?".
- Market Value increases the potential number of customers. The key question to ask is "How much revenue or profit do we gain from our customers?".
- Efficiency Value increases organizational efficiency and thereby decreases operating costs. The key question to ask is "How much is the difference between investment and operational costs?".
- Future Value increases the chances of more easily achieving one of the above values in the (near) future by investing in innovation and learning now. The key question to ask here is "How much will this save us in time or money in the future?".
- 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.
In 2017, the Scrum Guide started to focus on "Value". Since this, the notion has become prominent in the Scrum community and in Agile Product Development. The Scrum Guide 2020 (Scrum Guide 2020) mentions it 25 times. Scrum doesn't detail "Value" any further. Value remains an abstract concept, vague, and without any further explanation. Christiaan Verwijs relates it to Business Value arguing "that the work that a team does should benefit the organization or business as a whole somehow" (Verwijs 2014, Feb. 24).
I appreciate Christiaan and his publications very much. But I do not agree with him on this point. Instead, I do relate "Value" more to the term "Product Value" than to Business Value. Here are my arguments:
- Since Simon Sinek's Golden Circle, we should always ask the "Why"-question first (Sinek 2014, 2009). Therefore, take any organization and raise this question: "Why does the org exist?" An obvious answer is "a company exists to make money". But today the answer is not so easy. The quote by Peter Drucker (Drucker 2006) "the purpose of business is to create a customer" is one of the most frequently cited definitions of the purpose of a business. It is a shortcut of "Because the purpose of business is to create a customer, the business enterprise has two–and only two–basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business."
Takeaway: “People don't buy what you do; they buy why you do it. And what you do simply proves what you believe” (Sinek 2014, 2009).
- We have to keep in mind, Peter Drucker is talking primarily about marketing and innovation and only secondarily about the importance of companies.
Takeaway: The notion of Drucker's "creating the customer" is ambivalent. In 1950-1980, in the era of mass manufacturing and advertising, companies focused on selling what they wanted to sell by creating a customer need to be profitable.
- The reality of today's business world changed drastically. Today, companies do not create a market and customers by selling and marketing their products. In contrast, being able to "create a customer" requires knowing and understanding exactly who our customer is. Thus, today a company makes a profit by selling something which they assume could be a market opportunity because it could have value for its customers. In case of innovation and disruption, these needs must not necessarily be obvious to the customers.
Takeaway: Raise business growth by looking for opportunities.
- Today's business is not to create customers by selling them products designed by business people. Business success is by knowing and understanding exactly who our customer is, and creating products suiting their needs best, instead.
Takeaway: The purpose of a company is to create value by creating opportunities by knowing and understanding the customers' needs best.
- Scrum is well-known as a lightweight framework to help people, teams and organizations to generate value through adaptive solutions for complex problems. The fundamental idea of Scrum is to implement incrementally the product in multiple timeboxes (so-called Sprints) by starting with a basic concept of minimal functionality without big upfront planning. The result of each sprint is a tested and functional product increment that is reviewed by stakeholders and customers for its solution fitness and direct usability. If necessary, it is adapted to extended or new conditions and requirements in the next Sprints (fact-based, experience- and evidence-based development).
Takeaway: In Scrum, we build a product incrementally by adapting each increment to new or changing requirements. Each Sprint result is a functional useable product increment that can be examined, reviewed, and used by the customer.
- Let's summarise the above five points. Companies create customers and markets by building products which satisfy their needs. With Scrum, we build in complex environments products via product increments which each customer can use.
Takeaway: If the question and the answer are "Who should use the Sprint increment?" — "The customer/the end user!" the consequence is: In Scrum, we create value for the customer resp. end user.
- Drucker, Peter (2006): The Practice of Management. Harper Business; Reissue Edition, 2006.
- Sinek, Simon (2014): TED Simon Sinek The Golden Circle Clip. Youtube.com, https://www.youtube.com/watch?v=7dAaWweraQ4.
- Sinek, Simon (2009): Start with Why: How Great Leaders Inspire Everyone to Take Action. Portfolio Publ. 2009.
- Verwijs, Christiaan (2014, Feb. 24): What Is This Thing Called “Value”? Medium.com, 2014, Feb 24, https://medium.com/the-liberators/what-is-this-thing-called-business-value-3b88b734d5a9.
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