What is Business Value?
I came across this question in the Agile and Lean Software Development group. I thought it might be useful to expand on the answer I gave in a post of its own.
The short answer is quite simple:
Business value is whatever the business values.
For most businesses, this ultimately means operating profit. For non-profit organisations, business value might be social impact or some other non-financial aspiration.
Given the group in which this question was posed, I will now frame it from a product development point of view.
In Agile and Lean, when we talk about "optimising business value" -- when in the usual context of a product or services technology company that exists and grows through making profits -- this boils down to identifying products, services and features that will serve a customer need, thus leading to maximising operating profit in the long term.
For this goal to be meaningful, the people doing the work need a proxy goal that they can get behind. Making the company's leaders richer probably isn't going to inspire Janet the Developer or Bob the Business Analyst.
This is where having a great product vision comes into play, and focusing on creating an awesome working environment. Happy and engaged employees -- given an inspiring purpose -- will deliver awesome products, services and features for your customer, aka customer value, leading to increased market share and increased revenue.
In Agile and Lean, we aim to deliver value in short learning cycles. That is, we are looking to bring forward the realisation of business value by delivering small increments of something we might otherwise have designed wholly up-front and built out fully before deriving any business value from it.
In short, Agile and Lean approaches aim to deliver value to the customer "early and often".
By doing this, the I part of ROI is controlled in small boxes of time and decision-making, and we aim to get R as quickly as possible rather than rely on the scheduled delivery of output (aka project plans) as a proxy to the ultimate realisation of all the desired value. Thus we are "optimising business value" by continuously focusing on the things with the most potential customer value, and controlling the spend on them -- while reducing our risk and increasing options -- by delivering in small increments.
Focusing on customer value is a proven proxy that will lead to increased operating profit (aka business value), keeping the executives (and other shareholders) happy.
How does my definition of "business value" marry up with yours?
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5 年We defined Business Value based on our vision and context - and the objectives we wanted to achieve. So that we could order and prioritize work items we defined decision criteria to express business value; and to make it transparent to all which criteria are important for us to assign or express business value, thus to order the work items. Influenced by the vision and clients and their feedback as well as market and technology trends. Value is whatever a customer values and want to pay for, only the customer(s) can express what “value” means.
Now at ONFS
7 年There is soft ROI and hard ROI. Hard ROI is that which is easy to assign a dollar to. Soft ROI manifests itself as an increase in intangible elements, including brand strength, customer experience, customer loyalty, and customer satisfaction. https://blog.alinean.com/2006/11/hard-and-soft-roi-differences-and.html
Scrum Master - NAB
7 年I think the problem with you argument stems from thinking profit is value. I would argue that profit is an outcome of value. Profit can turn to value when it is distributed to shareholders, paid to employees as bonuses, or is surplus cash to be reinvested into the business. A product that customers will buy is of value, understanding your primary customer needs is of value, improving transactional efficiency is of value etc. Value - valuable - value driver are aspects that need to be answered when looking at what the business sees as 'business value'. Quite often the thing of most value is counter-intuitive to what is expected.
CEO - RiskCherry
8 年Excluding not for profit, business value to me ultimately ends up affecting the operating profit but I like to break it down into areas such as customer need, competitive advantage, strategic fit, functional/operational impact and if the area is a compliance/regulatory must. All of these areas (and more) lead to an effect on operating profit although they don't all necessarily have a direct effect on revenue uplift.