Ep. 4: Defining Value

[00:00:00] Dave Sharrock: Welcome to definitely maybe agile, podcast where Peter Madison and David Sharrock discussed the complexities of adopting new ways of working at scale.

[00:00:14] Peter Madisson: Hi, Dave. Great to see you again.

[00:00:15] Dave Sharrock: Hey Peter. Good to see you. I don't know what it's like with you, but we've just getting warnings of minus 25 degrees here in Vancouver, which I recognize for you is barely anything. It's definitely gonna put a damper on the weekend then.

[00:00:28] Peter Madisson: That does not sound pleasant. It's actually been getting a little warmer. We were just chatting and in our usual way about what to talk about today and, the topic of defining value came up or, value definition. Which is a great topic. It's one that I think people struggle with a lot. What are your thoughts on this?

[00:00:44] Dave Sharrock: Yeah, it's interesting. I was just doing a training on Product Ownership. Whenever I'm talking to Product Owners and Product Managers, the topic of value comes up very, very quickly. And what I'm al-ways somewhat surprised at, even after 20 years now of the agile manifesto, design thinking, and so on. I'm always surprised at how any conversation around value centers first and foremost, on dollars and cents. And secondly, on dollars and cents to the company, rather than on an appreciation of customer experience or value created for the customer. So I think those are the two things that strike me more than anything. We tend to get trapped in looking at dollars and cents, which is natural. Profit and loss that we have to take care of. We have to be able to look at profit margins, market share, revenue. All of that is obviously measured primarily in dollars and cents. But then the second piece being, that it's also really only through the lens of the company.

[00:01:53] Peter Madisson: Yep. Whereas the customer's the one who defines the value. In my world, we often talk about value delivery and the world mov-ing to value delivery. There's many other types of value other than money. But that is, as you say, very often how people end up defining it. Some of it, I think, comes from your typical MBA type thinking. Then if you start to look at this idea that if the product is free, then you are the product. If you take a look at a company like Twitter, for example. Twitter's revenue stream and value is based off their reach into the marketplace. The things that they develop as value are to grow the base. That's the value that they're generating, is the ability to connect with others. There's many, many other types of value and different ways of going about defining this other than just dollars and cents. Are there ways that you particularly use, or like, to like help people understand that concept?

[00:02:47] Dave Sharrock: Yeah. Before I dive into that, I just wanted to pick up, I think you're absolutely right. That whole idea of you are the customer, or you are the value if something is for free. And I just wanted to dig into that because I think those businesses which give their product away for free, have to have a completely different perspective on what value is.

[00:03:09] What I'm thinking there is, in a world where you're selling some product off a shelf or, a more traditional product or service, then we are going to sit in that world where I'm really looking at market share and revenue and profit. Whereas if you take that mindset of how do I think about a product when, if I'm to give this away for free, where is the value? Where is the revenue coming in? And what can I do around generating an understanding of where that revenue comes in. And generating an appreciation of the sorts of activities that now generate value. As I'm talking about that, I'm not thinking about ad revenues that come in, but it's the perspective of a network, or individuals on a social network, or engagements with customers that have value to those customers that keep bringing them back. Not because they've paid for a subscription, or it's the only way they can get their work done because that's the tool or service that's being used for them, but actually something which is more valuable than anything else they can find on the marketplace and is creating something where they want to spend time there. And use that service because it's just better than anything else out there. It's something that really serves their purposes, meets their needs or solves their problems.

[00:04:32] Peter Madisson: There's such a broad range of types of value that are out. There's value in so many different ways and it's the customer who gets to define that. We've far too often fall into this trap of making assumptions that "this" is what the customer wants and without actually building the system to understand whether this is actually giving them the things that they need. Be-cause we've moved into a world where it's so much easier to say, "Hey, you're not giving me the value I want. I'm just gonna switch. I'm just gonna go to somebody else". It's much easier now to say "you are not providing me the service I want, this person over here is gonna give me the experience I want as well". There's so much more of that value being generated in the experience that the particular product or brand delivers, it's not just about the cost of it anymore.

[00:05:19] Dave Sharrock: Yeah. I really like where you're going there. What you're describing is, we have to understand our customers world. We have to step into that. I think it's partly just as a result of massive segmentation that we see nowadays. The market is a market of one, rather than a market of 16 to 25 year olds. And when you are looking at that market of one, we really need to start putting together a model of how that market of one might behave. The reality is that we won't know what's valuable. We all have ideas, of what we think our customers find valuable, but then we've got to have that mindset of exploration and curiosity to go and find out what some of that value is, and to keep an eye out for where our customer spends time. Where they engage and follow through and where they may be going.

[00:06:14] Peter Madisson: Yeah, definitely. One of the communities that I'm part of called Flow Collective, there's a gentleman called Saed Kaan. One of the exercises or workshop that he's developed to help his clients understand value is based off Bain's Value Permits. A few years ago, Bain created these value permits, one for B2C and one for B2B. Within them, you've got different layers of types of value. So for example, the BTC one has at the bottom things like, saves time, avoids hassles reduces costs. Then at the next layer, you've got emotional elements, which are things like, wellness attractiveness, provides ac-cess to things. Then life changing elements, which are provides hope, is an heirloom. And then at the top, you've got social impacting: elements like self transcendence. So there's this idea of almost a Maslow's hierarchy of needs of value. It's not complete, but it's an interesting way of looking at it and helping people realize that there are so many other different types of value and they are defined by what the customer is getting from the product. Different customers might see different value in a product, as well. Different people might value things in a different way for different reasons. The workshop, or the exercise, he runs through is based on this idea of taking all those different elements and then helping people say, well "Which of these do you think applies to your products, your services, your company. And how much do you see those as be-ing relevant to your customers?".

[00:07:41] Dave Sharrock: Yeah. It's fascinating as you're describing that, be-cause that perspective is a customer centric perspective. It's outside in, not in-side out. The first layer that you describe about cost saving and removing hassles. Well, everybody's familiar with that in our day-to-day life because our companies go through efficiency drives and cost saving drives and the budgets get cut. We all know that world from an internal perspective. What I always find is as long as I'm staying internal to the company, I'm losing the opportunity to think in the same way for the customers and how they're engaging. So, saving money for the company doesn't necessarily save time and money for customers that are using your problem. What I like about the pyramid that you're just describing there, is there's very little to do with the company. This is all going out to our customers, our users, and really trying to enhance the ability of our customers to do whatever it is that they do.

[00:08:44] I think a second thing, that is a reality, when you go into that space, is it subjective not objective. One of the benefits of dollars and cents, I get a financial statement. I can see exactly where that is, either in my department or it's a company share price. There's a proxy that we use for value, which is universally understood. When we go into using the pyramid that you're describing and trying to understand that, we now have to bring a number of subjective perspectives as to what that value is. Which is great from an exploratory and curiosity way, but from hard numbers that I can rely on, of course, it's frustrating because we're now introducing ambiguity and uncertainty into those deci-sion making processes.

[00:09:28] Peter Madisson: Completely. I was thinking, as you were saying that, at the risk of getting a little existential, but money itself is a proxy for value, always. We all agree on what the price of something is. That's how we use money as that exchange between different things for the price of goods. Otherwise we'd operate in a barter system, but even then it's like, "how much do I value this?". And the concept of value, in terms of how much has this worth for me and how much will it be worth for me in the future? The classic example, I think out of management literature, is this idea of a diamond and a bottle of water. Depending on the context of where you are, a diamond is really, really valuable. If I'm sitting at home and I want to go buy cars and things and goods and all the rest of it, give me a huge pile of diamonds, because then I can go buy as many bottles of water as I want. However, if I'm lost in the middle of a desert, I don't want diamonds. I want bottle of water. It's way, way more valuable to me.

[00:10:21] Dave Sharrock: Again, context is everything. There are services, products that we can put out there, which save customers and end users, time, money. Those tangible things that people care about on the surface. But we also know many, many different products and services, which somehow become very, very powerful and very strongly recognized, which don't touch any of those things, which are further up that pyramid of customer value that you de-scribed earlier. Think of branded clothing, for example, or nearly anything that around that. The warmth and the fact that we're wearing clothes has been dealt with early on, but there's a lot of social capital associated with branding. In those areas, they understand that value. They understand value in terms of perception and how you associate different things with the products that you have. There is definitely areas of industries that have a very well established under-standing of value.

[00:11:22] And maybe it's just that in the technology world, we come across people who do the math with dollars and cents a little bit more than that. It isn't a case of the unknown that we're going into. Coming up with these subjective proxies for value of what our customers need or appreciate. I think there are many models where it's been shown, the fashion industry as one of them, where there is an understanding of these amorphous, ambiguous, subjective measures of value. So it isn't the first time that we're pioneering these things. It's more a case of using those models and translating the ideas, not necessarily the models themselves, into how people engage and use the products that we're building.

[00:12:03] Peter Madisson: Yeah, for sure. There was a question that came up in one of the forums ,one of my lean coffees, about how to fiscally measure the value that an individual software developer delivers. Jokingly and somewhat poke fun at him said, "yeah, sure we can work out a dollars per story point cost for you, that's a great way of doing it". That's sarcasm for anybody listening. This is a terrible idea! There's so many bad things that come out of this. So we ranted a little bit back and forth and gave him a few other ideas about how to look at measuring value to delivery to customers. Which is really where we should be doing it. If we're developing software for developing capabilities, if we're looking at the organizational delivery of value to the customers, then our focus needs to be there.

[00:12:48] Dave Sharrock: What you're saying is really interesting because there is this functional view of your team does this and it's expensive. Or it's not expensive. From a cost perspective, if you like. And we associate cost with value very, very quickly. There's cost plus pricing and things like this. That association of the cost of something and comparing it to value. But I think there's a whole other piece, which is where we create value. It's the intangible side of things. And when I look at the success stories around us, they invariably don't take that sort of cost plus model. They're not taking costs this much to create something, and add a little bit of value. They're telling a story, they're creating in a contextually situationally specific experience, where then the cost is completely different. And the cost is almost irrelevant in the sense of the value that is created. The value replaces our cost plus mentality. I'm just thinking of a number of services that we're all using on our phones nowadays. Things that 10 years ago, we would never have needed or thought that we need. And yet now, we don't think twice about either giving our own personal information.

[00:14:03] We started this talking about gaming earlier on today. Taking a time out to do some gaming. Well, that's an example of somewhere where the value is far in excess of the perceived cost. The game subscription itself, or the ma-chines that we use to allow us to play the games. But there's a whole immersive experience there. And in that pyramid that we're talking about, it's further and further up that pyramid. But the challenge is, we don't have the tools necessarily in a lot of the organizations that we're working with. We're looking at these simpler tools where there's a spreadsheet. Some discounted cash flows. We can do that side of it, but we're not able necessarily to really think about the narrative that we're providing and the quality of experience that can be delivered, which has value and really starts being much more interesting from a customer and users perspective.

[00:14:55] Peter Madisson: I think that's a beautiful way of summing it up and. At the risk of overrunning and going into even more topics. I think that's a beautiful way of wrapping up this conversation. And so is there anything else you'd like to add before we did?

[00:15:06] Dave Sharrock: Like you say it's a topic that, as you peel it back, there's so much to talk about. I'm sure we'll come back to it at some point. This has been quite wide ranging, we've touched on a range of things.

[00:15:15] Peter Madisson: Well thank you to everybody for listening and that wraps up another podcast today. You've been listening to definitely, maybe agile, the podcast where your hosts, Peter Madison and David Sharrock focus on the art and science of digital, agile, and DevOps at scale.