Understanding Business Value: Aligning Development Work with Business Objectives
In product management, identifying and measuring business value is a cornerstone for effective decision-making. In this blog we explore some reasons why measuring business value is important, different types of business value, and the critical task of connecting business value to broader Key Performance Indicators (KPIs).
The Importance of Measuring Business Value
Resource Allocation
Resource allocation is a critical aspect of software development. Understanding the business value of each task helps in assigning the right number of developers, testers, and other resources to high-value tasks. This ensures that the team is working on features or bug fixes that offer the most value to the business and the customer.
Prioritization
Quantifying the business value of different tasks or features is crucial for effective prioritization and allows for more focused and impactful product roadmaps. This is particularly important when using prioritization models, which help in systematically determining which features to build first and which ones can wait, ensuring that you're delivering the most value to your customers and stakeholders as efficiently as possible.
Stakeholder Alignment
Quantifying business value is invaluable for aligning stakeholders. When everyone understands the value proposition, it's easier to get buy-in and move projects forward.
Types of Business Value
Financial Value
Financial value is the most straightforward to measure, often directly correlating with revenue generation or cost-saving. It typically has a short to medium-term time horizon and is often influenced by operational efficiencies and customer value.
Customer Value
Customer value focuses on enhancing customer satisfaction and engagement, which can lead to increased customer retention and lifetime value. Generally, the time horizon for realizing customer value is medium to long-term.
Operational Value
Operational value is about internal efficiencies—how a task or feature can make the organization function more effectively. It usually has a short-term time horizon but with long-term implications. Operational value often leads to financial gains and improved customer satisfaction over time.
Strategic Value
Strategic value aligns with the company's long-term goals and vision but may not have immediate financial gains. The time horizon for realizing strategic value is long-term and it often influences and is influenced by other types of value.
Repaying Technical Debt
Technical debt, if ignored, can erode business value over time. To gauge its impact, consider metrics like time spent on unplanned work and frequency of hotfixes. These indicators can serve as red flags, signaling the need to manage existing debt and prevent further accumulation.
Aligning Business Value with KPIs
The goal is to measure the business value of potential work in terms of KPIs most important to the feature, product, and broader business objectives. By measuring work in terms of KPIs, you can make data-driven decisions that directly contribute to both short-term wins and long-term strategic goals. It also enables continuous monitoring of these KPIs to make data-driven adjustments to your product roadmap.
Example Metrics for Different Types of Business Value
Financial Value: Revenue Growth, Customer Lifetime Value (CLV)
Customer Value: Net Promoter Score (NPS), Churn Rate, Feature Adoption Rate
Operational Value: Cost per Customer, Incident Response Time
Strategic Value: Market Share, MRR Growth Rate
A Practical Example
For instance, consider a hypothetical company specializing in an enterprise-grade B2B product engineered for on-premises deployment and architected to facilitate concurrent access for a substantial number of users. Now, imagine that this company has identified system performance as a customer pain point and that a business objective is maintaining low churn. Based on an analysis of the performance issues, the engineering team has recommended changes to the product's API.
Feature: Changes to the API
Type of Business Value: Customer Value
Feature Specific Mapped KPIs: API Response Time, Customer Survey Score on System Performance (1-5 scale)
Broader Business Objective/KPI: Maintaining Low Churn (Churn Rate)
Measuring and aligning business value with KPIs is essential for effective product management. It informs resource allocation, guides prioritization, and aligns stakeholders. By understanding the nuances of Financial, Customer, Operational, and Strategic value, you're better equipped to make impactful decisions that align with both immediate needs and long-term goals.
