Value Based Prioritization
Highsmith et al1 make the argument that prioritization decisions should be based on customer value. Customer value in their EDGE operating model refers to what the customer gets from the business and is willing to pay for. For example healthcare customers may value patient outcomes and safety, while public services customers may value responsiveness. The customers of different organizations will view value differently. However which ever way it is viewed, it is important to measure that value and use that as the basis for making investment decisions.
Measures of Success
To measure this value, they argue that Measures of Success (MoS) be used to represent this value across every level of the organization. These measures are important for three reasons –
- It demonstrates incremental value creation
- It helps drive prioritization using a most-valuable-thing-first approach.
- It maintains alignment across the organisation
MoS are a “a measurement of something a customer sees as valuable“. For example, delivery time and customer satisfaction. They differentiate a Measure of Success from ‘Benefit’. A Business Benefit is an outcome that an organization wants, but which a customer does not immediately recognize as valuable. Examples of benefits include revenue, profit and market share.
Benefit as a lagging indicator
Mason et al2 argue that value is what customers get from a business, and benefit is what the business gets in return. They see benefit as a lagging indicator. A business is essentially a bet that providing a given value to a customer will result in a given benefit.
Customer Value is not always quantitative
I strongly agree with Mason’s view that true customer value is rarely a quantitative measure2. Here is how they put it (emphasis mine):
Value measures are often confused with the need for our work to appear valuable, or for ourselves to be valued as individuals. Herein lies an epiphany: true value is rarely a quantitative measure, but rather a yes/no question (was the value received?) and, as such, needs to be asked each time and be dependent on the transaction at hand. That’s the real issue: customer value can be difficult to measure; that is, the proper measure is not always easy to get, so organizations tend to favor simpler, less-relevant, unaligned alternatives. This is especially true when you want to focus more on customer outcomes—often due to the time lag between the transaction and the realization of the value. There are no obvious metrics that can gauge the value of peace of mind, the value of personalization, the value of convenience, or the value of feeling in control. You must live with ambiguity and sometimes use approximations.
They go on to talk about the intent of the measures of “simpler, less-relevant, unaligned alternatives“. These include financial measures, individual performance indicators and improvement measures. These are relevant and important things to measure in themselves. But it is important to distinguish the intention of these measures against those of customer value. Here is a table summary:
| Measure | Intent |
|---|---|
| Customer value measures | To determine what work to do next meet a customer outcomeTo decide what initiatives, projects, programs and experiments to invest in |
| Financial measures | To understand the company’s health and enable better fiscal responsibility |
| Individual KPIs | To help people improve |
| Company improvement measures | To help the company become efficient and effective in its activities |
References
- “EDGE: Value-Driven Digital Transformation“ by Jim Highsmith, Linda Luu, David Robinson. 2019. Addison-Wesley Professional.
- “Digital Transformation Game Plan” by Gary O’Brien, Guo Xiao, Mike Mason. 2019. O’Reilly Media.