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How to Measure Business Value

 

Do you estimate value correctly? 

Your team just delivered a feature that you deemed very valuable. And that’s the reason why that feature ranked high on the priority list. But now that it’s delivered, did it live up to expectations? 

That’s an interesting question, as very many organizations and teams operate as an open loop system. They hypothesize about the value of their work but fail to effectively check whether that value was actually realized. And the common reason for this is confirmation bias. Once something is delivered, it is assumed to produce the intended value. 

A better way is needed and today we’re going to talk about it.

The challenge of measuring value

First of all, once something has been delivered, the value needs to be measured. And that is the tricky part. There are two primary difficulties that we have to learn to deal with to effectively measure value. The first one is due to the fact that business value is a result of synergy of multiple solution features and so tracking value back to a specific feature is difficult and largely impossible in terms of financial value. Besides, there are usually multiple levels of indirection between your solution and the ultimate business value. The second difficulty is due to the time lag. It is one thing to implement and deliver some solution capabilities to the customer. But it may take quite a while for the value to be realized. But you need some feedback early because maybe it is supposed to inform your next steps. 

Let’s address these two points. And we will do this for both of them at the same time. 

Using proxy measures

If the actual value is hard to assess (either because it is hard to track back across multiple levels of indirection or because the value is lagging in time), we must learn to approximate it. So, instead of measuring value directly, we’re going to use some proxy measures that will be suggestive of the value. 

So, for example, it may be hard to tell if adding calendar integration to our order management system would allow us to sell more licenses of the system, until after a couple months upon delivering this feature. But even the moment the feature was finished, we may start measuring other things, like user activity for that feature, and start capturing some usage analytics. And if it turns out that the feature is barely used, then that’s already interesting. Either our customers don’t need the feature, or they don’t like the way it’s implemented, or maybe they can’t even get to this feature because it is so hidden. Or, maybe we see great usage levels. In either case, this is extremely useful information. And maybe, on top of the usage analytics, we would also ask select customers to provide NPS score, to speak for the efficacy of the solution from their point of view. 

Taking action

Those are some examples of proxy measures but generally speaking, proxy measures are highly contextual. And the big question is which are best suited to your context? Answering this question sounds like a good action item for you. 

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Learn more

Eric Ries, The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses (Sep, 2011)

Alex Yakyma, Pursuing Enterprise Outcomes: Maximizing Business Value and Improving Strategy for Organizations and Teams (Aug, 2020)

Alex Yakyma

Alex Yakyma is the author of “Pursuing Enterprise Outcomes” and “The Rollout”. As a consultant, Alex is helping enterprises succeed with complex challenges. Throughout his career, he operated in multi-cultural, highly distributed environments. Alex has trained a large number of change agents and leaders whose key role is to help their organizations achieve higher effectiveness at pursuing business outcomes.

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