A Seat at the Table and The Art of Business Value

1. Business value is central to Agile, yet poorly defined

"Business value, critical but elusive, remains at large. Our first set of clues leads nowhere."

Agile's core principle is maximizing business value, emphasizing early and continuous delivery of valuable software. The Agile Manifesto and prominent Agile thinkers like Ken Schwaber, Kent Beck, and Jim Highsmith all stress the importance of delivering business value. However, most Agile literature sidesteps the question of what exactly business value is, assuming it will be determined by "the business" or a product owner.

Conflation of terms further complicates the issue:

• Business value
• Customer value
• User value

These are often used interchangeably, but they can mean different things. For example, features valuable to customers may not always align with business goals, and internal software may have business value without direct customer or user value.

2. ROI is an inadequate measure of business value

"Even if ROI were a good proxy for business value, it would not be very useful to product owners for prioritization decisions."

ROI's limitations as a measure of business value include:

• Focuses on short-term profits, ignoring long-term impacts
• Doesn't account for the timing of cash flows
• Ignores risk and uncertainty
• Based on financial accounting, not managerial decision-making
• Poorly correlated with shareholder value

Practical challenges in using ROI for feature prioritization:

• Difficult to assign value to individual user stories
• Values of features are often intertwined
• Revenue allocation on a feature-by-feature basis is challenging
• Side effects and cannibalization of other products are hard to predict

3. Net Present Value (NPV) falls short for many organizations

"NPVs as they are taught to business school students are not the right way to think about business value anyway."

NPV basics:

• Considers cash flows, timing, risk, and opportunity cost
• Discounts future cash flows based on risk and time value of money
• Positive NPV indicates a good investment

NPV limitations:

• Assumes profit maximization is the primary goal
• Difficult to accurately estimate future cash flows and risks
• May not capture non-financial aspects of value
• Doesn't account for strategic considerations or mission alignment

Example: An MBA program with negative NPV (-$49,000) illustrates how NPV can fail to capture the full value of an investment, as it doesn't account for intangible benefits or long-term career prospects.

4. Business value varies across different types of organizations

"The moral of the story is that, as the owners of the company, they had the right to declare business value to be anything they wanted. It was their company!"

Business value in different contexts:

• Public companies: Often focus on shareholder value (MVA or SVA)
• Private companies: May prioritize owners' vision over pure profit
• Venture-backed startups: Focus on growth, market share, and future valuations
• Nonprofits: Mission accomplishment and liquidity targets
• Government agencies: Mission performance, public value, and political considerations

Example: Intrax Cultural Exchange's owners refused to divest an unprofitable business unit because it aligned with their vision of international education, demonstrating how business value can diverge from pure financial metrics.

5. Agile teams must understand and interpret business value

"We cannot think of business value as something determined outside the team by something called the business and then simply presented or 'tossed over the wall' to the team in the form of user stories, prioritization, and feedback on product as it is produced."

Evolving role of Agile teams:

• Move beyond just executing pre-defined requirements
• Actively participate in understanding and interpreting business value
• Collaborate with product owners and stakeholders to define value

Implications for Agile practice:

• Teams need deeper business context and understanding
• Continuous dialogue about value throughout development process
• Shared responsibility for value delivery between team and product owner

6. Value delivery extends beyond feature completion

"Releasing code is not the same thing as delivering business value; to know that we have delivered business value, we must both understand what business value is and be attentive to outcomes."

Shift in focus:

• From completed user stories to actual business outcomes
• From feature delivery to value realization

Key considerations:

• Monitoring and measuring the impact of deployed features
• Iterating based on real-world usage and feedback
• Aligning development efforts with desired business outcomes

7. Business value includes future agility and options

"Part of the business value that software development can give us is the ability to respond to unknown future needs."

Expanding the concept of value:

• Building flexibility and adaptability into solutions
• Creating "real options" for future investments
• Valuing validated learning about the market and users

Implications for development:

• Architecting for change and extensibility
• Prioritizing technical practices that enable rapid iteration
• Balancing immediate needs with long-term flexibility

8. Cultural context shapes the meaning of business value

"The strange notions of value expressed by each of these organizations actually made sense in their contexts."

Value is culturally defined:

• Organizational culture influences what is considered valuable
• Industry norms and practices shape value perceptions
• Regulatory environments can dictate aspects of value

Examples of cultural influence:

• Startup culture valuing growth over profitability
• Government agencies balancing mission with public accountability
• Nonprofits focusing on mission impact and sustainability

9. IT leadership's role in delivering business value is evolving

"Have you noticed all the books telling CIOs how to be better CIOs? I have, because I'm a CIO. Mostly they say that the CIO should grab a 'seat at the table' (that's the executive table, where the grown-ups sit)."

Changing landscape for IT leaders:

• From project delivery to strategic value creation
• From control-oriented to enablement-focused
• From technology management to business outcome driving

New responsibilities:

• Interpreting and shaping the organization's understanding of business value
• Aligning IT capabilities with strategic objectives
• Fostering a culture of continuous value delivery and innovation

Challenges:

• Balancing traditional IT responsibilities with strategic leadership
• Demonstrating IT's value contribution beyond project metrics
• Navigating the evolving relationship between IT and "the business"

Last updated: November 12, 2024