How does your Company measure value? An introduction to EBM

Introduction to Evidence-Based Management

Many times we can see companies lacking a continuous and cohesive approach to improve customer outcomes, organizational capabilities, and business results. In the following post, I would like to introduce an Evidence-Based Management framework, which is an empirical approach created by Scrum.org. It is crucial to have strictly defined, proper measures, which allows you to track your company ability to deliver value in an uncertain world, seeking a path toward strategic goals. Your company is supposed to systematically improve its performance over time and refine its goals based on better information. Here we go!

Seeking towards organization goals

The Evidence-Based Management framework can be treated as some kind of roadmap. A company must define its objectives/goal in different period of times. Those are:

1. Strategic Goal — big goal company would like to obtain,
2. Intermediate Goals — milestones to achieve in order to achieve a strategic goal,
3. Immediate tactical goals — near-term goals to obtain Intermediate Goals,
4. Starting State — where the company is relative to Strategic Goal is at the very beginning of its journey,
5. Current State — where the company is relative to Strategic Goal today,

To obtain its goals, a company must set up and validate the hypothesis. The results must be properly tracked with proper KPI’s. Company must measure what it is doing.

How Evidence-Based Management measures value?

The EVM framework distinguishes three types of measure categories:

1. Activities — what are people doing?
2. Outputs — what organization produces?
3. Outcomes — what are the customer’s benefits?

Understanding the distinction between their three categories is important. The most important aspect is to focus on the customer, be customer-centric. Why? Most of the work we are doing is useless. Meetings can take a long time but rarely provide any value. Most of the features delivered in products are useless. So, how can it impact improving customer satisfaction?

What are the Key Value Areas?

The goals we would like to obtain, as well as the measures we are providing, comes from many different areas. EVM distinguishes four of them, and those are:

1. Current Value,
2. Unrealized Value,
3. Time-to-market,
4. Ability-to-innovate.

Current Value

The purpose of looking at a CV is to understand the value that an organization delivers to customers and stakeholders at present

Within the CV value area we consider only the current situation, not the future. As an organization you will need to constantly ask about customer happiness, and figure out the trends:

1. How happy are users and customers today?
2. How happy are your employees today?
3. How happy are your investors and other stakeholders today

Unrealized Value

It is all about optimizing the delivery process. Unrealized value is the difference between customer/user current experience and the best experience they can get.

Questions organization must ask to obtain Unrealized Value are:

1. Can any additional value be created by our organization in this market or other markets?
2. Is it worth the effort and risk to pursue these untapped opportunities?
3. Should further investments be made to capture additional Unrealized Value?

Company strategic goals must be formulated in the way the gap between CV and UV is equal to zero.

Time-to-market

T2M express the company’s ability to deliver required by the customer’s features to the market on time. It should be obvious that each organization should aim to minimize the time between gather market requirements, and deploy product features or services to the public. Without actively managing T2M, the ability to sustainably deliver value in the future is unknown.

The company should constantly ask about:

1. How fast can the organization learn from new experiments and information?
2. How fast can you adapt based on the information?
3. How fast can you test new ideas with customers?

It is crucial to deliver to improve the frequency on which a company can deliver value to the customer. Remember, only the features that are release provide a value. No other work is valuable from a customer point of view.

Ability to Innovate

The last key value area mentioned by Scrum.org in Evidence Based Management is Ability to innovate (A2I). The main concern of this are is to focus on company effectiveness to deliver new features to customers.

The effectiveness of an organization to deliver new capabilities that might better meet customer needs

Questions to answer in this key values are are:

1. What prevents the organization from delivering new value?

2. What prevents customers or users from benefiting from that innovation?

Improving A2I helps an organization become more effective in ensuring that the work that it does improves the value that its products or services deliver to customers or users.

How company can progress towards its goals?

Achieving big things is a matter of small steps and determination. Start with evaluating where you are. You should start measuring the value of your product or service — Current Value; from the very beginning, or at least where you are right now. As the future is unknown, you should do repetitive experiments to achieve your goals and know, what should be the direction you go.

Try to implement Experiment Loop (similar to Plan-Do-Check-Act) and move your organization from the Current State toward the next Target Goal. The Experiment Loop consists of:

1. Form a hypothesis that can help you move toward a goal,
2. Run your experiment,
3. Check your results,
4. Adapting your goals or your approach based on what you learned

It is very important to be objective about the results. Sometimes what you will find out can hurt. Most of the features developed by IT companies are not used. If your Strategic Goal is no longer relevant, you will need to either adapt it or replace it. Think about what can add the most value fro your customers, do it and check it. It is like maximizing Product Backlog, done by the Product Owner in Scrum.

Does Scrum.org provide key-value measures?

Yes, the organization has provided some examples, however they should be tailored for a specific industry, brand and company.

Current Value

1. Product Cost Ratio — Total expenses and costs for the product(s)/system(s) being measured,
2. Customer Satisfaction — Some form of sentiment analysis to help gauge customer engagement and happiness with the product,
3. Customer Usage Index — Measurement of usage, by feature, to help infer the degree to which customers find the product useful.

Unrealized Value

1. Market Share — The relative percentage of the market not controlled by the product; the potential market share that the product might achieve if it better met customer needs,
2. Customer or User Satisfaction Gap — The difference between a customer or user’s desired experience and their current experience,
3. Desired Customer Experience or satisfaction — A measure that indicates the experience that the customer would like to have.

Time-to-Market

1. Release Frequency — The number of releases per time period,
2. Deployment Frequency — The number of times that the organization deployed (released) a new version of the product to customers/users,
3. Time to Pivot — A measure of true business agility that presents the elapsed time between when an organization receives feedback or new information and when it responds to that feedback.

Ability-to-Innovate

1. Innovation Rate — The percentage of effort or cost spent on new product capabilities, divided by total product effort or cost,
2. Installed Version Index — The number of versions of a product that are currently being supported,
3. Technical Debt — A concept in programming that reflects the extra development and testing work that arises when “quick and dirty” solutions result in later remediation.

Thank for reading this article. Now it is your time to share your point of view on this topic! ;-)