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HowtoExcelatDigitalValueDelivery

How to Excel at Digital Value Delivery – Mindset #1: Be Value-Driven

In a previous post, we referenced the eight mindsets consistent across organizations that have successfully transformed themselves to deliver and evolve physical and digital experiences.

The first mindset of the eight is an organization’s willingness and ability to structure themselves around the delivery of value to customers. In Value-Driven organizations, individuals are empowered across the organization to make business decisions about how to best deliver that value. Budgets and cross-functional teams are tied to long-lived products, as opposed to short-term projects, with tactical allocations of budget and staffing made throughout the year by product owners (product owners who make decisions based on non-financial metrics and relative business value.) Organizations that have shifted away from project teams and project funding to a more Agile model have seen a dramatic increase in time to market, quality, and innovation.

5 Practices of a Value-Driven Organization

  1. Value Streams – Value Stream mapping is a Lean management tool used to identify and eliminate waste that occurs in the process of delivering value to a customer. A Value Stream is a repeated series of activities used to deliver that value, and can represent the activities used to design, develop, and deploy new capabilities, or more operational activities like the fulfillment of a customer order. Organizing around long-term Value Streams, instead of by functional silos or short-term project teams, can increase the flexibility of teams to pivot to new value opportunities, and provide visibility into wasteful activities that don’t provide clear value to the customer.
  2. Flexible Budgeting – Lean-Agile budgets are tied to Value Streams and the teams that realize those Value Streams, rather than specific projects.2 Such budgets allow those teams to make decisions about how to best create value without having to request new project-level funding every time product direction changes. This approach can also ensure that low-value ideas do not remain funded if they do not appeal to customers.
  3. Decentralized Business Decisions – Flexible budgeting will not make an organization faster if business decisions remain centralized. The individuals best able to make business decisions, including product owners at a team level and product managers at a program level, should be empowered to make those decisions regardless of their organizational status. Without such decentralization, decision-making slows down and teams lose the flexibility to pivot to new value propositions when needed. A recent Harvard Business Review study found a high correlation between overall financial performance and the efficiency of the decision-making structures that firms set up.3 This does not mean that all business decisions should be decentralized. As seen in the study, the most successful organizations set clear thresholds as to when financial decisions must be made by senior leadership.
  4. Innovation Accounting – Value-Driven organizations identify non-financial metrics to measure customer value and base their business decisions on objective data rather than hunches. Innovation Accounting is a term from the Lean Startup movement to describe metrics designed to measure progress when traditional accounting metrics are not applicable.4 Popular examples include customer activation or retention metrics.
  5. Relative Prioritization – Business decisions need not be based on traditional accounting metrics or even precise ‘level of effort’ estimates. Costs can be extremely difficult to estimate for IT projects; one in six projects has a 200% cost overrun. A better process is to use less precise size estimation, combined with business value rankings, to sequence jobs against each other or make simple determinations of whether jobs can fit in a given budget. The 2015 Standish Group CHAOS report found a higher degree of success on projects that used relative prioritization techniques instead of hard-to-develop ROI estimates.

Risks of Not Following Value-Driven Best Practices

  1. Increased Time-To-Market – Fixed project budgets and team structures often make it difficult for teams to quickly pivot direction based on customer feedback, changing market conditions, or other inputs. Delays can occur if a new team must be staffed to meet a different scope, or if changes need to go through a lengthy budgetary approval or contractual process before work can begin.
  2. Missed Innovation Opportunities – Organizations that tie the funding of new initiatives to financial metrics may miss opportunities to green light innovative ideas. Accurate cost estimates or ROI and cash flow projections may not be available for new product ideas, and many such ideas never make it past an organizationÕs financial officers if they rely on traditional project accounting models.
  3. Continued Investment In Low-Value Activities – Organizations that are not organized and funded around value may spend unnecessary time on activities that provide little value to customers. Project teams that are not part of larger Value Streams may miss opportunities to identify and correct low-value steps in the value delivery process, while project-based budgeting cycles may also result in projects and teams continuing to receive investment long after their original value proposition is gone.

Conclusion

Organizations that have historically funded their portfolio of projects through a yearly budgeting process miss opportunities to provide value to their customers. In a Value-Driven approach, cross-functional teams are funded as part of a Value Stream with discretion over how to best provide value to their customers without having to rely on fixed scope assumptions, inaccurate cost estimates, or difficult-to-obtain ROI forecasts.

We will explore the remaining seven mindsets individually in upcoming blog posts. When companies display all eight, we consider these companies to be in their ideal digital state; they embody the Digital Continuum. While these mindsets give you insight into the foundation of the Digital Continuum, we will be releasing something new and exciting this year that will shape how enterprise organizations approach digital.

Learn more and stay in The Digital Continuum loop here.