Defining Value

Peter and Dave discuss how value is often seen through the lens of the company, focusing value on dollars and cents. There are many types of value especially when products are free to use. Value is very difficult to predict and defined by the customer.

References in this episode:
Saeed Khan's Medium post on value:
https://swkhan.medium.com/a-framework-for-understanding-value-25a8eefcf61c

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Chapters

• 0:00 Introduction to Value Definition
• 1:57 Beyond Dollars: Value Is Customer-Defined
• 4:35 Different Types of Value Pyramids
• 9:02 Subjectivity vs Objectivity in Value
• 14:35 Context Matters: Value Depends on Needs
• 18:39 Measuring Value in Teams and Products

Transcript

Peter [0:06]: Welcome to Definitely Maybe Agile, the podcast where Peter Maddison and David Sharrock discuss the complexities of adopting new ways of working at scale.

Dave [0:14]: Hey Peter, great to see you again! So I don't know what it's like where you are, but we're getting warnings of minus 25 degrees Celsius wind chill here in Vancouver. I know for you Torontonians that's probably nothing, but it's definitely going to put a damper on my weekend plans.

Peter [0:33]: Oh man, that does not sound pleasant at all! It's actually been warming up a bit here. Earlier this week was just... shudders ...awful, awful, awful.

So we were just chatting about what to dive into today, and the topic of defining value came up. Which is such a great topic because I think it's something people really struggle with. What are your thoughts on this whole value definition thing?

Dave [1:01]: Yeah, it's fascinating. I was just doing product ownership training this week, and whenever I'm talking to product owners and product managers, value comes up immediately. And what always surprises me - even after, what, 20 years of the Agile Manifesto talking about customer collaboration, plus all the design thinking and customer-first approaches - I'm still amazed at how quickly any conversation about value turns into dollars and cents.

And not just dollars and cents, but specifically dollars and cents for the company rather than thinking about customer experience or value created for the actual customer. It's like we get trapped in this profit-and-loss, revenue, market share mindset - which, don't get me wrong, those things matter! But it's all through the company lens.

Peter [2:25]: Exactly! And the thing is, the customer is the one who actually defines value. In my world, we talk a lot about value delivery and how the world is moving toward that model. There are so many types of value beyond just money, but as you said, that MBA-type thinking tends to dominate.

Here's one I like to throw out when this comes up: if the product is free, then you are the product. laughs

Take Twitter, for example. Their revenue and value is based on their reach into the marketplace. The things they develop as features are designed to grow their user base, because that's where their value comes from - the ability to connect people. There are tons of different ways to define and create value beyond just dollars and cents.

So are there specific approaches you use to help people wrap their heads around this concept?

Dave [3:35]: Yeah, before I dive into that, I love that point about "if it's free, you are the product."

Companies that give their products away for free have to have a completely different perspective on value, right? If you're selling something off the shelf with a price tag, then yeah, you're living in that world of market share and revenue and profit margins.

But when you flip that mindset and ask "how do I think about value when I'm giving this away for free?" - suddenly you're looking at where the revenue actually comes from. And I'm not even talking about ad revenue here. I'm talking about creating networks, building communities, generating engagement that has real value to customers and keeps them coming back.

Dave [4:44]: Not because they paid for a subscription or it's the only tool they can use for work, but because it's genuinely more valuable than anything else they could find. It serves their purposes, meets their needs, solves their problems better than the alternatives. That's a completely different value equation.

Peter [5:36]: There's such an incredible range of value types out there, and it's always the customer who gets to define what's valuable to them. We fall into this trap way too often of making assumptions about what customers want without actually building systems to understand if we're giving them what they need.

And now, more than ever, customers can just... leave. snaps fingers Like that. "You're not giving me the value I want? Cool, I'm going to this other company that will give me the experience I'm looking for." So much of that value is being generated in the experience the product or brand delivers, not just the cost anymore.

Dave [6:35]: I really like where you're going with this because what you're describing is that we have to understand our customer's world. We have to step into their shoes. And I think part of this is because of the massive market segmentation we see nowadays - it's not about targeting "16 to 25 year olds" anymore, it's about a market of one.

When you're looking at that market of one, you really need to build a model of how that individual might behave. The reality is, we won't know what's valuable to them. We all have ideas about what we think our customers find valuable, but we need that exploration mindset, that curiosity to go find out what actually creates value for them and keep watching where they spend time, where they engage, where they might drop off.

Peter [7:42]: Absolutely! So there's this guy in one of the communities I'm part of - Flow Collective - named Saeed Khan. Brilliant guy, love what he brings to the table. He's developed this workshop to help clients understand value, and it's based on Bain's value pyramids.

A few years back, Bain created these pyramids - one for B2C, one for B2B - with different layers of value types. The B2C one, for example, has foundational stuff at the bottom like "saves time," "avoids hassles," "reduces costs." Then you move up to emotional elements like "wellness," "attractiveness," "provides access." Then life-changing stuff like "provides hope" or "creates an heirloom." And at the top, social impact elements like "self-transcendence."

Peter [8:48]: It's almost like Maslow's hierarchy of needs, but for value. It's not complete - there are always different ways we see value - but it's a really interesting framework. Different customers might see completely different value in the same product for totally different reasons.

So Saeed's workshop takes all these elements and helps people think through "which of these apply to your products and services? How relevant do you think these are to your customers?"

Dave [9:41]: That's fascinating because what you're describing is a customer-centric, outside-in perspective, not inside-out. That first layer you mentioned - cost saving, removing hassles - everybody's familiar with that from our day-to-day work life because companies are always going through efficiency drives and budget cuts.

But here's the thing: as long as I'm staying internal to the company, I'm missing the opportunity to think the same way about customers. Saving money for the company doesn't necessarily save time and money for the customers using your product.

Dave [10:43]: What I love about that pyramid is there's very little about the company in it. It's all about serving our customers and users, really trying to enhance their ability to do whatever they're trying to accomplish.

The second thing that strikes me is that it's subjective, not objective. One of the benefits of dollars and cents is that I get a financial statement - I can see exactly where we stand as a department or company, look at share price, whatever. There's this universally understood proxy for value.

When we use frameworks like that pyramid, we're introducing subjective perspectives on value. Which is great for exploration and curiosity, but... sighs ...I still need to make business decisions with hard numbers I can rely on. It's frustrating because we're introducing ambiguity and uncertainty into decision-making processes.

Peter [11:50]: Totally! And at the risk of getting a little existential here... laughs ...money itself is just a proxy for value, right? We all agree on what something costs, and that's how we use money as an exchange between different things. Otherwise we'd be operating on a barter system.

But even then it's still about "how much do I value this, and how much will it be worth to me in the future?"

The classic example from management literature is the diamond versus bottle of water scenario. If I'm sitting at home wanting to buy cars and stuff, yeah, give me a huge pile of diamonds because then I can buy as many bottles of water as I want. But if I'm lost in the middle of a desert? I don't want diamonds - I want that bottle of water. Context is everything.

Dave [12:57]: Exactly! Context is everything. And what's interesting is there are products and services that save customers time and money - those tangible things people care about on the surface. But we also see products and services that become incredibly powerful and recognized that don't touch any of those basic things. They're operating further up that value pyramid.

Think about branded clothing. The basic need - warmth, being clothed - that's been handled. But there's all this social capital associated with branding. That's real value, and those industries understand value in terms of perception and how people associate different things with their products.

Dave [14:08]: Maybe it's just that in the tech world, we encounter people who default to dollars-and-cents math more than other industries. But it's not like we're pioneering something unknown here with these subjective value measures. The fashion industry has figured out these amorphous, ambiguous, subjective measures of value. It's more about using those models and translating the ideas - maybe not the exact models, but the concepts - into how people engage with the products we're building.

Peter [14:59]: For sure! And speaking of measuring value... laughs ...this question came up in one of my Lean Coffee sessions where someone was asking how to fiscally measure the value an individual software developer delivers. I jokingly - and somewhat sarcastically - said, "Yeah sure, we can work out a dollars-per-story-point cost for you. That's a great way to do it."

chuckles That's complete sarcasm for anyone listening. This is a terrible idea! So many bad things come from that approach. We ended up having this whole discussion about better ways to look at measuring value delivery to customers, which is really where we should be focusing. If we're developing software to build capabilities, our focus needs to be on organizational delivery of value to customers.

Dave [16:05]: What you're saying is really interesting because there's this functional view of "your team does this and it costs X amount" - we associate cost with value really quickly. Cost-plus pricing, that whole mentality.

But there's this other piece - where we create value through intangibles. When I look at success stories around us, they're not using that cost-plus model. They're not saying "it costs this much to create something, so I'll add a bit of value on top." They're telling a story, creating contextually specific experiences where the cost becomes almost irrelevant because the value far exceeds it.

Dave [17:40]: I'm thinking of services we all use on our phones or computers now - things that 10 years ago we never would have needed or thought we needed. And now we don't think twice about either giving away our personal information because we are the product, or paying for subscription services.

You mentioned gaming earlier when we were chatting before the show. That's a perfect example where the value far exceeds the perceived cost, whether it's the game subscription or the hardware we buy to play games. There's this whole immersive experience that sits way up on that value pyramid.

Dave [18:51]: The challenge is that in a lot of organizations we're working with, we don't have the right tools. We've got spreadsheets and discounted cash flows - we can build a business case with those. But we're not able to really think about the narrative we're providing, the quality of experience we can deliver. That's where the real value lives from a customer perspective.

Peter [18:51]: I think that's a beautiful way of summing it up! And at the risk of going down even more rabbit holes - because I can think of so many different directions to take this - I think that's a perfect place to wrap up this conversation. Anything else you'd like to add before we close out?

Dave [19:06]: laughs The danger is I could keep going forever. As you peel back the layers on this topic, there's just so much to talk about. I'm sure we'll come back to it at some point, but I think we've covered quite a range here.

Peter [19:20]: Awesome! Well, thank you everyone for listening. That wraps up another episode. You've been listening to Definitely Maybe Agile, the podcast where your hosts Peter Maddison and David Sharrock focus on the art and science of digital, agile, and DevOps at scale.