In Scrum, every artifact (Product Backlog, Sprint Backlog, Product Increment) is intended to provide a focal point against which progress can be measured. The Scrum Guide tells us that just as everything in a Sprint Backlog should be contributing to a Sprint Goal, so everything in the Product Backlog should be supporting a Product Goal. At the daily scrum, teams evaluate their progress towards the goal for the current sprint, and if necessary, make adjustments to the sprint plan needed to achieve that goal. At the end of each sprint we conduct a Sprint Review where a team demonstrates what was accomplished in the sprint and, potentially provide input to the question: what shall we do next? If necessary, adjustments to the Product Backlog can then be made in order to better align with product goals. Business stakeholders should be able to view a Product Backlog and recognize what product goals are being addressed. This is transparency, a fundamental pillar of Scrum’s empirical framework – the ability to make decisions based on facts and data. If not, it could be that the backlog is too detailed, or too technical, or indeed that backlog items have no identifiable value. Value Driver Trees are a good way to improve this transparency, and ensure alignment between Product Goals, and Product Backlogs is clear.
What is Business Value?
From a business perspective, any action (new feature, new capability, or other action taken) that leads or contributes to an improved business outcome – increased sales, decreased costs, decreased risks – fundamental measures of a company’s business performance – represents value. Of course these macro-level business outcomes may be too far removed from individual team actions to provide a meaningful correlation with the business value from any individual product feature. They are lagging indicators, and as such make it difficult to measure the economic impact or value of any product change that we make. Leading indicators are needed to assess the value of any product innovation, so that adjustments can be made on a more immediate basis. Product KPIs are more effective measure for this purpose, for example Conversion Rates, Customer Churn Rates, Customer Acquisition Costs, Active Users, and so on. These can be considered drivers of business value, or value-drivers. These are things that teams can directly contribute to, and can be measured via Product KPIs. Specific value drivers and associated KPIs will be product or domain-specific. Moving the needle on these product value KPIs represents business value creation.
Initiative/Action/Feature → Product Value Driver → Business Value
Product-level KPIs are leading indicators that offer us a way to track the impact of a new feature on a much more short-term basis, say monthly or quarterly. If a new feature does not have the intended impact on conversion rate, for example, we may choose to pivot in a different direction to achieve that outcome.
Value Driver Trees
Value Driver Trees visualize the linkages between desired business goals (Increase Revenue/Decrease Costs/Reduce Risks), the product strategy to achieve those goals (Increase # Visitors/Increase Revenue Per Visitor/Reduce Customer Churn), and the actual work (feature development or other actions) needed to produce that value. Key Performance Indicators (KPIs) provide a way to measure and track progress towards those goals.
| Business Outcome | Value Drivers | Initiatives/Features | KPIs |
| Increase Revenue |
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| Decrease Costs |
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The value of any proposed initiative or new feature should be measurable via Product KPIs. Specific targets can be set for individual KPIs.
An alternative formulation would be to use OKRs. Think of OKRs as KPIs with targets. (More about OKRs here). Many organizations set OKRs on a quarterly basis, with specific targets for each objective. For example:
- Objective: Increase Number of Site Visitors
- Key Results:
- Increase new visitors by 50K per month
- Increase repeat visitors by 25%
- Actions/Initiatives/Features:
- Search engine SEO improvements
- PPC/PPM advertising spend increase by 20%
- Grow product catalog by 10%
- Multiple high resolution images per product in search results
Regardless of the formulation approach, a Product Manager or Product Owner must be able to articulate the value (KPI improvements or Key Results achieved) of any proposed new feature added to a product backlog. If a product manager or product owner cannot explain why a specific item is in the product backlog, it should be removed.
Driver Trees and their associated KPIs will be product or domain-specific. Newly formed agile teams, whether standalone, or those that are part of an Agile Release Train (ART), may find it useful to construct value driver trees as part of their initial team setup process. This exercise will help ensure that teams are strongly aligned with business priorities and strategy.
When planning releases, or Program Increments, or even Sprints, we want to ensure that our development activities are actually focused on creating business value. The Value Driver Tree is an excellent tool for supporting this exercise, and Product Owners can use it to articulate exactly why any particular feature makes business sense. When product features are represented in this way their value is clear and measurable.
Of course new product features are not the only way of creating business value. In the above chart we suggest that other actions can be taken to increase revenue, for example, entering new markets. A business goal of “Increase revenue by 20%” might be pursued by expanding sales and distribution into underserved markets.
In the SAFe PI Planning model, business objectives are established ahead of the PI Planning Event. During PI Planning, once each team has estimated the scope of what they can deliver in the next PI, they must reconcile that with the desired business objectives. This done by summarizing their plan for the PI into a set of PI Objectives – what they can actually accomplish based on their team capacities. These objectives are then scored by business stakeholders based on the perceived business value of each objective.
Making the business value of each feature explicit means they can be weighed or ranked against each other. As part of the Program Backlog refinement process it would be highly beneficial to see business outcomes, value drivers and KPIs articulated as part of the feature description. For example :
Making the desired business outcome, value driver, and KPI explicit, forces a high level of clarity about the business value of any proposed feature, and helps delivery teams be really clear, going into a planning exercise, about what they need to accomplish. Anything that cannot be clearly connected to a value driver or business outcome mostly likely represents waste in the form of features that nobody needs, and should be eliminated. This is fundamentally about creating more value with less work.
| True Business Purpose
Enlightened thinking would assert that the true purpose of a business is not to generate revenue but to create customers. Drucker wrote: “There is only one valid definition of business purpose: to create customers.” In other words, generating revenue is a consequence of creating customers, and hence customer creation and retention should be the primary purpose of any business. |
| Team self-organization and empowerment
Lack of understanding by employees of an organization’s strategy translates directly into the ability to self-organize on solutions to product challenges. In a landmark workplace accountability study, it was found that 93% of employees did not understand what their organization was trying to accomplish, so they could not align themselves to that goal. Henrik Kniberg (of Spotify fame) talks about how the ‘Spotify Model’ exists to promote high levels of autonomy as deep as possible within the organization. He subsequently added however that autonomy without alignment is chaos, and coined the expression ‘Aligned Autonomy’. For small organizations, alignment can be achieved in a hallway conversation. At scale, we need a bit more structure and formality. The Value Driver Tree exercise is one very effective way of achieving alignment around business goals and strategy. Teams need to see the value of what they produce. Self-organization around value delivery, gives teams a sense of ownership and accountability. Further, using KPIs enables teams to see the value their work contributes to the business. |