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 business value. Macro-level business metrics are, however, lagging indicators, and as such make it difficult to get immediate feedback on the economic impact or value of any product changes. 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 are things that can be measured fairly soon after any product changes. Moving the needle on these product value KPIs represents business value creation.
Initiative/Action/Feature → Product Value Driver (KPI) → 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 a conversion rate, for example, we may choose to pivot in a different direction to achieve that outcome.
Linking work to business value should occur as early as possible in any intake or discovery workflow. Ideally while an item is still in the initial ‘Funnel’ state, and before discovery capacity is invested in further assessment and refinement activities. It is important to quickly establish a reasonable understanding of the intended business outcome, and the value driver (KPI) the proposed work is expected to influence. This information forms part of the workflow policy governing promotion from the Funnel into Assessment and helps ensure that scarce discovery capacity is focused on opportunities with a plausible path to value.
Product Improvements -> Product KPIs -> Business KPIs
For example:
High Res. Product Images -> Conversion rates -> Revenue
What is a feature?
A Feature is a customer-visible capability that delivers a measurable outcome and can be independently evaluated for business value.
Features are not simply collections of requirements. They are vehicles for delivering outcomes. Every feature should have a clear connection to a business objective, value driver, or measurable result.
Feature → Value Driver → Business Outcome
It is worth also noting that features may not always be customer-visible, for example:
- regulatory features
- platform features
- operational features
- risk reduction features
These may not be directly visible to customers but still deliver measurable business value.
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 Outcomes | 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.
As an alternative formulation some organizations use OKRs. (More about OKRs here). Think of KRs as KPIs with targets. OKRs are frequently set on a quarterly basis, with specific targets for each objective. For example:
- Objective: Increase Number of Site Visitors
- Key Results:
- Increased new visitors by 50K per month
- Increased repeat visitors by 25%
- Actions/Initiatives/Features/Stories – to achieve the KRs:
- Search engine SEO improvements
- PPC/PPM advertising spend increase by 100%
- Grow product catalog by 25%
- Feature: 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. If a product manager or product owner cannot explain why a specific item is in the product backlog, it should be removed.
| If a Product Owner cannot explain why an 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. |
For more on PI Planning and setting PI Objectives download the eBook: