EBM Focuses on Four Key Value Areas
In addition to using hypotheses and experiments to move toward goals, EBM provides a set of perspectives on value and the organization’s ability to deliver value. These perspectives are called Key Value Areas (KVAs). These areas examine the goals of the organization (Unrealized Value), the current state of the organization relative to those goals (Current Value), the responsiveness of the organization in delivering value (Time-to-Market), and the effectiveness of the organization in delivering value (Ability-to-Innovate). Focusing on these four dimensions enables organizations to better understand where they are and where they need to go (see Figure 2).
Each KVA focuses on a different aspect of either value, or the ability of the organization to deliver value. Delivering business value (Current Value) is important, but organizations must also show that they can respond to change (Time-to-Market) while being able to sustain innovation over time (Ability-to-Innovate). And they must be able to continually make progress toward their long-term goals (Unrealized Value) or they risk succumbing to stagnation and complacency.
Example Key Value Measures (KVMs) for each KVA are described in the Appendix.
Current Value (CV)
The value that the product delivers today
The purpose of looking at CV is to understand the value that an organization delivers to customers and stakeholders at the present time; it considers only what exists right now, not the value that might exist in the future. Questions that organizations need to continually re-evaluate for current value are:
- How happy are users and customers today? Is their happiness improving or declining?
- How happy are your employees today? Is their happiness improving or declining?
- How happy are your investors and other stakeholders today? Is their happiness improving or declining?
Considering CV helps an organization understand the value that their customers or users experience today.
Example:
While profit, one way to measure investor happiness, will tell you the economic impact of the value that you deliver, knowing whether customers are happy with their purchase will tell you more about where you may need to improve to keep those customers. If your customers have few alternatives to your product, you may have high profit even though customer satisfaction is low. Considering CV from several perspectives will give you a better understanding of your challenges and opportunities.
Customer happiness and investor happiness also do not tell the whole story about your ability to deliver value. Considering employee attitudes recognizes that employees are ultimately the producers of value. Engaged employees that know how to maintain, sustain and enhance the product are one of the most significant assets of an organization, and happy employees are more engaged and productive.
Unrealized Value (UV)
The potential future value that could be realized if the organization met the needs of all potential customers or users
Looking at Unrealized Value helps an organization to maximize the value that it realizes from a product or service over time. When customers, users, or clients experience a gap between their current experience and the experience that they would like to have, the difference between the two represents an opportunity; this opportunity is measured by Unrealized Value.
Questions that organizations need to continually re-evaluate for UV are:
- Can any additional value be created by our organization in this market or other markets?
- Is it worth the effort and risk to pursue these untapped opportunities?
- Should further investments be made to capture additional Unrealized Value?
The consideration of both CV and UV provides organizations with a way to balance present and possible future benefits. Strategic Goals are formed from some satisfaction gap and an opportunity for an organization to decrease UV by increasing CV.
Example:
A product may have low CV, because it is an early version being used to test the market, but very high UV, indicating that there is great market potential. Investing in the product to try to boost CV is probably warranted, given the potential returns, even though the product is not currently producing high CV.
Conversely, a product with very high CV, large market share, no near competitors, and very satisfied customers may not warrant much new investment; this is the classic cash cow product that is very profitable but nearing the end of its product investment cycle with low UV.
Time-to-Market (T2M)
The organization’s ability to quickly deliver new capabilities, services, or products
The reason for looking at T2M is to minimize the amount of time it takes for the organization to deliver value. Without actively managing T2M, the ability to sustainably deliver value in the future is unknown. Questions that organizations need to continually re-evaluate for T2M are:
- How fast can the organization learn from new experiments and information?
- How fast can you adapt based on the information?
- How fast can you test new ideas with customers?
Improving T2M helps improve the frequency at which an organization can potentially change CV.
Example: Reducing the number of features in a product release can dramatically improve T2M; the smallest release possible is one that delivers at least some incremental improvement in value to some subset of the customers/users of the product. Many organizations also focus on removing non value-added activities from the product development and delivery process to improve their T2M.
Ability to Innovate (A2I)
The effectiveness of an organization to deliver new capabilities that might better meet customer needs.
The goal of looking at the A2I is to maximize the organization’s ability to deliver new capabilities and innovative solutions. Organizations should continually re-evaluate their A2I by asking:
- What prevents the organization from delivering new value?
- 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.
Example: A variety of things can impede an organization from being able to deliver new capabilities and value: spending too much time remedying poor product quality, needing to maintain multiple variations of a product due to lack of operational excellence, lack of decentralized decision-making, inability to hire and inspire talented, passionate team members, and so on.
As low-value features and systemic impediments accumulate, more budget and time is consumed maintaining the product or overcoming impediments, reducing its available capacity to innovate. In addition, anything that prevents users or customers from benefiting from innovation, such as hard to assemble/install products or new versions of products, will also reduce A2I.
