How to maximize profits? Every successful company raises this question, but not everyone understands how to achieve that in a new world of constant change and rapidly evolving digital technology.
The Problem of Redundant Functionality
The CHAOS study conducted by Standish Group (CHAOS, The Standish Group Report, 2014 Project Smart) compares the construction of stone bridges from the Roman Empire with modern technologies. The Romans used an excessive amount of building materials and enormous human effort. Fortunately, humanity has learned to build bridges much faster with minimal involvement of human work and the use of the latest technology. In other words, do more in less time (Jeff Sutherland’s concept).
However, things are very different in the field of information technology. Even when a newly-built bridge collapses, the builders are at least taking the situation seriously. In the development of digital products, “bridges” are constantly falling, and company leaders are in no hurry to conclude, continually stepping on the same rake.
Standish Group decided to discover why IT products are constantly “falling apart” and how long this shame can last. The study gathered precious information for us about the current use of functionality in IT products.
How often is the functionality of the IT product used?
- Not used at all or occasionally: 64% (never used 45%, and from time to time – 19%);
- Sometimes: 16%;
- Common: 13%;
- Constantly: 7%.
Based on these data, we can confidently conclude that not everything in the product is valuable. The study raises some obvious questions:
- If users use only 20% of the functionality, why spend time and resources developing those features that people rarely use or do not use at all?
- If the company’s goal is to increase or maximize profits, why waste time and competitive advantage by developing features that have no real value for users?
That’s why the responsible managers should always be asking themselves how to increase the product’s value. Is it possible to maximize profits by spending time and resources creating 80% of the functionality that is not used and has no value for customers?
“Responsible managers should always be asking themselves how to increase the product’s value.”
Slava Moskalenko, co-founder of Agile.Live
Let’s analyze the well-known and quite enlightening case of Kodak. As you know, the experts of the legendary company of the 1970s developed the concept of a digital image sensor to create innovative cameras, in contrast to conventional cameras that worked on film (a few decades ago, the whole world still used film).
The Kodak sensor learned to determine the parameters of the light coming through the optics – it recognized colors, brightness, contrast, and so on. Kodak engineers have created a prototype of the first digital camera!
Of course, the quality of the first digital images did not impress even the inexperienced eye and caused smiles among top managers. However, everyone understood: the curtain on the world of digital technologies was opened.
Ironically, it was Kodak that pioneered digital cameras, but it buried its brilliant idea at the moment where they could earn billions. Kodak’s management was short-sighted by competitors, which picked up on the concept of digital cameras and quickly launched a new type of camera. Kodak’s management disappointed innovators by not letting the first digital camera go out to the actual customers despite promising opportunities that they had.
Of course, after some time, Kodak regained a market share of the digital cameras but then stepped into the same river twice when not letting their digital photo services do what customers wanted. Facebook and Instagram ultimately killed their core photo printing business.
The leaders of the old paradigm lost time and opportunities. Today, Kodak is desperately trying to remind the world of its glorious past and started as a new company. However, it will be tough for them to find the innovation which will earn billions like it was several decades ago.
In my opinion, most modern companies cannot predict the future, feel the pulse, the breath of time, as was the case with Kodak executives. First, it is related to the practice of vertical management methods, when the employee is “served” to a high position for a long time (except for a few cases of rapid promotion). Second, executives who have come a long way to get to the top usually rely on their own experience, knowledge, and intuition.
Returning to the famous question of how to increase or maximize product value, don’t expect anything worthwhile if you still follow the old paradigm while other companies moving to agile delivery culture will be gaining a competitive advantage in the market.
Problems that need special attention
Problem 1: The golden question
The golden question who should decide what will be valuable and what will not? The author of the idea? President of the company? Employees of the department? Head of Department? Executive Board? Programmer? Tester? Sales Manager? Customer Service? Let’s leave this question open for now.
Problem 2: Eradicating the idea
Usually, a top manager gives the idea of improving, perfecting, or even creating something “new” by relying on intuition. Using the opportunities of power, authority, and official position, the chief orders the lower level to implement ingenious plan.
As we all know, the idea of a leader often does not work. Why? Because the performer is not its author. Without a sense of ownership, there is no sense of responsibility. The performer thinks: “The idea is not mine, but my boss’s. When something doesn’t work, it’s his problem, not mine.”
Now imagine for a moment another situation. The leader who wants to implement his idea pushes it down to the lower levels of the organization. So, the idea gets into all sorts of its departments (marketing, sales, customer service, etc.). Naturally, the idea grows into something incomprehensible, becomes ephemeral, eventually dissolves into a complex corporate structure.
Occurrence of Superfluous Functions
That is why product features that no one needs inflating the original idea. Such features create the following problems:
- It is inflating budgets and costs by adding unnecessary functionality. Money has been channeled into the pipe, which could work for something more practical.
- Decreased productivity. For example, some mobile applications become incredibly complex if you endlessly add new features that are not genuinely validated in end-user needs. For example, mobile applications of some banks tell us about news, weather, anecdote of the week, provide all kinds of discounts and offers, even entertain users with entertaining content!
Negative consequences. As a result of misunderstanding and failure to resolve the above problems, shareholders and companies suffer in one way or another.
Four Tips to Increase the Value
What can be done to create the actual value of the product in time? Here are five tips.
1. Validation of the Idea
Before implementing and investing in every challenging idea requires a real test of tangible benefits, value, and demand for end-users. Hypothesis validation applies even to trivial features, which are often not needed by most users. At the same time, it does not matter who the author of the idea is, even the company’s president. Validation is a required filter.
Find out now the answer to the golden question: who should decide? It is up to the author of the idea, not the one sitting at the top (after all, anywhere). No matter who the author of the new product concept is, they must present it, explain it, argue it. Presentation is essential in companies with a vertical management model, where the ideas of “lower-ranking” are reviewed more thoroughly than the spontaneous opinions of top managers.
Learn from positive examples, such as Daniel Pink’s creative forums. Many may come up with innovative ideas. To do this, you should organize a separate event to present several such ideas at one time. The role of the leader, in this case, is to set the tone for creatives in which they will be able to check the relevance of their plans.
It is not without reason that Daniel Pink emphasizes the practice of creative forums – they work! Thanks to the contribution of various creative personalities, some award-winning Atlassian products have emerged. Gradually, new “chips” appeared in each of Atlassian’s products – a functionality not imposed from above but implemented by talented engineers who sought to improve the experience for users – to increase its value.
This approach is essential for Atlassian leaders and worth spreading the idea worldwide (see atlassian.com/agile).
2. The Mandate to Implement
A truly agile organization is trying to change its culture where the company acts as an investor. Leaders create a proper environment, and the author of a new business idea is nominated as the Product Owner. Such organizational culture dramatically increases motivation and responsibility for the successful implementation of the innovative idea.
The company does not become a decision-making center but an investment center. Each product team is the center of decision-making, with the appropriate Product Owner responsible for maximizing value. After all, it is much easier to unite a working group around an interesting idea than to convey its specificity to several thousand employees throughout the company. Atlassian is an example of how to use this approach effectively.
3. Maximizing product value
It is the owner who is responsible for the result if he has:
• A valuable idea of his own
• Mandate to develop it
• Resources for its implementation
When these factors work, the Product Owner becomes a mini-CEO – an entrepreneur in the enterprise. He turns to top management, presents his idea, argues it, receives a budget for its implementation, and then creates something valuable and maximizes profits.
At the same time, the boss of the Product Owner does not interfere with work. On the contrary provides a mandate, autonomy, space, and provisions for implementing the plan.
4. Cluster approach
Decentralization in this context has given impetus to the emergence of a cluster approach. After all, at the very root of Agile involves the transition from vertical management style to “clustered”.
Clustered management style means that the organization has many clusters (groups of professionals), led by product owners – autonomous in the implementation and decision-making. These are essential pre-conditions for the development and implementation of valuable ideas to be scaled and accelerated.
The championship in the competition for user loyalty will be won by those companies that have learned to:
- Create and increase the value of the product
- Create conditions for the ideas of talented professionals
- Move away from outdated command-administrative management methods moving towards cluster models
- Foster the culture of self-management among professionals without wasting human resources, time, and money to develop redundant features that consumers don’t want
- Check the nearest certification trainings at Agile.Live: Agile.Live: Advanced Scrum Master with PSM II Certification, Professional Scrum Product Owner (PSPO), Professional Agile Leadership Essentials (PAL-E).
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