Thursday, October 22, 2009

What is Value?

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Had an interesting discussion yesterday about "Value" and what is high vs low value and interestingly in that discussion we settled on the term lesser value.

I'm sure other PM's get into these discussions as well and often times the closing lines for those discussions if they are external customer focused are something like " ... value is all about perception, so if the customer thinks its valuable they'll pay for it ..." or if the conversation was more internal focused then something like " .. that's obviously more valuable to us because its core ..." This prompted me into writing a post about how PM's can define value.

First lets talk about the value your product or service will deliver to customers;

The very first version of defining value (usually from a sellers perspective) is associating it with all the benefits that a product or service would provide. So for example lets list all the benefits that our product offers and then convey that as the value we provide. Looks great on datasheets and in marketing glossies.

However the moment a purchaser or buyer enters it would look like a one-way street. Cause the buyer is obviously going to pay for this product or service. So it leads to the second version of value where its the differential that you would get once you've paid the cost for getting all the benefits from a product or service. Now to create the third version of it lets invite the tangibles and intangibles. They play on both sides of the equation (Benefit and Cost), however the more tangible benefits you have in there the better the value can be conveyed. On the cost side though they play out as direct costs and indirect costs or something that's not apparent upfront but will accrue over a period of time and could include the opportunity cost as well. Some would view it as the total cost of obtaining those benefits over the life of the product or service.

So in summary I would say that the PM's should look at product value as benefits being provided at a low cost. Now its still not a slam dunk as purchasers will not always go with the lowest cost option and neither the lowest price option. They will usually go with benefits that match well do your benefits match with the needs and wants. Now is it within their budget and can they afford it is a completely different discussion.

Now lets look at what value means to an organization. For simplicity we'll focus on for profit organizations. Whether you're a publicly traded or private organization the ultimate goal is to increase in shareholder value. All organizations have investors and are funded and that determines their share of the company and they are looking at maximizing that share.

There are many ways shareholder value can be increased. Top-line revenue growth, Bottom-line cost savings by operating better, better utilizing all your available assets I'm sure an accountant can come up with more. But from a PM's perspective I think these three are key. Each area has its own levers that need to be evaluated to identify what value a product brings to ultimately increase shareholder value.

Top-line growth can obviously be increased through new customer growth, retaining existing customers and increasing wallet share, upselling and cross-selling. Driving product innovation and further investing in existing capabilities helps drive this.

Bottom-line can be improved by ensuring that there are streamlined, integrated processes in delivering the product, cost of selling to and servicing the customers is low. As PM's how can you do that? Look at rationalizing your product portfolio, better product quality, reusable and scalable designs, lower cost of development and most important focus on the right customer segments. Dont lose sight of this as in the larger scheme of things the CFO is looking at this and so should you.
So in a long winded way I'd say that value can be identified to a large extent and PM's should use value models in making product decisions. Ultimately the two values discussed above are intertwined (some might say even the same) and as PM's one should look at how your product can provide value to customers and in turn increase shareholder value.

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