Thursday, September 29, 2011

Defining Business Value // #2 Customer Smile

Imagine that you make a new camera, and after all that work -- does it make the customer smile?

Imagine that it is not Scarlett Johansson. Just a girl or young woman. Or maybe any customer who buys your new camera. You don't make any profit on that camera, just she smiles.

How do we evaluate the Business Value of that smile?

"Would it have been worth it, after all,
Would it have been worth while"?  (TS Eliot)

When I got my MBA at a school just off Wall Street, they said (or some of them said) that the firm was there to maximize shareholder returns.  Not that that was bad, since firms in the end are owned by widows and is they who mainly use all the value there.

But the message was: money.  Measure it in money.

My ancestors are (or were) practical crazy New Englanders. (Well, crazy in the sense that they left the comforts and known-ness of England to live in strange unknown land where half of them died the first year.)  They were practical.  I cannot say money is bad. It is only a means, and a very practical means.

I found out also, at that same school, that Peter Drucker (arguably the best management guru still) said that the purpose of the firm was to provide customer satisfaction.  (That, for example, making money for the shareholders was a constraint, not a key purpose.)  Frankly, as I get older, I tend to agree.

And one finds that firms never can charge for each specific increment of customer satisfaction.  Charge, they must, at different times, but never exactly bit-by-bit for each increment of satisfaction.  Can Starbuck's charge by the sip?  No, I think not.

And then one ponders, Maslow-like, the satisfactions for the producer and the wise consumer, of various products or services.  Truly "satisfaction" is an inadequate word for a trip to Paris. When you buy a copy of The Count of Monte Cristo (Dumas), is it exactly satisfaction one seeks?  Or adventure? Or to be at-one with others?  Does one know?  And how to measure it?

The metaphor of Maslow's hierarchy of needs might be useful here.

Now, people will pay for these things. But how much to charge, and how much real "business value" they receive....these are hard things to understand.  Well, indeed, a human being is a hard thing to understand.  And hopefully you are in business to serve not one, but many human beings.  Quite complex.

My main point today is that people must re-gain an appreciation for the difficulties of the work of understanding business value.  To me, it is very very important, and also very hard to understand. So, we should start with the assumption that we need a lot, a whole lot, and mean gobs, of feedback.  To help confirm to ourselves that we have not totally mis-understood.

But God!, as a producer, when she (well, she, especially if you're a man... your wife, your daughter, your girlfriend, your mother, someone you care for) when she smiles. When she is happy with what you have produced.  It is a wonderful day.  When you don't get the puzzled look of "well, he tried hard, but it's not what I want, and how will I tell him?"  No, not that. But the smile of "I really like it!"  It is very satisfying as a producer, is it not?  (And the women readers who are producers know what I mean too. Although there are different difficulties.)

So, Scrum is trying to enable all these moments of truth to happen.  To feed your head and warm your heart.


PM Hut said...

Hi Joe,

You're saying that the purpose of every firm is to provide customer satisfaction. I beg to differ. Actually the purpose of every firm is to make money, and customer satisfaction is a mean to an end...

I've published a post once on meeting client expectations, which usually leads to customer satisfaction. I hope you'll have the chance to read it.

Joe Little said...

Hi PM Hut,

I hear ya. As I said in the post, "shareholder returns" (aka profits flowing to the shareholders) was what I was taught as the "purpose" of the firm.

Peter Drucker (and many others) argue that that is a constraint. It is NOT the purpose of the firm. He says the purpose of the firm is to satisfy its customers.

It is debate, which you and I are not likely to resolve. After long consideration over many years, I agree with Drucker.

But, does this debate make much difference? We both agree that a firm must do something for its customers and we both agree a firm must be profitable.


Joe Little said...

Hi Clifford,

Liked your blog post.

I won't spend time praising it. It is good.

Let me offer a different POV.

With the iPad we are told the customer had no expectations. In Jobs' view (we are told), he never talked to any potential customers, because, not having seen an iPad, they could not say they wanted one.

I suppose this "myth" cannot be fully true, in the sense that eventually he must have had alpha and beta tests with lots of people. Still, I think there is some truth to it.

And example. Yes, we can influence expectations, set them at more realistic levels, as you say. But it is yet more complex, because many events, things, people are also re-setting expectations. As a related example, the Playbook by RIM is quite good I am told, except that, compared to the iPad2 the Playbook is ho-hum.

As you say, there is so much to know and think about and do related to these questions: Who are the customers really? How do we get them represented? What is their real problem? What do they really want? What is possible? What is business value (for the customer and for our firm)?