Speaker 1: 0:10

Welcome to another episode of transformative change. Today's topic is going to be a topic about value, and this time probably not about your own value and values, but rather a discussion or analysis of value and value perception. I'm going to take an example immediately. So I was in a meeting once when I worked for a large retailer. We were discussing OCR, so Objectives and Key Results, and this is a discussion I had many times. After that, I've just read the book Measure what Matters and the concept of OCRs at that point, I think, is a little bit misconfused, because every single team that I had in my surroundings management teams. They were so much focused on activity-based Activities have nothing to do with value, and I think what we did and discussed much more was what is the actual value coming out of the activity? And this is something I've seen as a repetitive pattern over and over again. In order to deliver value, you first need to define value. What is it that you want to achieve and how is that aligning with the overall organizational strategic goals? Do we want to grow internationally? Do we want to develop our customers to deliver more value? There's so many different things, so it's not about the activities that you make, and I see this quite constantly, especially in platform teams building up technology stacks, et cetera there's quite little discussion around. What is the actual value that we are delivering? So when organizations and individuals are defining these value-based measures, it goes oh, we were able to migrate five applications, we were able to shut down these type of things, but what is the actual connection to the value that you're delivering monetary value or anything like that, and the philosophical aspect of value also becomes interesting and you need to understand it. Welcome to transformative change, the podcast, which is cross-cutting. We are aimed to deliver you the tools in order to drive successful transformations in the world. So back to value.

Speaker 1: 2:54

I studied value measurements on my graduate level, so this is a topic that I'm really found over. I never took much account to the measurement of value, defining value, perceived value before I started studying it, but the more I studied it, I realized we are doing it quite wrong, because we are unaware of what value is. Many of us associate value with money, but money is just an intermediary for us to be able to make transactions smoothly and for organization. That's usually how we measure values the quarterly reports, the earnings, the return on investments, etc. But coming back to the point of value in itself. We need to set a base line. We need to set how are we measuring? Agreeing with the people we are delivering to of ourself.

Speaker 1: 3:54

So, for instance, if you are defining with your partner or a friend that you're going to move somewhere, what is the value of moving? Because the rent of the place you're moving to? That's just one factor. But what if you have kids? The distance to school how much is that worth to you? The same thing goes for crimes in the area, low crime rates how much is that worth to you?

Speaker 1: 4:19

So we started defining multiple points of different values when we're doing our own internal analysis. I can tell you a geek joke when I worked for Vodafone and I was discussing with some people in the team on how to decide where to live and, of course, I was working with data scientists, so all of them pretty much have created different algorithms of defining value. But in an algorithm, you need to have a homogeneous set of measuring value, because you can't have data points on different scales or different types of value. So one of the things I learned in school is that you need to translate all of the different measurement points that you specify as value into a common denominator, so that might be monetary value. Let's take monetary value. So commute time if you commute an hour each direction, how much is those two hours worth for you? Translate that into a number which might represent a monetary value the cost of that commute.

Speaker 1: 5:33

When you buy one of your metro cards, for instance, low crime rates, what is the value you put on low crime rates? Could you live somewhere else? What's the word? Was it risk of having a burglary, for instance? If you look on those things, if you look on the different commodities that are available in the area, what's that worth for you? And, of course, the rent of the place, or the rent of the place or the mortgage payment, what is that worth? So when you look at these factors and translating them to a common denominator, you can start putting a number between. And if you're having a hard time to decide, you can also rank them. Then, all of a sudden, quantifying these objective well subjective, because they're based on your but objectible and tangible input is important.

Speaker 1: 6:28

And what I also realized is, when you're doing these personal things or even interviewing, hiring, etc. There's always the untangible things, the insecurity factors. Once we were doing interviewing, we did a measurement factor in between. We were grading the technical skills, we were grading the how good it would fit into the team, but then we also added in the end something which was gut feeling, something that was unquantifiable in a sense before, because then we were just having the discussions. But we tried to put a specific value to that and then, according to the research in the areas done already in the 50s by Kain and Rifa, this ended up usually being wrong because we didn't put a weight on the factor. So the low crime rates, for instance, might be super important to you, then it needs to have a higher factor when you're creating the formula. So you need to quantify the value and this type of thinking we need to take with us into organizational development. So when we are in an organization and we're setting our goals for the next quarter, doing this objective and key results, the key results needs to be quantifiable in a way that's aligned with the value that you are delivering.

Speaker 1: 7:55

An activity is not value in itself. The outcome of that activity lower license cost or more efficiency, etc. Those can be translated into value and if you're working close to a customer, being an internal or external in this sense you can put actual values on that acquired customers and now we're going into the details. But now this is another critique that I've seen happening out on the market is most of the time, for instance in marketing, there's a lot of measurement on things that doesn't really matter. We need to get to the bottom of these things Because we might measure acquired customer as a point of value, and I've seen this especially during Black Friday's when I did an analysis of like 15 companies and their marketing campaigns and the cohort of those results.

Speaker 1: 8:53

They spend a lot of money on marketing, discount etc. And the customers they were bringing in they were massive amounts of them new cost customers, and acquiring a customer can be quite expensive. But what we also realized when we were looking at the cohorts from earlier year is that these customers didn't make them any money, and that was an insight in itself. So they measured acquired customers, but they didn't do a calculation on how profitable those customers were. So this is a bit deceiving when we talk about value, because it's about measuring what matters. Acquired customer doesn't matter If they are costing you money. You need to calculate what is the profit of each customer and make an analysis of that, because then you can focus the money, the effort and the strategic approach to all of this to be able to acquire the right customers. And this is a very high level example, I know, but this translates into all types of development.

Speaker 1: 10:01

However, it might be harder to do in organizations. When you're doing technical development, for instance, how do you know that the activities that you are doing are producing the value you're aiming to achieve? And this is where it starts becoming interesting, because the majority of organization doesn't even define. They say we need a platform to solve our problems and everything will be nice and dandy. So three years from now the value will be realized. Five years from now, I've seen that in some cases the value will be realized, but that's not the point.

Speaker 1: 10:33

The point is you don't know until you start testing and iterating, because everything is in hypothesis. That's why I like the quarterly approach of OPRs, the objectives and the key results when they're running this in this iterative, measurable way. You do activities with three months interval. Of course, some things take longer, but you should break it down into points that you can measure as soon as possible. You can't spend two years in the basement building something that you don't know if people will like or need or use. You need to start measuring from day one. These are one of the key things why Amazon became so successful, because they started with doing A-B testing of all of their activities, homepage products, etc. They measured the value and if it was going in the right direction or producing more than the alternative, they went in that direction. This is what it boils down to the iterative development cycle, because everything is in hypothesis and we are quite often wrong, so we need to test, test and test.

Speaker 1: 11:40

Having done that now for a while, we need to start as an organization to see how can we break everything we do down into smaller components. How can we then test if this is what's working? When we are doing the planning, there's going to be different types of approaches the development approach, trying to get things out as possible, measure the value and then steer in that direction. Then we're going to have the enabling factors as well into this those things that will take a little bit longer than three months. How do we measure those? But it all starts with the conversation what is it that we want to achieve and what's the value of achieving these things? And this is an uncomfortable conversation because many people have lived their entire career by positioning themselves to certain things and promising that value will come in the end, and this is what we need to get away from. We need to start having the uncomfortable conversation about what is the purpose, what's the value, and how do we measure these things and what do we do when it doesn't work. Treat things as a hypothesis, and this is what I found so interesting about value measurements and I am a big fan of measurements because what gets measured gets done. And if we now take this discussion down a note, I could talk forever about how we measure and the calculations behind it, etc.

Speaker 1: 13:17

But end of the day, value is also a philosophical and the concept of value has been approached and defined in various way. I remember one of the biggest insight and I was so curious when I had this course in graduate level. We talked about the philosophical approach to measuring value, because there are so many different things. We can talk about ethics and moral value. We can can define it as value in terms of duty or adherence to moral rules. There are many systems in this world built around this that you are valuable or you produce value. If you follow the moral rules. You can have those as consequentialism.

Speaker 1: 14:08

So values, value, actions based on their outcomes, some sort of utilitarianism, virtue? There are so many different things, but I think what we primarily in the Western world, at least, because this is where I have the most knowledge we talk a lot around economic value, the essence of capitalism. It's often discussed in the context of political and moral philosophy, and then what we need to start thinking about is this what we want to measure value in is if you have more economical means, does that imply that you're more worth? I don't think so. We need to also adhere to the entire idea and notion of economical value comes from the point that it became hard to do transitions with goods and services and we needed something to create less friction in this system. So this is also interesting, and one of the topics now that we need to bring up a little bit more here towards the end of this episode is the notion of perceived value, and I think this is interesting.

Speaker 1: 15:30

Perceived value is quite different compared to actual delivered value, and one of the things I realized when I was working as an employee and you worked with like consultants in firm. You have these very high priced consultants and the question is if you're paying a lot of money and now I'm not meaning small, small hair, but for a few dedicated resources you pay extra. Are you paying for the delivered value or the perceived value? Does different individual carry different weight? I think they do, but I think what the hard point, the hard thing to distinguish, is what is the actual value? And especially if you are buying services, for instance and you'll talk to a lot of people I know this happens quite a lot, especially in the public sector when there's a tender out, people are going to put out an offer. They do measurements, they do it on price and other factors in order to get that expertise in. But when you're out and you're discussing these topics, is somebody worth 100 times more than someone else in terms of performance?

Speaker 1: 16:42

When you look on the price tag and I remember this class I also had in undergraduate studies, which was in marketing and I think that's the most important thing my teacher, he was standing on stage and he said there is value and then there is price. Customers will always buy if they have the means. When the perceived value is higher than the price. If the price is higher than perceived value, they will not buy the goods or services. That became a foundation for part of my thinking that developed over several years. What is perceived value? Now we go back to what we had in the beginning, just like when you're moving. What's the perceived value? What's the number that you as an individual put on having low crime rates, having good neighbors? These can be subjective factors. How do you potentially then, from another perspective, increase the perceived value from the other side?

Speaker 1: 17:51

If there are these intangible topics, how do you make sure that you are perceived as high value, especially if you are delivering? There are studies around this topic and I think one of the interesting part is there are differences in what we deliver, the insights we have. I think this is very hard, both from a selling and from a buying perspective. How do you put the right price on you, on the goods? When you're selling something, for instance, how do you make sure that you put a price that's in line with the perceived value, actually, that potentially, your platform is delivering? How do you make sure Is it through marketing or those type of communications?

Speaker 1: 18:42

It is extremely hard. I think you also have to be a little bit daring in those situations and build a case around it and associate yourself with other value perceived activities or goods or services, and it's just like when you go to a fancy lawyer's office in the central of the town and everything is expensive and they charge you way too much. But does that in effect means that their insights and learnings are better than somebody that doesn't have that office, even though they potentially have the same background in cases, etc. It's hard to tell, right. So this is extremely hard the value thinking. And where do we end up then with all of this?

Speaker 1: 19:34

I think, end of the day, it always boils down to you defining value, putting the measurement points quantifiable, understanding what it is that you want to achieve, spend more time on the prep work and defining what it is that you want to get out, how to measure it, what the success looks like, how is value producing for you, and then go in that line and try to get the goods and services that actually align with that. So value is tough, value is hard. And if you are in a big machinery and you're trying to do your work and you have so many activities, how do you do all of these things? Well, it needs to go in and it needs to be properly thinking, done in order to define it. Thank you so much for listening in on this week's episode. I hope you brought something with you from it. If you like the Transformative Change podcast, make sure to subscribe, and I'll see all of you next week. Take care.