The VFQ Formula – Improving the value of delivery

In sales, you’ll often hear people use the phrase ‘it’s a numbers game’.  In delivery, you may be forgiven in thinking that the same is true.  At least, this is how most companies tend to behave by throwing more and more in at the top of the funnel.

As you can see in the example below, it would seem that the goal is to have as many requirements in play as possible regardless of the capacity to deliver.  There is an order of magnitude more things being analysed and designed than there is in development.  This is a recipe for long lead-times, lots of rework and much frustration for the stakeholders who are waiting for their ideas to flow through the pipeline.

The fuzzy frontend

Whilst there is an element of truth in the ‘numbers game’ statement in that you need some things flowing through, it isn’t strictly (or always) true and there are other, more valuable, levers to pull to improve your chances for delivering value.

In a paper by the TAS group, they examine the performance of sales organisations and individuals to see what factors improve sales success and help other teams develop strategies for improving.  When reading this paper, I was struck by how similar the principles behind the strategies for improving sales were to that of an effective, agile and fast delivery organisation.  In this post we will highlight the findings from the TAS paper and the examine the key tools and principles in play that help improve ‘value yield’ if applied in a delivery context.

First, here is the value equation that is presented in the paper.

# of opportunities x average value x percentage win rate
Average lead time

Quite simply, these are the four levers highlighted.  The question posed is: In order to improve sales performance, which lever is related to the most effective sales performance?  The answer was by to focus on growing the Average Value and reducing the Average Lead Time.  The higher performing people had the highest average values and lowest average lead-times. Counter intuitively, they might have less than average number of opportunities. Percentage win rate wasn’t really covered in detail.

For those people who have studied Lean or Agile, this might not be much of a surprise, but for many this type of thinking can seem odd, to say the least.  In fact, many sales organisations actually have systems in place that encourage the focus on activity and growing the number of opportunities rather than spending time on the opportunities with most potential.  The same can be said of delivery organisations where people are encouraged to get every requirement into a business case up-front, and where the goal seems to be 100% utilisation of people.  These might not be the intended outcomes, but the way that approval and business case processes have been set up forces people to try and get every idea imaginable into their projects.

The problem is that the variables have a relationship which needs to be examined.  For instance, by adding more and more in at the top, there is a likelihood that you may be adding lower value items.  If you were already at capacity beforehand, you will certainly have impacted the average lead-time going forward.  And, if you spend more time really trying to improve the value of a single opportunity, whilst holding the other variables constant, you will probably increase the average lead time.  Given that the paper concludes that the average value and the average lead time are the best indicator of success, then the number of opportunities is the first one to look at to create the space for improvement.

Here are some tools to help improve your value velocity.

Reducing (or at least limiting) the # of Opportunties

In a delivery system instead of thinking about Opportunities it’s better to think about Value Propositions or Ideas.  By actively reducing the number of things flowing through a company you can improve the value and speed of delivery.  This principle is known as ‘Limit Work-in-progress’.  The best way to do this is by having qualification criteria and assumptions about each value proposition that is transparent and available for examination, and the decision making frameworks in place that are actively limiting the number of projects or requirements being worked on.  Explicit WIP limits are helpful for teams and organisations to make it clear when things are getting out of kilter.  Getting the balance right of exploring which opportunities have the potential for the highest value and limiting the work is something that can be a struggle.  The key is to have models that you can test to see which market segment, persona or product lines have the greatest opportunity for you, and to qualify each opportunity against your own strategic intent.  If the value is marginal or there is any doubt, you’d be better off not doing it.

Improving Average Value

Value can be nebulous within organisations and not always well understood by the people actively doing the work.  But, there are things that can be applied today that will help improve the average value.

Step 1 is to prioritise and schedule work to maximise value.  People are becoming more comfortable with the Opportunity Cost of Delay and the impact it has on the overall return of investment.  Simply by scheduling things with the highest cost-of-delay first, a return can be improved.

The second thing is related back to limiting the number of opportunities.  It has been documented that Apple invests more into each of its individual products compared to competition, but their overall spend in R&D is typically very low.  As a result, they can spend more time refining and honing their ideas to best capture product/market fit better than anyone else.  In fact, this is how many of the new market disruptors are competing.  They spend their time on one value proposition working directly with customers and gathering feedback.  The customer is placed at the very heart of the feedback cycle, and ideas are iterated until they meet the need better than anyone else.  As a result, the return on each value proposition is improved.  Most of these new market disruptors don’t have pockets as deep as Apple, but the philosophy is to do a small number of things very well.

Reducing the Average Lead-Time

Lead-time can definitely be improved by limiting WIP at the top level.  But this practice should also be performed within the delivery teams themselves.  Ensuring that everyone is focused on flowing a smaller number of items is essential.

In tandem to that, reducing and breaking down each value proposition into the smallest batch is essential.  Small things flow faster.  A simple rule of thumb is ‘your batch size can probably be smaller’.  This a cheap improvement that most teams can apply immediately.  Over time, each value proposition can be improved by incremental change.

Visualise the work flow.  Most work inside organisations today is invisible.  There is a lot of room for mis-step, mis-communication and mis-understanding.  If the work is visualised, it helps focus everyone on the job in-hand.

Measure and monitor the end-to-end flow, and the places where work builds up and is queued.  It’s no use just thinking about the delivery teams.  A lot of ‘wait time’ appears upstream of delivery teams.  This is just as important when considering the overall improvement of Lead-Time.

Supporting the Guiding Principles of VFQ

Interestingly, the ideas in the TAS paper can be directly mapped to the 3 guiding principles of VFQ – Delivery Value Early and Often, Optimize end-to-end flow for faster delivery and Discover quality through fast feedback.  In fact, when you break down the TAS equation it could be re-formed as:

Output = Value x Flow x Quality

In subsequent posts we will explore in more detail how each lever can be applied, and the impact it has on output.

If you’re interested in improving your flow of value or trying out the concepts explained, you can find out more in the VFQ Modules of Delivering Early and Often, Optimising Flow, Batch Size Matters, Prioritisation, Work In Progress, Attacking Your Queues, Understanding Your Customer and Feedback. There are also some techniques such as Cost of Delay and CD3 that can help you schedule for value.

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