Measure Business Opportunities with Unrealized Value
In the Evidence-Based Management framework, we measure opportunities in terms of a concept we call Unrealized Value, which can be thought of as the benefit that would be realized if we could satisfy all of the currently unsatisfied outcomes of our customers.
Satisfaction Gaps create Unrealized Value
The key concept behind the idea of unrealized value is that there is some satisfaction gap between what customers (current or potential) experience today, and what they would like to experience. To represent an idealized customer, we might use something like a persona, as shown in Figure 1.
Figure 1: Opportunities are created by customer satisfaction gaps
A product may be used by many different kinds of people, each of which would be represented by a different persona, and each of which may have different satisfaction gaps. The total Unrealized Value for a product would be the aggregation of all satisfaction gaps for all the different kinds of people who use (or could use) the product.
While it is possible to think of the Unrealized Value for an entire organization, it’s better to break it down into specific products and personas to better identify what things you might need to change to reduce a specific satisfaction gap.
Focusing on customers is better than focusing on shareholders
Many organizations state their goals in terms of improving shareholder returns, because shareholders have the greatest stake in improving the organization’s performance. While shareholders are important, I think it’s better to focus on improving customer experiences because improving customer experiences is ultimately the source of all value created by an organization.
While shareholder returns can be improved in the short run by reducing costs or through purely financial actions like stock repurchases, organizations cannot create value unless they improve the outcomes experienced by their customers. For this reason I don’t think goals like Improving Profitability is a very good one, because it doesn’t focus on improving customer outcomes.
Focusing on customers is better than focusing on employees or other internal stakeholders
Happy employees are usually essential to sustaining the value delivered by an organization to its customers, so why not include employee satisfaction gaps in Unrealized Value? While I think having happy employees is essential, I don’t think employee happiness should be placed above customer happiness. I have worked for at least one organization who had happy employees and investors but unhappy customers, and ultimately they did not succeed because those customers eventually took their business elsewhere.
Focusing on Unrealized Value helps organizations to balance product investments
Successful products tend to be sustained by large budgets for development of new features, but this investment does not always pay off. Too often, once lean and simple successful products become bloated with infrequently used features that reduce their usability and reduce customer satisfaction. By focusing on satisfaction gaps and Unrealized Value, organizations can channel their limited investment funds toward opportunities that have the greatest potential. For more about investing to improve business outcomes, see Investing for Business Agility.
Unrealized Value should become part of your product investment vocabulary. Thinking about satisfaction gaps and developing products and services that help you close those gaps will help you to improve your customer focus, which in turn will help you to improve your business results.