Funding Agile Delivery with an Outcome-Based Approach

Funding Agile Delivery
@ScrumDotOrg
Bringing Agile Techniques to Portfolio Management
2
Kurt Bittner kurt.bittner@Scrum.org
@ksbittner

v 3.4 © 1993 – 2017 Scrum.org All Rights Reserved 3
Traditional Funding Model Challenges
"You can never change things by fighting reality. To
change something, build a new model that makes
the existing model obsolete.”
~ R. Buckminster Fuller

Some questions to consider:
• Can you finish a project on-time and on-budget and still be
unsuccessful?
• How do you decide what to fund when opportunities arrive
continuously?
• What’s more valuable: Increasing conversion by 10% or
adding a new feature?
• How do you know whether a feature is valuable?
4

How The
Traditional
Funding
Approach Falls
Short
5
Opportunities arise continuously, not just in
annual cycles
• Why commit to more work than can be currently
worked on?
• Annual funding ties up funding and capacity that
may be better applied when better opportunities
arise
Principle
Delay funding decisions as long as possible

How The
Traditional
Funding
Approach Falls
Short
6
Funds work in large, hard-to-control increments
• Discourages experimentation
• Increases risk
• Hard to measure results
• Encourages too much WIP
Principle
Reduce funding increment to reduce risk

How The
Traditional
Funding
Approach Falls
Short
7
Plans are often based on unvalidated
assumptions:
• About what problem is being solved
• About the benefits of solving that problem
• About what features will really deliver value to
customers
Principle
Reduce funding increment to improve time-to-
market and time-to-feedback

8
Decision-making in an uncertain world
Source: Stacey RD. Strategic
Management and Organizational
Dynamics: The Challenge of Complexity.
3rd ed. Harlow: Prentice Hall, 2002.
Agile delivery practices
help here
Traditional
delivery
practices fit
here
http://blog.agilistic.nl/on-complexity-why-your-software-project-needs-scrum/

A big risk: some requirements are wrong, but which ones?
“Only one third of the ideas
tested on the Experimentation
Platform at Microsoft improved
the metric(s) they were designed
to improve (Kohavi, Crook and
Longbotham 2009).”
“at Google, only about 10
percent of these [controlled
experiments, were] leading to
business changes.” (Manzi
2012)
“80% of the time we are wrong about what
a customer wants.” (Kaushik 2006)
“It's been humbling to realize how rare it is
for [features] to succeed on the first
attempt.” (McKinley 2013)
Source: http://www.exp-platform.com/Documents/2015%20Online%20Controlled%20Experiments_EncyclopediaOfMLDM.pdf

https://www.cnet.com/news/fire-phone-one-year-later-why-amazons-smartphone-flamed-out/

First Lesson: Beware of HiPPOs
11
https://s-media-cache-ak0.pinimg.com/originals/67/f3/05/67f3053febdf5048ef696e87537c9e55.jpg
Highly Paid Person’s Opinions

Managing Output
Maximizes things produced
(more = better)
12
Second Lesson: You get what you measure
Managing Outcomes
Maximizes results
(improved customer
outcomes)
Which is better?
The challenge: measure and reward
outcomes, not output

3 Innovation Horizons
13
Horizon 3
Envision, Explore
Horizon 2
Exploit, Scale
Horizon 1
Sustain, Retire
1 year 5 years
Paul Hobcraft (2010), building on The Alchemy of Growth, by Baghai, Coley, & White, 1999

“Good judgment comes from
experience, most of which comes from
bad judgment.”
- anonymous
Horizon 1
Priority: Sustain Revenue

Horizon 1: Sustain, Retire
15
1 year 5 years
60% of portfolio
Critical questions
• “Is the business large enough
and profitable enough?”
• “Is it growing?”
• “Will additional investment
drive growth and
profitability?”
• “What needs to be done to
protect or support the
business?”
• “Can investment be scaled-
back?”
• “Are there any unmet
customer outcomes?”
Critical measures
• Revenue
• Profitability
• Growth
• Efficiency

Fund Product Teams Based on Revenues
13%
6%
13% 14% 15%
• When Product has sustained
revenue and customers
• When Team is stable and
proven
• When the organization trusts
the Product Owner and the
Development Team to make
the right product decisions

Horizon 3
Priority: Invest in Innovation

Horizon 3: Envision, Explore
1 year 5 years
10% of portfolio
Critical questions
• “What are the unmet
customer outcomes?”
• “Can we create
solutions that will
improve outcomes?”
• “Can we create
solutions that
customers will love?”
Critical measures
• Improvements in customer
satisfaction gaps
• Not concerned with
profitability, yet.

Goals
• Quickly evaluate the value of new ideas using
empirical data
• Better understand opportunities
• Reap benefits of new ideas quickly
• Reduce amount spent on things that yield poor
results
Benefits
• Reduce WIP
• Reduce waste from building the wrong solution
• Eliminate over-funding
• Eliminate “use or lose it” spending
Funding
Innovation
Using An
Outcome-
based
Approach

Inspect and Adapt Applied to Software
Understand
Desired
Outcomes
Evaluate
Possible
Solutions
Build at
least part
of it
Deploy,
measure
Identify an
Opportunity
Continue until happy
1
2
3
4
5

What makes a successful product?
21
Is it
Valuable?
Is it
Usable?
Is it
Feasible?
Developer
UxBusiness
source: Jeff Patton, User Story Mapping, page 156+

Funding Innovation
Opportunities
Size
Value
Explore
Alternative
Solutions
(Scrum)
Evaluate
Alternative(s)
Deliver
Incremental
Solution
(Scrum)
∆ Business
Outcomes
Feedback
Market
Research, VoC,
Observation, etc.
Fund
Exploration
Funded
Alternative
Viable
Alternative(s)
No Viable Alternatives
Re-prioritize
Opportunity
Product
Backlog
Rejected
Alternatives
Opportunity
Backlog
Satisfaction
Gap

23
Opportunity
Backlog
an outcome-based roadmap of
things that might improve
business results
Leaders communicate strategy & set priorities by
ordering the Opportunity Backlog

Persona-based Opportunity Sizing
Current Experience
Desired Outcome
Satisfaction
Gap
Opportunity
=
Value of Closing
Satisfaction Gap
Persona Another technique: Empathy Mapping
https://www.uxpin.com/studio/blog/the-practical-guide-to-empathy-maps-creating-a-10-minute-
persona/

Sizing Opportunities – Three Questions
Do
Reasonable
Alternatives
for Closing the
Gap Exist?
What’s the
Value of
Closing the
Gap?
What’s the
Gap Between
Current and
Desired
States?
Ways to identify
opportunities
• Marketing data
• Survey data
• Customer feedback
• Direct Observation
• Interviews
• Instrumented
Application data
Ways to identify
alternatives:
• Mock-ups and focus
groups
• Educated hypotheses
about possible
solutions
• Design Thinking
Ways to value improved outcomes:
• Focus groups and Surveys to understand
how much people will pay for improved
outcome
• Market data to estimate number of people who
would be willing to pay for improved outcome

Opportunity Size
=
[#People Matching Persona]
(market size)
x
[Their Perceived Value of Closing Satisfaction Gap]
(benefit of closing gap)

Fund Releases or Teams?
Low
Trust, Risk
(based on track record)
Team Autonomy
High
Low High
Fund Releases Fund Releases
Fund Teams

Exploring Alternative Solutions Balances Two Aspects
Who Explores Alternatives?
• Cross-functional team (Business, Technical, Marketing, Business Operations, IT Ops, …)
• Ideally the same team who will build it
Explore
Alternative
Solutions
(Scrum)
Exploratory
Funding
Viable
Alternative(s)
Technical Feasibility
• Can solution close satisfaction gap?
• Can it be built? What skills and
resources are needed?
Business Viability
• TCO/lifetime cost target threshold (cost
envelope)
• Time to market window
• Is the problem worth solving?
Apply Design Thinking
practices...
... But Also
Build Working Software!

The “Design Squiggle”
30
http://cargocollective.com/central/The-Design-Squiggle

Example: Apple iPhone design evolutions
31http://www.cultofmac.com/181782/every-iphone-prototype-apple-ever-made-before-released-the-first-iphone-gallery/

Funding Incremental Solutions – Just Enough To Validate
Fund
Incremental
Solution
Funded
Increment
Viable
Alternative(s)
• The size of the Opportunity
• The value of closing the Satisfaction Gap
• The technical feasibility of the solution
• Whether the solution can be delivered within the
“cost envelope”

How Certain Do You Need To Be?
Adapted from Lean UX: Designing Great Products with Agile T
Low
High
interviews
Paperprototypes
Prototypewithlivedata
A|Btests
Datafromactualuse
lunch
vacation
car
retirement
Size of
“bet”
Amount of evidence
Stakeholderreviews
house
Constable’s “Truth Curve”

What’s the smallest funding increment?
What’s the smallest releasable increment?
Satisfaction
Gap
One Persona One Outcome
“Minimum Marketable Capability”

Deliver Incremental Solutions Using Scrum
Deliver
Incremental
Solution
(Scrum)
Changed Business
Outcomes,
Customer
Feedback
Ideas
Size
Opportunity
Rapidly deliver solutions in small increments, then
Inspect and Adapt

“Whether you think you can, or you think you
can’t, you’re right”
- Henry Ford
Horizon 2
Priority: Grow Revenue

Horizon 2: Exploit, Scale
37
1 year 5 years
30% of portfolio
Critical questions
• “Can the business be
profitable, and how
much?”
• “Is business
worthwhile? Is it
sustainable?”
• “Can the business
scale?”
Critical measures
• Growing market share
• Potential for market
leadership
• Potential for profitability

Moving from
Horizon 3
(experimentatio
n) to Horizon 2
(productization
)
At what point do you create a product and fund a
team? Typically:
38
• Market proven
• Solution proven
• Sustainable revenues
• Stable team (including Product Owner)

Closing
“A man who carries a cat by the tail learns
something he can learn in no other way.”
- Mark Twain

“Inspect and Adapt” each opportunity:
• For new products and new markets
• When the competitive landscape has dramatically
changed
• When requirements or technology uncertainty are
high
• When teams or delivery approaches are unproven
Fund teams and let them “Inspect and Adapt”:
• When revenues, markets, and customers are stable
• When teams and delivery approaches are proven
• When competitive risk is low
Choosing
Which Funding
Model To Use
Depends on
Risk and
Uncertainty

Recommended Reading
41
Also check out Beyond Budgeting at http://bbrt.org

Funding Agile Delivery with an Outcome-Based Approach

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