Stakeholder value and not business value

The classical view of a firm has been that is a profit maximising organization operated by professional managers on behalf of the shareholders.All the activities of the professional managers on behalf of the firm are geared towards maximising the shareholder value.

A more balanced view is that a firm is more than simply a financial vehicle and has more constituents than shareholders alone.A firm combines the interests of customers, employers and suppliers, all of whom contribute to the firm’s success. This approach is known as “stakeholder approach” and makes the firm’s managers accountable to a wider community than just the shareholders.

In Agile, the approach has been to establish and validate the “business value” of a project and its constituent stories for efficient prioritisation. This has often led to the confusion amongst project team members. The connotation “Business Value” establishes an unnecessary connection with “Business” i.e. the project sponsors, inadvertently leading to prioritising functional stories over non-functional stories.

One approach to solve this problem has been to demonstrate that even non-functional stories have “business value”. For example,it is possible to show that “Logging” allows the Application support team to spend lesser time on defect analysis, thereby reducing the turnaround time for the defect. “Business” would therefore be in a position to prioritise such a technical story as well.

Whilst this approach has been successful, it fails to achieve the mind shift that is required to make it happen consistently. There is a wider community out there which will determine the success of the project such as the project team members, the application users, the support team members etc. All of these are stakeholders who have an interest in how the project shapes up and should rightfully, be involved within any prioritisation exercise.

Only when we start looking for “Stakeholder Value”, will we ensure that the wider community is not forgotten. The term “Business Value” needs to be consigned to history.

My colleague,Marc, has gone a step further and suggests associating drivers for each stakeholder to achieve the same result.

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4 Responses

  1. […] What does this mean for the well-intentioned analyst who believe their job is to protect the customer’s stakeholder value by coaching them against investing in such projects ? The truth is that it is not always possible to judge disruptive technologies or business models using traditional tools of analysis. […]

  2. Good thoughts.

    At the corporate level, organisations have often got in a mess through getting carried away on shareholder returns and neglecting other stakeholders, like customers and employees.

    A classic British example is Marks & Spencer, which just at the period it was making record profits and being lauded as one of the best managed companies in the world had also set itself up for a fall by neglecting customer value.

    There’s a whole book about these issues, The End of Shareholder Value, by Alan Kennedy.

  3. Wonderful post! We are linking to this particularly great content
    on our website. Keep up the good writing.

  4. I read this piece of writing fully on the topic of the difference of newest and earlier technologies, it’s remarkable article.

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