Check out the most recent episode of the SPC Journey. I'm an SPC and I Focus on Profit hosted by Applied Frameworks SAFe® Fellow and SPCT, Phil Gardiner.
SAFe® is the vehicle that one may take to achieve the business agility an enterprise needs to thrive in the digital age. However, the new way of working requires fuel so that the success it brings is sustainable. That fuel is profit. Join us to hear from SAFe® Fellow Luke Hohmann and Principle Partner at Start with Profit Andrew Long, who can share insights into the ways that an SPC can help a software-enabled enterprise become more profitable.
About Luke Hohmann
Luke is Chief Innovation Officer and SAFe® Fellow at Applied Frameworks. Author of Software Profit Streams™ A Guide to Designing a Sustainably Profitable Business as well as a number of other books. Luke is a SAFe® Framework contributor and contributed majorly to the SAFe Agile Product Management (APM) and Lean Portfolio Management (LPM) competencies and the SAFe POPM, APM, and LPM courses.
About Andrew Long
Andrew Long is a Certified Profit Streams Trainer (CPS-T), Profit Streams Partner, SAFe Program Consultant, and Principal Partner and co-founder of Start With Profit, a management consulting firm focused on helping clients quickly achieve sustainable profitability using Lean, Agile, and systems thinking. With two decades of leadership and delivery experience across multiple technology industries and business domains, Andrew possesses a unique talent stack that helps him solve clients’ toughest business challenges.
About the SPC Journey Series:
The SPC Journey is a series of webinars and panel discussions hosted by SAFe® Fellow Phil Gardiner, designed to help SPCs and those they support on their journey to learn, grow, and succeed in implementing SAFe.
Episodes include:
SPC Journey: I’m an SPC, Now What?!? with Harry Koehnerman, SAFe® Fellow
SPC Journey: From Theory to Practice with Travis Moorer, SPCT Candidate
SPC Journey: I’m an SPC and a Coach with Rachele Maurer, SPC
SPC Journey: I’m an SPC and a Consultant with Michael Robertson, SPC, and Charles Rapier
SPC Journey: I’m an SPC and a Trainer with Rebecca Davis, SAFe® Fellow
SPC Journey: I’m an SPC, and I Lead a Transformation with Angela Smith, SPC @ Arkansas Blue Cross & Blue Shield
SPC Journey: I’m an SPC, and I Head a LACE with Alena Keck, Head of Lead Agile Center of Excellence at Vodafone
SPC Journey: I’m an SPC, and We Build a Community with JC Titus, SPC, and Takeisha Murphy, SPC from Ingenico North America
SPC Journey: I’m an SPC and an RTE with Mike Robertson of Applied Frameworks, Matt Davis of Salesforce, and Sally McDonald of Arkansas Blue Cross Blue Shield
SPC Journey: I’m an SPC and a Mentor with SAFe® Fellows Joe Vallone and Dr. Steve Mayner
Transcript
*Transcript created using AI. Please excuse grammar and spelling mistakes.*
Phil Gardiner 01:04
Alright, I will go ahead and get us going here. And as people join in, they can they can kind of pick up where we're at here. So this episode is I'm an SPC and I focus on Prop profit. That's a word that oftentimes doesn't come out of the word come out of your mouth first, as a as a change agent as an SPC. If you go through the implementing safe class, I don't know that it's mentioned more than once or twice, if at all in the curriculum. And at the same time, those customers that you're serving are oftentimes thinking about profit their leaders, definitely, if they're a software enabled business with software enabled solutions, oftentimes profitability is important. So we've got a couple SPCs with us here today. Luke Hohmann who's actually he's an SPC as well as an established author. And, and as of May of this year, he's he's one of the 30 or some odd, say fellows. So congratulations, Luke on that esteemed accomplishment. Also with us, we've got Andrew long, Andrew long as an SPC. He's an early adopter of SAFe. I've known Andrew for for many, many years. He's, he's done stuff, both with large companies, with government agencies, and most recently, he's focusing on on business effectiveness and being able to help companies start with profit. And so we're gonna explore kind of different ways and talk about how an SPC might need to think about profit and how it relates to the framework and things like that. With that said, Luke, anything you'd add, you know, what do you have going on recently? Anything new, exciting stuff I missed out? I missed on your on your intro?
Luke Hohmann 04:32
No, thank you so much, Phil. And I'm so excited to be here with my friend and colleague, Andrew, for Andrew and I, we've been spending some time together because we just completed an engagement last week for a client together as a partner, where we were helping that company improve their profitability through better pricing and packaging of their solutions. And that experience we really does showcase or illustrate what you started with, though is that these executives are wanting to see this. And to illustrate the point about the executive involvement in that engagement, it was the founder and CEO of the company, and their top leaders involved in modeling the business forecasting profit, forecasting the future of their roadmap and how they want their solutions to evolve. And we had a lot of fun doing that together. And I'm excited that that Andrew is here, because I think his relatively deep knowledge of SAFe will help attendees kind of understand that role of the SPC and how we can guide organizations into profit.
Andrew Long 05:48
thank you guys. Yeah, I think there's a great opportunity here for SAFe practice consultants, I still have to get used to saying that I immediately want to say, program. But SAFe practice consultants, I think there's a lot of a lot of different places in the framework. Now that we can start talking about pricing, we can start talking about profit, right. And I say this as somebody who really grew up applying SAFe in the government world, where we worked very hard and struggled mightily over how to even conceptualize value in weight weighted shortest job first type equations, and the government context. So the idea of unpackaging value of defining value, making value a useful concept operationally, in the enterprise to make agile teams be effective to help organizations be more effective. I've cared a lot, I've cared a lot about that wrong for a long time. And I'm really excited about the profit streams concept, because although may not be immediately applicable to a government context, from the first level down of the companies that work with the government, through the commercial sector, and even many nonprofits, trade association types, there's absolutely an applicability here, of the ideas that Luke and his co author Jason Tanner have put together. And if you haven't seen the book, you need to, you know, even if this idea for whatever reason you clicked on this link, he said, I'm going to do this, do this because I love Phil, but this profit thing sounds boring. You just need to look at the book, the book is beautiful. I don't know if I've ever seen a more beautiful books up there is a book that make the idea of pricing and profit exciting. It's, it's the software profit streams book that Luke and Jason wrote.
Phil Gardiner 07:35
And really pause you there. Because I don't know that the audience I don't think I put anything in the, in the webinar about profit streams or Luke's book and things like that. I know he's got a reference to that in the, in the webinar bio, but just a little bit of context on Luke here. So Luke was a framework team member. So there's, there's typically, you know, five to seven men and women that create the framework. Those are those those core contributors that actually write the framework. And they're called being on the framework team. Luke was one of them. And you know, his experience, led a lot of the thought leadership between behind agile product management behind lean portfolio management and customer centricity, a lot of those things came from Blue, that's where I actually first met him, as I was helping collaborate on those on those courses and stuff. And the flip side, Andrew here is been in the trenches with a huge number of companies, both private sector, as well as government agencies for a long, long time, you know, he's been implementing SAFe for a long time. So between the two of them, you've got different perspectives on SAFe, I don't even want to think about how much agile experience we have between the three of us. But Luke wrote a book came out this spring, called Software profit streams. And there's a body of knowledge and training classes around that. And Andrew is actually an early adopter of that. And so I think, Luke, what Luke was mentioning, Luke and Andrew are working together with clients now, to help them bring the profitability in there. And so when we talk about focusing on profit, the idea here is to leverage frameworks such as the profit stream framework to be able to augment the Scaled Agile Framework. And it's one of the things that we'll talk about here. What's exciting about this to me is that there's there's not a lot of content out there there's not a lot of ways to factor this in and with Luke as the author and and Andrew as early adopter that have field experience already. I think it's really cool to be able to put some things out there into the SPCs hands, when they think about how they might even broach that conversation. I will tell you personally, when Luke came to me about two, two and a half years ago, and said, Hey, we're going to be known for profit. I'm like, have you met me? I want to be known for sustainability. I want to be known for this And what we found was that profitability is required, if you want to be sustainable for long. Now the flip side of that coin is, if you want to be profitable for long, you've got to have a sustainable way of working. And that's where it where SAFe, really can can shine. And so we're looking at here as SPCs as a way to bridge both. And that's one of the things that people talk about today is maybe explore ways for you as an SPC, or someone who's looking to hire one. How you can kind of wrote this copy that can kind of be uncomfortable with that said, Have either of you experienced any kind of discomfort? You know, I think about Luke, you in Prague, when you introduced yourself to the to this audience, there's about 50 people in the class that show croupy and Mark Rick's we're teaching, we're there to help. And you said, Hi, I'm How did you introduce yourself?
Luke Hohmann 10:49
I said, Hi, I'm Luke calm, and I have a passion for profit.
Phil Gardiner 10:53
And the room just was quiet for a minute. And it was interesting.
Luke Hohmann 10:57
So I think Phil made a note that we may not have, we may be talking about something that we haven't defined. So I'm going to take, I think, two to three minutes, and then I'll hand it over to Andrew, to elaborate on this notion of what an SBC is going to be thinking about. But I think it does behoove the audience for an SBC to say, well, what are the atomic elements here? What are we talking about? So I'm going to quickly share my screen. And I'm going to be giving an invited so I was invited to give a talk on profit streams at the at the SAFe summit that's coming up. So I'm going to give a couple of slides from this talk. And what I want to ask everyone in this phone call, or this webinar phone call with this webinar to think about is, this is a SAFe picture. It's one of the new SAFe six data pictures. It's the fulfillment development value stream pattern, and we use it in our classes. And we use it in our discussions to illustrate the relationship between an internal solution created by a development value stream for an internal customer, and an external operational value stream that's creating a good or service or product that software enabled for a, in this case, a consumer. Now, if you go through this, and you ask yourself, Where is revenue, and where's cost, what you find is that this, this entire development value stream is a cost to the business because attracting a customer, this is a cost, you're not making revenue. When you're attracting a customer, giving a rate quote, completing a loan application, looking at the eligibility and underwriting core banking, necessary for running the business, these are all costs. Now, if I switch this, and I asked myself aware, where are the revenue elements, that's really down here. This is the revenue elements. I make revenue in a bank, when I repay the when the consumer or the business a loan money to pays me back I make that's how banks make money. And so the first thing you start to realize is that there's this very straightforward definition where development value streams are cost models. And operational value streams in businesses are your revenue. Which means that operational value streams are often like rainbows, there's a pot of gold at the end of the rainbow, and there's value in the journey to go get it. But that operational value sheets are kinda like rainbows. So now the second thing I want to showcase is that what we need to think about is, when we're looking at value stream management, we know that we've got a flow of value to customers and a flow of value to the enterprise. And Andrew mentioned that he does a lot of work in the government. And we want the government to be more agile, we want the government to adopt SAFe because we want more value as citizens of whatever government we're a part of, but a government isn't going to make a profit from their citizens. But enterprises do so if we restrict our discussion to enterprises, what we see is that there's we all want value, but we define success associated with value differently. For an enterprise revenue has to be greater than total cost. Meaning what Phil started with is the enterprise has to make a profit to sustain itself, for the customer value has to be greater than total cost of ownership. And we use the word total cost of ownership to be aware of what SAFe would call the solution context. When we're delivering a solution to our customer. It's going to be delivered in in a solution context. That solution context may require a dish In all costs from our customer to operate their solution. So this is what we mean by looking at a value stream approach evolving into a profit stream mindset and evolving into a profit stream model. And I'm going to hold here, and I'm going to hand this over to my colleague, Andrew to kind of elaborate, especially, Andrew, I'm going to I'm going to put you back here, especially when we're thinking about an SPC and their role in helping organizations understand, model and implement operational and development value streams.
Andrew Long 15:40
Thank you. Yeah. And I think I'll very quickly jump down to just a very operational perspective, right? So if you're an SPC coaching and consulting in an enterprise, you're probably helping release train engineers run an agile release train, you may be assisting with PI planning and the steps leading up to pi plan and getting that feature backlog ready. Figuring out what are the kind of, you know, objectives we're going to be looking for? If we're tied into, let's say, some OKRs? Where we have let's say, quarterly que RS and maybe KPIs for the value stream that matter to the business? How does that influence what we're going to do this coming? PII? What's on the roadmap? What's the vision, when you think about this conversations, and you know, if you're familiar now, with SAFe six, a lot of the roles have this now kind of a wheel perspective that helps you explain and understand parts of that role and what they do. One of the most important things a product manager does in a team of product management and product owners working together on a release train is aligning on outcomes. And if you think about what it means to align outcomes with your customers and users, with your stakeholders, with your business, that's really coming right back to the profit discussion. Do we understand our profit model? Do we understand how we derive profit create profit from our solutions, how pricing plays a role in that, what our features and benefits are how that aligns to our customer segments, and how that relates to maybe a roadmap of objectives and cars we have for our product lines, and in the things we need to do over the coming quarters to increase profit and take advantage of, you know, changes in our customer needs, or take advantage of an anticipated pricing or packaging change that we've decided we need to do to move forward in our product line. So there are clear connections to the business here to the business elements of that operational value stream, where, you know, I think the term that we're all familiar with, and SAFe and have been and just the general business community of return on investment and ROI, right, we really want to be able to tie back tangibly, what we're building what we're delivering in that release, train, to demonstrate that solution ROI, and demonstrate profitability and the bottom line to make sure that the business overall sustainable. And I'll pause there to invite any further thoughts I've
Luke Hohmann 18:11
got to so what you're saying, Andrew is, if I feel helped us out, he brought up the role wheel from the SAFe product management article. So Andrew, I think what I'm hearing you say is, hey, look, one of your responsibilities as a product manager or CO as an SPC is helping product managers is this notion of defining value. So you need to know the context in which you're working in is the way that you're defining value, a economic term, and which may be more associated with an enterprise versus another way of defining value. And if it is economic, well, then you really do need to dig into profit. And I was looking at the chat log and we see Sylvie asked when we want our governments to be at least break even though. And so me the answer for me is I don't want my government to be breakeven, I want my government to create extraordinary value and infrastructure. And I want my government to create more value than my taxes cost me now. That's that's what I want. The government is governments are sometimes we sometimes complain about our governments because they may be inefficient, which is why we want them to adopt SAFe. But when I look at some of the things that the government has done, there's there's some interesting books that are out there. One book that you might want to look at is called the mission economy, which is exploring the historical role of governments that I'm going to speak. I'm an American citizen, so I can't speak to other governments around the world. So I'm just going to speak about American investments but other governments do this too. But the the entire GPS network that we all rely on every day in our life right now was funded by the US government with the satellite networks for geosynchronous Oregon orbits in the United States, the government created an investment in an interstate highway system that criss crosses America, it was justified to for military transport reasons. But what it created was a national economy and it created many opportunities. Now, of course, it created some problems with with automobiles, etc. But what I think that when we look at the government, I hold the government to the same value equation, I want the government to create more value than the taxes, I'm paying the government. But it is a different equation than an enterprise who has to make a profit in terms of its sustainability. Phil, I want to ask you something that that you're that you're an expert at. And one of the things that you alluded to is this notion of ways of working in sustainability. How do you think that the relationship between profit and sustainability work together? And we're in that relationship? What should an SPC be most attuned to?
Phil Gardiner 21:12
So I mean, you know, for me, it's, it's, I don't want to make this about me, but I'll say that.
Luke Hohmann 21:18
Sure. Well, yeah, I found out about you.
Phil Gardiner 21:22
I'm just saying, I want to hear more from you, too. But since you put it back at me, I'll answer. So. For me, I just, you know, my first large scale transformation was a big flop, everybody celebrated it, and they were all excited people got promoted. And two years later, the entire business imploded. Right, and I kind of said, Never again, and that's kind of been a guiding light for me, in my over the last 1012 years. And so what I found is that you've got to have that that way of working needs to stick, the change needs to actually continuously go and evolve and grow. Right. And quite frankly, sometimes that cost money, right. And so if the company is not is not profitable, the solutions aren't profitable, then you're not going to have an investment, then you're going to be seeing things like what an inspect and adapt event where everybody's off, you know, not doing work for a half day or for a full day. Right. And so there's this balance there. And so what, you know, we talk about when we look at sustainable, SAFe, we look at this way of working, it's really about how do we work together so that the enterprise can sustain this new way of working, that allows them to deliver more value sooner, and the government, you know, more value to the taxpayers and the citizens in the private sector, more profit. And so, you know, when we look at that, some key elements there, one of them is the business. And so as an SPC, sometimes the business is a black box, I know that many of the STCs I have mentored over the years, and quite frankly, many of the engagements that I've been hired to be involved in, especially over the last five, seven years are being mean, I literally had one for a big CRM company out of San Francisco, which was the statement of work one outcome, get the business engaged. That's what I was hired to do. And as an SPC, especially if you're a part of the IT organization is not uncommon to have the lace as part of the IT organization, I like to say the IT organization will oftentimes start the journey, and the business finishes it. And what I found is that as an SPC, being able to be comfortable talking about revenue, and profit, and EBITA, and all these different terms that aren't floated around inside it all the time, will give you some clouds, if you will, with the business. And so being able to if you're trying to get business owners, engaged in your arts backlog, Kanban flow, right, being able to talk to them about hey, you know, when we look at using some of the techniques, like weighted shortest job first and looking at the cost delay, you know, your understanding of margins and profitability, will help us with this, also, being able to look at Hey, is this new solution, something that we can actually price a price price price accordingly. You know, Luke's done some work now, as part of the research for the book, and in even after the book on helping companies just not lose their shirts, because they have a cool idea cool products, but they're getting ready to give it away for next to nothing. Right? And so that's a technique that you can use as an SPC. And when we think about it, the people funding the New Way of Working funding the SAFe implementation, right? If it's a commercial company, they're gonna they're gonna want better profitability. And so if you can help them along those lines, that's another way that you're adding value as a as an SPC. But as you become more familiar with the terms and and the techniques and the the importance Some of it that's going to come across in your engagements and your conversations. Now for me personally, I gravitated towards lean portfolio management. And the reason for that is most of my customers were not Silicon Valley startups, which means that all the cool stuff you see in the Agile product management class, market rhythms, market events, customer research, personas, all that stuff didn't exist, because the product manager at my clients was, they used to be a senior business manager. And now they've been a project manager. And now they're a product manager, and they have no authority, no budget, no ability to talk to customers, those conversations occurred at the portfolio level. And so I love implementing LTM as a way to actually get the business engaged. And this is why I love the new article on the framework site, about business and technology patterns. There's one in there, this specifically around a combined portfolio. And it's really, it's only got one use case right now. But that's kind of how I've been implementing lpm for years now, where portfolio can have operational value stream, which is also something that you can look at from a profit stream perspective, as well as development value streams. And once you have that breadth, you're actually looking at the portfolio for the business not for for a subset of the business and that that's a game changer there. So going back to your question loop, you know, the the SPC becoming more familiar with, with profitability, and all the things that drive it will allow them to have a more sustainable implementation, because they're going to pull in the business people speaking their language in a way that's going to result in a much better situation. I'll close with this last thing. Reason I love lpm is if you get it right, all the challenges you've had at the Art level, they get solved right away. It's like what they've been having to deal with that for six months, fix it now. Because these are the business decision makers who have the p&l responsibility, who can actually make the decisions as opposed to this. And so think about this as a as a daughter, as a lot as a healer really cool lock, that opens up a wide range of possibilities. I think Luke knew I was gonna be passionate about that particular topic. So I'll pause there. Anything you'd want to add Luke or Andrew?
Andrew Long 27:18
Yeah, I wanted to build on that a little bit. I think, you know, again, I'm gonna just kind of really bring the practitioner perspective to this conversation today. And I think as an SPC, when you come into an engagement, whether you're leading the engagement or part of a broader team that's involved in a transformation effort, one of the things one of the key things you're going to do very, very practical, right? I call it the the Outlook calendar problem, right? Like you have to get things figured out on the calendar, you have to figure out what what is the pie going to be? What is the sprint length is going to be? How are these events going to sync? How do we how do we make sure stakeholders are available for particular meetings and the right information can flow through the system, you know, through our cadence and our management system, to ensure that teams are ready to work in PEI planning teams are ready, great job, Amazon, thank you for knocking very loudly. You know, coming into that program, increment, or excuse me, the planning increment now gotta update my terms, right? And making sure that we are ready to begin work, begin planning. And I think there's an additional cadence that we've now factored in with, you know, again, applying pricing and profitability as a system, that we want to have a cadence for that too, right? Pricing and profitability is not something that you talk about your plan upfront with a product launch, you figure out a great price, and then you put it on the shelf, you need to regularly revisit and have those conversations. And I think we have now a process and a logic, you know, again, bringing the systems thinking and principles of SAFe into play here, of making sure that's intertwined with your management cadence, making sure that that stakeholder engagement, that continuous exploration, those conversations are all now in a system of operations that again, really enables the sustainability of your your enterprise.
Phil Gardiner 29:11
We got a question in, in chat here about where to where to SAFe and profit streams merge. How do we use it in PII planning, etc? Is it related to business value or objectives laid? lpm? I'll tell you that. I view the body of knowledge and to be transparent, right? I've got the book here. I've been part of the creation of this stuff, definitely not the author like Luke, but I've been involved in this enough so that it's the framework that I'm using to put some organization around the stuff that I did here and there along the way, right. And when we look at at how you might be able to apply this new body of knowledge to SAFe as implemented as an ELP, as a as an SPC, whether it be as part of an art or as part of portfolio, think about it, not in terms of, you know, a top We'll switch. Instead, it's kinda like a little additional piece, right? So I'm working with a with a health insurance company right now. And they're exploring the beginning of their lean portfolio management journey. And so as we implement that, we're going to be looking at potentials for, okay? When we, you know, imagine in the portfolio flow, you've got an idea for an opportunity, this epic hypothesis statement, and you're gonna do some analysis on it. Well, that lean business case might include a profit stream canvas, talk about the profitability, and the licensing and the structure and all that related to that new solution you're gonna offer. So it's a matter of being able to pull this extra thing in, it's kind of like value stream mapping, right? Back in 2013 2014, there was no value stream mapping toolkit within the framework. But I'll tell you that, that's one of the first things I would always do with the client is we would do some, even if they were ready for value stream and identification, just some good ol Hey, it's taken us, it takes us six months to get a personalization tag done. Okay, let's do a value stream mapping workshop and figure out why. And so think about profit streams net body of knowledge as an additional set of tools that you can use to connect to the business to help them become more profitable, because that will in turn, allow them to be more sustainable from a from a new way of working perspective. Hopefully that answers your question, Luke, or, Andrew, anything to add?
Luke Hohmann 31:30
Well, Ronnie, I think that you asked a good question about the business value of objectives. And so I think that that's where the Agile community can do a better job of helping executives understand our investments. So I'm going to put a chat that I was preparing them and explain it, I'm going to assume that we all love our jobs, and that we want to keep them. And right now we're actually seeing a bit of a backlash where we seen some organizations start to terminate Scrum Masters slash agile coaches, we've seen some organizations start to question their investments in various agile practices, is it really worth it? Well, I think that this is a natural question from a business owner, who is compensated and, and, and manage differently. When, in my career, right, I started in a very humble manner, and I had a job and a salary. But as I progressed, in my career, an increasingly greater portion of my salary was variable. And the variable compensation is very common in large organizations for executives, if you read this article, you'll find that according to Harvard Business Review, 70% or more of an executives compensation is based on some input notion of performance or some notion of variability. And the biggest component of that variable compensation is profit, not value. So when we we are saying that we produce value? It's true, I don't, I don't really dispute that that the SAFe implementations are producing value. But if you can't put a number on that value, and you can't show that that value is generating profit and sustainability, chances are the executives are saying, well, is the investment worth it? Do I have to spend that much money on my SAFe implementation? Do I really need that pie planning do I mean, we don't need to invest two days, let's just get pi planning done in a half a day or one of my pet peeves is when people shortcut the inspect and adapt. And the organization has this great opportunity to make systemic improvements that SPC and even their counterparts, the RTS, they can really dig into how do we systemically improve the way of our working so that we can really reduce unnecessary dependencies, refactor our architecture so that we have the right kind of relationships, invest in tooling or infrastructure or invest in some learning. executives don't see all that if you don't equate it to profit, which is something that I think is important for, for the SPC community to embrace because as change agents, and as leaders, you can drive this forward.
Phil Gardiner 34:38
And looked at that game. They gave me a thought here about and this is the this is the updated SAFe 6.0 Value Stream KPIs article, right. And if you look here, right. For example, for the portfolio here, here's some example KPIs for a value stream in a portfolio. Now notice here, it doesn't say profitability and go Going back to that what's in it for you as an SPC? Well, if you're an SPC, and you're and you're helping a company, look at lean portfolio management and you see this KPI for the value stream? Well, your job is to help help them accomplish their outcomes, right? Well, if an outcome is to increase the annual recurring revenue, a part of that is understanding, well, how are we going to do that? Right? How are you going to get there? What is your roadmap to get there? What are the things you're going to do to get to make that happen? And so being able to understand what allows you to go to reoccurring revenue? What allows you to be more profitable? And what you'll find and I don't know if any of you have experienced this on your journey as an SPC, but I sure have, where I told you that story about, hey, why is it take three to six months to get a personalization tag done, we did that value stream mapping, it took one to two months to actually fought to actually get the business to even respond. Right. So as soon as you actually created an environment where the business would come together, and you collaborate on what you're actually trying to get done, you shaved off 30% of your lead time. And this is where an understanding of the components and looking beyond just your one piece, right? So as an SPC, you're looking at the Agile release train and development value stream, if you expand your view a little bit and look at the larger systems view, the operational value stream, you might find that there's other things that are inhibiting the flow of value that could actually deliver that could actually be a bigger impact than then doing this. So for example, you know, you've got, you know, you're you're working to get your, your software product out the door faster, so you can release more frequently. But as Andrew used an example, before you create your pricing two years ago, and everybody moved to subscription models, and you're still on a, you know, pay one fee, and you get to use it forever, for lifetime. Those companies are actually finding that they're losing money left and right, because they've inherited these, these customers that have all you can eat access, and they're trying to operate off of a price per menu. Luke, Andrew, have you seen those types of things in your journey as an SPC?
Andrew Long 37:24
Yeah, it's certainly common. And you know, if you can bring back that image, I wanted to point something out, there's a dog not barking on that KPI, you know, image, right, which is, we're, we're talking about recurring revenue. But you know, there's something about pricing and packaging that maybe has something to do with this. And it's one of those things where, you know, if all you have is a hammer, and everything looks like a nail, right, and that's one of my concerns with a lot of especially new SAFe practice Consultants is they're immediately going to, you know, just, you know, try to find the answer and SAFe on how to apply something, and maybe they need to focus more on the word consultant, part of that SAFe practice consultant on what is the right thing for the business overall. And I think when you when you have that consultant hat on something strikes me with this image of going back to one of the original Agile principles of the manifesto, right is maximizing the amount of work not done, there are probably a lot of features and stories that were generated to move the needle on these KPIs. And I think one of the things we want to ask is, is there maybe a pricing or packaging change that could drive the revenue target? Is that actually a lot easier and a lot simpler to implement than this massive backlog of epics and features, you've asked the release train to go do? So that's something that I think we want to be able to ask as a SAFe practice consultant is, you know, let's not just focus on maximizing the throughput of the system, let's start to actually say, do we need to do that work? Is there actually another path that gets you to that outcome that doesn't drive overloading your teams or, you know, launching new release trains or teams to get work done. It's fun as a practice consultant, to launch teams to teach folks how to shift into agile and how to implement a lot of the ideas that SAFe brings to the table, but I just want to make sure we're doing right by the customer, you know, when we're helping them in, in an engagement, and that we see if there's something missing from the table that we need to talk about. And in this case, that could be packaging and pricing.
Phil Gardiner 39:34
Interesting, Andrea, you know, I shared before that for a lot of times for SPCs the business is a black box, right? And they speak a different language. You know, you're maybe thinking about productivity when you're on the IT side. You get over into the business side it's profitability predictability. They're not they don't care how busy the people are, right? They've got targets and if you look at the the business owner article, right realize I think the business outcomes is one of those things and as an SPC, I will tell you that your your personal relationship, if you're launching an agile release train, I believe, to my core, your personal relationship with the business owners is a leading indicator of the of the early success of that of that new way of working. When you have a business owner that just shows up at pi planning for an hour, and you never talked to him, except for then you're gonna have a much different experience than when you've got a business owner who is spending the entire time the business owners I think about recently is the guy that the guy named Marcus at at the state based health insurance company. And you know, where he he looks forward to the team breakouts, during the team breakouts, he's spending all of his time with the teams. And the results are pretty amazing. And as an SPC, your relationship with the business owners, and the people on the business side will really help you connect with them. And, and being able to talk openly about profit, like I shared with you a few minutes ago, I'm I was I was kind of like, Whoa, I need to find other job when Luke said we're gonna be down for profit, because it was so uncomfortable for me. And so don't think about this as a toggle switch. You know, as I, as I'm talking on this, on this webinar, I'm finding myself, I'm really had an epiphany that, yeah, this is just kind of part of my toolbox. Now. I do this stuff now. Right? There was no, there was no time I can point to and said, Here's when I got on board is just, this is woven into the things I'm already doing. And it's another set of, of practices that help a company become more successful. And I you know, whether you get up in the morning, because you want to measure profitability, you're getting morning, because you want to have people go to a wonderful place to work, right? You know, I remember that place, we hit 240% of our plan, we had a kitchen area, they fully stocked it fresh fruit, you know, fudgesicles, every Wednesday, they brought in real food from a real restaurant, not like the downstairs deli, they actually brought brought in catered food every Wednesday, because we were making lots of profits, and they could reward the people. If you're not that profitable, you may not be able to do those types of things that are gonna allow your people to love working there. I think about you know, one of our companies I've met on my journey Ingenico they did, they were on a previous version of this sharing their story. And, you know, their ability to become more profitable and more sustainable resulted in them being able to get all the people together in Toronto for for a big get together where they get to meet people. And it wasn't there to do a bunch of work, it was there to connect his people. And I think they shared that they had, you know, two or 3% attrition, since they've been on their SAFety. Those are the types of things that happen when you when you find a new way of working that allows you to really focus on, on on meeting the business outcomes. And so profits a key to connecting with them. How do we plan for new product on the on the costing when we haven't even tested the product lines? How we price it to make sure we're profitable? It's a great question. Luca are answered you want to tackle that as from a high level perspective.
Luke Hohmann 43:11
Andrew, why don't you start and what I'll do is I'll I'll grab a picture from the book that talks about how we think about developing the pricing for for the new offering.
Andrew Long 43:26
Certainly, I think one of the ideas that we promote very heavily in SAFe now. And it's it's been there since since Luke showed up a few years ago was say five to five out Oh, version five is customer centricity. And I think you'll see that what we promote with profit streams, you know, really hammers that as well, in the in the engagement that Luke was talking about last week. This, this team was very well versed on their solution offering on the value they provide on the value that's unrealized that they could provide. What they didn't necessarily understand was how their customers think, why do their customers buy their services? What are the tangible and intangible benefits that the customers get out of the service? And what are some benefits that they could get out of the service if they upgraded to some additional offerings in their in their package, right. And so I think it all goes back to that customer set of questions. If we want to understand how to price it, we need to focus first on the customer. It's very easy to start with a solution and the cost. We understand how many teams are working on it, we understand the various integration aspects of different products and licenses we're putting together in the software package. And we come up with a number and then we figure out okay, we need x percent on top of that to be profitable. That's a relatively common way to think about the problem. It doesn't always work though. And we want to definitely promote that switch to Well, let's start with the customer in mind, not just user experience. Answer. It's very easy to think about customer centricity in terms of Lean UX and user experience. But when we want to talk about it from what is their frame of reference of what their what their business problem or challenge is, and what kind of benefits we can provide that help them? And can we articulate what those what those benefits are in the dimensions and magnitude of those benefits? And how that factors into if, for example, you're providing a solution? What is their ROI from owning that solution? What is their cost of ownership, based on getting that solution from you, versus maybe some of the other costs associated with running that solution, training their people on that solution, and so forth. So if you don't have that mapped out effectively, it's, it's kind of hard to get a good price sometimes. And you might stumble on one, you might through just pure lean startup trial and error, MVP, hypothesis driven development, come on, come upon a number that works. And so you go with that, and that establishes maybe some sustainability, we want to promote, however, we approach it in a more systematic, systematic manner, and have the ability to actually trial things with a little bit more of a, you know, it's specific elements of of how you might strategize, changing the price, or how you might strategize, adjusting the packaging, or putting fences around your product in a certain way that, you know, helps you charge a set of customers a different price than another set of customers. And if you don't have that sense in place, maybe you lose a whole bunch of customers that aren't going to be able to pay for it, right. So there's a number of factors, we want to pull together and analyze. And so we promote, you know, if you use that profit stream canvas, as a template, it'll drive the right conversations that I think will even before you've launched the product, right, at least have the right questions to ask and start looking for the right kinds of data to come up with that number you're looking for.
Luke Hohmann 46:59
I think the other part of this, the the question is, how do we plan for a new product on the costing, in Lean portfolio management and SAFe we break this up into two dimensions, there's a lean business case, and the lean business case says I'm going to authorize the investment in determining the proving or disproving the epic hypothesis, the the result of that investment will determine if I want to make a second investment to continue the epic and and that money will flow from the portfolio budget to a given value stream because portfolios don't do anything in terms of work. That's done by the value streams. So to build on what Andrew said, the profit stream canvas that Phil mentioned, is a structured element like other canvases that help you guide and just make sure that you're going through the decision making process. So from that regard, we should look at well what is what is profit stream say? Well, the way we think about it for a new product or service, is that you're going to start and this is an actual picture from from the book. So you're going to start with a canvas because you're brand new with with very few questions answered. But there is a flow where you're going to start with your customer and your solution. And you're gonna get clear based on customer centricity, who am I serving? What value am I creating for them? How do I monetize that value? How do I put a number on what that value is worth? Then you can start to model what the question really is, is, well, if I'm providing this kind of value to my customer, what kind of value will I get? Is my solution ROI sustainable? That was what Phil and Andrew were talking about earlier. Then Phil mentioned, in passing, that pricing is a system. And that system includes the license agreement and your compliance. For example, am I operating in Europe? Do I need GDPR? Am I operating in Australia, they have different laws about privacy, and my operating in America, where I have different laws about age in terms of children using software. So relatively early on, as I'm starting to learn my customer, I'm going to look at my solution licenses, I'm gonna look at my compliance. And I need to make sure that eventually and by solution licenses, we mean the technology that you are in licensing into your platform. Now, once you progress, you're going to start to do what Andrew said you're going to look at your strategy, your structure, your fences, your metrics, and if you don't know what those terms are, that's why you should get the book and continue to grow your knowledge as an SPC or take one of the classes that Andrew is teaching, because you want to build out your knowledge in these areas. But as you progress in time, as you're building out your solution or building out the model, you're going to continue to fill out the model and elements of the system. till finally you get everything to the point where you've got to check mark, you know who the customer is, you have confidence you're providing value, you've got an economic model that shows that if you offer this solution with this packaging at this price point, you should be able to make a sustainable profit. So the system evolves together. And there's guidance in the book and in the way that we build out profit streams to answer that question, how do I know in the earliest stages of my idea that my idea can in fact, create a sustainable profit? Now, it doesn't always work perfectly. Part of the work that we're doing is based on our experiences, collectively, I've started companies, I've sold companies, I've acquired companies, and I have failed companies where I wasn't able to kind of figure out the black box. So just like all of the work in PEI planning doesn't guarantee success, because we have, we have to roll my risks. And we sometimes will accept a risk. And sometimes the risk manifests and the big plan gets blown up. That's okay. But what you're doing when you're doing pie planning is you're dramatically increasing your chances for success. And when you roll your risks, you're dramatically increasing your chances for success. So similarly, to Andrews point earlier, and Phil's point earlier, when you're going through the profit stream Canvas, you are dramatically increasing your chances that you in fact, can price your offering fairly defend your prices in the market and achieve a profitable outcome.
Phil Gardiner 52:04
And part of that, you know, just this is, don't look at this all as a transactional thing is what I would probably add in there in that, you know, when I think about SAFe implementations, where they look at it as a process to be implemented, know, one and done, don't, you know, this new body of knowledge around profit streams that looks created? Don't Don't look at that as a binary either. It's really a matter of, hey, we're going to be, we're just adding discussions and knowledge around profitability to our way of doing things. And it's basically just filling in a gap that exists out there. And there's a question in, in chat here in the q&a from Rania, what if we develop internal systems, say an order management system, or API development for our system? Does profit value to the profit streams apply there as well? I'll tell you that, for me, it depends. Because there's this awesome pattern here where we may have a portfolio. So imagine if you're a smaller size company, and, you know, you're building the the order management system, that powers you know, your your your company's one product, or, you know, two or three solutions that they offer. Well, you might find that your scale allows, you're looking at combined portfolio situation where both the operational value stream and the development value streams are in one portfolio. And in this scenario, here, from what Luke showed you, this operational value stream might be one that is powered by profit, it is a profit stream, whereas the development value stream say the one that creates the order management system would not be would not be focused on profit directly. But it's part of the same portfolio. Luke, Andrew, what are your thoughts on her question?
Andrew Long 53:51
Very quickly, I would just say that, from a solution ROI perspective, which is, you know, one of the key elements of the canvas of the profit stream canvas, I think, even if you're doing an internal API, for example, you're relating to a cost model of of your operations, right, that you can, you know, you can figure out what is the effect on your solution ROI. And you can compare that, in fact, to maybe a feature or an epic that's unrelated to the API that's maybe related to something that's more customer facing. And so we talked a lot about I think we have a problem many times in our agile implementations and SAFe especially where we've got the solution of capacity allocation of understanding sometimes or different types of work right enablers versus features and how to decide how much to put on each one it tends to be seen as an apples to oranges problem. I think the the profit stream Canvas some sometimes can help us untangle that and actually make it a more direct apples to apples comparison. Do I want to invest in something that's over here on the cost side of the equation on the solution side of the equation versus something that maybe changes the customer experience and results in a greater conversion rate, or whatever the case may be. The other element to as we look at our value exchange models is sometimes there are opportunities to look at our architecture as a source of additional profit streams, additional revenue. And if we look at what are some additional value exchange models that we can enable, do some of these maybe embedded design ideas that we're talking about shifting to, you know, restful API's and so forth, does that now unlock the potential for a new value exchange model that we can build something that generates revenue on top of that, or in some cases, I've even seen, if Amazon Web Services is a classic case of this, you build all these systems and services and solutions, because you're doing it for yourself, and then you figure out in a minute, we could package and sell that to customers directly? Right. So something that starts out internally as a pure it, centric initiative ends up being something that's a p&l relevant initiative. So there are a lot of opportunities there to examine different pathways in the profit stream Canvas really kind of helps you put all that in perspective, and think, you know, and roadmap effectively around when and how to explore some of those topics.
Luke Hohmann 56:18
Yeah, let me say one final quick thing on this, it's going to say, pretty, pretty directly and pretty roughly, an organization should not consider a development value stream, building an internal solution for an internal customer as anything associated with profit, because that would motivate the organization to try and create a profit from another part of the organization. And that's just funny money. And it's just shifting money. And it doesn't matter. The the appropriate point of view is to, if you're if your organization is working this way is to understand your costs using either TBM at the very large level, or just basic cost modeling of your development value stream. Because we have as stewards, I often remind people, your job is to make more money for your employer than your employer pays you other you otherwise you don't have a job, because no one in the company would have a job. And so the that that is something that we want to really celebrate is that we all want to be well, and many of us have an engineering background. We all want to be efficient. We all abhor waste, we lean agile mindset that is the foundation of SAFe abhors waste. So removing waste, reducing costs, these are all really important things. But creating a profit on an internal solution to an internal customer is a dysfunctional pattern. And you don't want to do.
Phil Gardiner 57:54
It's like I remember when I first heard about enablers, it's like, what? I don't have to have the user voice for an API to API call. Yes. All right, we're at our time box, I just want to say thank you both very much. I know this is a new concept, a new new topic that I haven't heard out there. I think that that I really appreciate the way the two of you have kind of related this to the SPCs out there. They're on this journey out there to help their customers to help their companies. And I appreciate both of you here any last minute kind of like one liner piece of advice for him. And then we'll call it a day.
Andrew Long 58:31
I'll just say I'm a big fan of sustainable profitability. I think the two go hand in hand. I know we said that at the beginning and I just want to close out with that site, make sure you are profitable and that will help you be sustainable.
Luke Hohmann 58:44
Yeah, I'll I guess I'll respond by saying it's, it's just so great to be able to share this information and help the Agile community continue to evolve. Help the Agile community, continue to realize that we've we've created we've learned how to create value. Awesome. Now let's evolve again, and really learn how to create a profit.
Phil Gardiner 59:12
Thanks, everybody, and we'll see you next month. For I'm an SPC and a veteran. We'll have sayfullo Adam Mattis from from scaled, agile Incorporated, and Travis Moore and SBCT candidate, both retired military telling him about their journey and how to be an SPC and a veteran. Thanks, everybody.
Watch the lastest episode in the SPC Journey Series: I’m an SPC, and I Focus on Profit | Recording
