Hack:
Optimize your value definition
Replace “core competence” with “core value definition”. By framing the context of an enterprise by the value it delivers, you widen the view of opportunities and markets that the enterprise can play in. It answers Simon Sinek’s question of Why and gets away from just being “the best widget maker”. Innovation ensues.
Corporations are more focused on “shareholder value” than ever before. This drives short term thinking and minor evolutionary innovation and exposes them to disruptive innovation that is not initially viewed as a core competence of the company. Far too often the goal posts of an enterprise are set too close together, narrowly defining what the company does, ignoring the possibilities of what it could do. Innovation becomes a tiny part of everyone’s job, and no coordinated effort or resources exist to extract ideas and incubate them. Those with ideas and nowhere to go within the organization have only the option to leave for another company or create a startup to see the idea out.
I like to consider the parallel between enterprise and the optimization process. Ultimately we are all trying to optimize our product, service, or business. This is the natural result of our constant drive to improve, compete, and get ahead in the market. However, when one studies the details of numerical optimization, you discover the sobering reality that you can only optimize for one thing. However, in the context of enterprise, it seems we are always trying to strike a balance between multiple opposing desires. So how can it be that we can only optimize for one “thing”? Back to the math: If you want to take into account multiple variables in the equation, you must define a utility function that defines the tradeoff between them. This utility function is then what you can optimize to derive the best answer.
As it turns out, the hardest part in the math, and in life, is figuring out the damn utility function. As it turns out though, there is an answer that will both drive enterprise forward, but also innovation, employee engagement, and stock price. The one thing we should all optimize is Value. But again, the hardest part is defining it.
To foster innovation across an entire enterprise, that value definition is captured in the vision. It is the answer to Simon Sinek’s “Why?” Why work for this company? Why invest in it? Why buy its products? Why is it different from its competitor? Why should it be allowed to exist? Mostly it should be an answer that defines the core competency of the company and how it delivers that value. When framed in this context you get away from being the “best widget maker in the world”, and move towards the value you can deliver no matter the product or marketplace. That is the key to opening up the horizon of possibilities. If Apple had considered itself just a computer company, it would not have paid attention to music and phones. Instead, it saw a new opportunity to provide its value. If you frame your enterprise around that value definition, all of your products or services will be considered “core”.
Value has an indeterminate number of variables all competing for attention, and much like a star map, it also depends on one’s perspective. Far too often today, companies are run with too small a subset of these variables, with the greatest weight landing on “shareholder value”. However, when one variable gets excessive weight, the other variables suffer. It is time to re-examine the formula. Consider bringing the customer to the top of the pareto. Include employees, suppliers, environment, and the investors too: Everyone with a stake in the system. Let’s discard the term “shareholder value” and replace it with “Stakeholder value”. Re-examine the unique way your company delivers value and consider where else that value is needed.
With a keen eye on delivering stakeholder value, the culture will be pre-seeded with an innovative mindset and allow it to flourish. It will open the possibilities and expand whom you consider to be your benchmarks, and competition. Having come to an agreement on how the company defines value will help align priorities, and help define metrics for innovation. Keeping a close eye on how that value definition might change over time will help identify disruptive forces outside and identify opportunities as well.
It really starts at the top, with an excellent vision and understanding of the enterprise value definition.
The world has enough widgets already - provide something new.
This is great stuff Jeff. My research focus is on trying to understand consumer value in a dynamic environment. This focuses on what value is (I found 12 value meanings) and how value works (the process of value). You are right Jeff. Value is complex, dynamic, and very tricky for consumers to optimise.
I tried to assess how consumers take multiple variables into account when they buy a 3G mobile phone (see my journey at valman.blogspot.com). Consumers used 80 different wasy of talking about value in their 3G mobile phones but I clustered them to 12 value dimensions (see value management hack). At the core of the transformation from pre to post the indicator that kept appearing was emotion. Consumers had emotional responses to all the new pieces of value information, yet could maintain an overall attitude (expressed as emotion) which guided their purchase and post-purchase actions (such as recommending).
Overall I suggest that firms use Value Management to trace customer satisfaction (see my hack on Measuring Innovation), preferably for the population of customers, rather than a sample, since value is a personal outcome of individual circumstances. The only way to affordably do this is with open internet systems, tracing/diarising customer's ongoing satisfaction with the firm.
I would be interested in your comments on my concept of Value Management in my submitted hack.
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Your research sounds very interesting, and it highlights the difficulty of defining value – in this case I will describe it as product value as defined by the consumer. In the context of product value, I’d like to redefine the term “commodity” as a product whose value definition has not substantially changed over time. Technology products seem to be at the other end of the spectrum. I’d be curious if you have examined the other extreme and compared the results.
However, in the context of innovating innovation, I am trying to describe an enterprise value definition. In this case consumer value is one aspect. In the enterprise context there are a large number of stakeholders: employees, supply chain, distributors, consumers, the environment, etc. If we look at the extreme case of only optimizing for consumer value, then we give away our product for free and the enterprise is not sustainable, which hurts the other stakeholders. The value in an enterprise exists in the creation of jobs, profit for the entire supply chain, and providing a great product that the customer values (amongst many others). You are keying in on the most important part of course, as without the customer recognizing value, nothing else will be achieved (for long).
Considering the cell phone example, we can look at Apple and Google. The approaches of the two companies vary greatly. Apple is more vertically integrated, and has a higher overall profit for every phone sold. Google sells a lot more phones but only takes a small piece of the profit on each phone. While the business models are very different, one can argue that the products only have slightly different features. The two companies have remarkably different value definitions and in general have different goals even though they happen to compete in certain areas. Neither will likely eliminate each other because of the inherent differences in how they provide value to the world. I think the highest performing companies understand this concept very well, while others struggle to break away from the commodity arena.
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