kmchughI’ve talked quite a bit over the years about Value and Value focus, and I’ve spent a load of energy and many, many hours embedding it into various teams and businesses to help to align thinking across the business.
It is high time I put some of that talking into writing to make it easier to share.
What is Value?
Any system, process or action can be distilled down into a single primary purpose. In fact, just about anything can have a Value attributed to it. From here on, we will refer to that ‘anything’ as the System, regardless of whether it is an action, platform, system, or just a decision that you are making.
As you’ve seen, I’m talking about Value with a capital ‘V’. The Value of a System isn’t how much it costs or how much you can sell it for. Instead, Value is about impact. How does it make life easier, better, more enjoyable? That impact can be positive or negative, meaning that a System could make things worse in some contexts, while making things better in another context.
Context is also important. The perception of Value within the context of the System may be different from the perception of Value from the viewpoint of those impacted by the System.
Let me illustrate that with a very simplified example.
Tesla, a company which I very much admire, has a Value to create cars, and a car has a Value to the user of getting from A to B. When stated like that, there is no differentiation between Tesla and any other car manufacturer. As a car user, I wouldn’t really care which company I purchased my car from, as the Value is the same regardless of the source. That isn’t really how things work.
Differentiating Value
Values can also be qualified and differentiated. If we extend the Tesla Value proposition to not just creating cars but to creating electric cars, it differentiates the Tesla System in the market and also helps me, as a user, to make decisions.
If I just want a car that gets me from A to B, then I can choose the cheapest car from any company that has a Value of creating cars. However, if I want a car that gets me from A to B in an environmentally-friendly way, then I immediately filter my choices to Systems that align with my own Value requirement.
We can have multiple differentiators attached to a Value. For example, Tesla probably wants to create safe and reliable electric cars.
Subsystems
Systems, of course, can be and usually are broken down into many subsystems. Each subsystem has its own Value and can be further broken down into more subsystems. In order to have an effective system, each subsystem has defined Values that, when combined, help to produce the overall system Value. The goal of each subsystem is to positively impact the Value of the System above it, or the parent System.
Again, keeping with the Tesla example: Tesla has a number of departments, including Accounting, Manufacturing, and R&D. Each of these departments would be considered subsystems, and the Values produced by those subsystems may be something like the following:
- Accounting – keep individuals focused.
- R&D – find more effective ways to make cars.
- Manufacturing – efficiently produce cars to specification.
Keeping individuals focused as an accounting function may seem a little odd, but if the Accounting department can ensure that cash comes in on time and people are paid the proper amount on time, it helps to ensure that everyone in the other departments isn’t as worried about paying bills and moonlighting, and they instead able to fully focus on providing their own individual value.
With R&D focusing on finding more effective ways to make cars, like cheaper or faster techniques, longer-lasting batteries, or self-driving features to optimise the lifetime of the vehicle, they update the specification with each discovery, and the Manufacturing team applies the new specifications to produce cars.
Manufacturing is also able to make their own impact by optimising how cars are produced, from selecting alternative supply chains to adjusting process flow. They could even choose to qualify their own value, maybe adjusting the Value proposition to “producing cars to specification efficiently with a reduced impact on the environment”.
Again, the concept is very much simplified, but you can see the interplay between the Values produced by the subsystems and how they combine to create the overall System Value.
An important point here, too, is that the hierarchy of subsystems reaches right down to the individual level. Person A is a subsystem of Team A, which is a subsystem of Department A, which is a subsystem of … etc. Each subsystem has its own Value and understands how to align that Value with the parent System.
Each subsystem can also self-assess to ensure it is creating a positive impact. Adjusting and pivoting as required to ensure the impact is always positive.
Value-based Decisions
Creating this hierarchy of Values makes it easier for everyone involved in the System to make decisions and to understand the impact of those decisions with regard to the Value of the subsystems they are involved in and the System as a whole.
The R&D team may discover that a combination of fossil fuels is actually a much more efficient way to make a car, and while that aligns with the R&D Value, it deviates from the overall System value of creating electric cars. The R&D team can immediately disregard the fossil fuel option.
The Accounting team may look to increase the margin on each car sold and discover that by doing so, fewer people purchase cars, and cash flow becomes a problem, deviating from the Value that the Accounting team intended to produce. They can quickly readjust margins to get back on track.
These hierarchies of Values help to create teams that can adapt within their own subsystems. This, in turn, creates highly-adaptive Systems. The smallest subsystem is able to quickly adjust their actions as they know what Value they are intended to provide, and they know how that Value needs to align with the parent System.
Going back to monetary value–while disregarded earlier in the post, it is still important with regard to Value. In my view, monetary value is a side effect of a Value-driven system. It should not be the focus, but it will come if the Value being provided is worth it. If the Value being produced can not create enough value (lowercase ‘v’) to sustain itself, then the Value may be one that isn’t seen as Value by its users.
Impact of Understanding Value
Systems that properly define hierarchies of Value end up with more autonomy, as individuals all through the chain are not only able to better assess decision points, but also able to measure the impact of those decisions. Organisations that understand the Value chain are generally more adaptable and can change faster and more reliably than organisations that do not.
Individuals should understand the Value they are intended to provide and can make their own decisions as to how to optimise that Value. If they are given the right tools, they can also very quickly understand the impact to Value of any decisions that they make. Generally, this creates teams and individuals who are more engaged, have higher satisfaction in their roles, and require less oversight as they understand what they need to do. In addition, they’re often highly motivated.
There are many ways of defining Value hierarchies, and I will start to go into some of them in future posts.
Summary
This has been an awfully long post, but here are the key takeaways:
Having a properly defined Value chain and an understanding of how Value works results in:
- Organisations and Systems that can be extremely complex but still highly adaptable.
- Teams and individuals that are motivated and engaged; they understand what is required and control how they provide it.
- Faster and bottom-up decision making, resulting in autonomous subsystems and self-managing teams.
- Lower overheads in an organisation, as decisions can be made at any level and measured to ensure they have a positive impact on the Value of the parent System.
- Subsystems that are less motivated by “managing up” and more motivated by the Value they are creating.
Next time you reach a decision point, ask yourself: Do you understand the intended Value of the decision, and will you be able to assess the impact of that decision with regards to that Value?
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