Category Management:  What is This Thing Called “VALUE”

I know, I know – you’ve now heard multiple definitions of this simple concept called VALUE and yet there seems to be no specific definition of it.  Well allow me to add to the confusion because understanding this simple concept can have major impacts on the success of your organization.  The most basic fundamental flaw in the way our profession approaches this critical concept is that we continue to view it from our perspective, and it MUST be viewed from our Stakeholder’s perspective.

Let me start by using Professor Sawhney’s work on this topic from a few years ago.  And here are some points to remember:

1. Customer defined: This is non-negotiable.  We cannot keep using metrics that define our success (Year over year price reductions) and keep  trying to convince our Stakeholders that we are delivering Value to them).  They get to define what is of Value to them.
2. Opaque:  Many times Value for our Stakeholders is non-quantifiable and that is very hard to wrap our head around.  We keep trying to come up with the most sophisticated spreadsheets trying to quantify the Value we are providing and wonder why they don’t see it.
3. Multi Dimensional:   Value is something that is Functional, Economic and Psychological and those are the prisms that we must use to communicate Value to our Stakeholders.
4. Trade Off:  Our Stakeholders are willing to trade cost for what they define as Value and our banging the drum on cost savings is of no use.
5. Contextual:  Value is defined by how it is used.  A cold glass of water on a hot day is of much higher Value than drinking it  sitting inside in an air-conditioned office.
6. Relative:  Value is also defined by comparing it to alternatives.

I know I’m probably adding to the confusion but the bottom line is that Value is something that is very nebulous and till we grasp that and start working with it, no amount of data and analysis is not going to convince our Stakeholders that we are delivering Value.  A few years ago there was an attempt to incorporate some of this thinking in the IT world and Intel led a major effort internally on this and here are some of the concepts they employed with huge success:

IT Business Value Program –“Cost Center to Value Center”  –What They Did 

1. Behavioral change across IT – Business Value focus
2. Uptime, service calls etc. – TTM, Increased revenue
3. Changed relationship with customers – support to business partner
4. New measurements, New alliances
5. Common language, based on needs of customers
6. Value defined by customers
7. Standard measurement, valuation, training – evangelism!
8. Changing corporate attitude value of IT investments
9. Getting “customer” to accept accountability increases success
10. Linking Business value to IT processes was critical

And these were some of the metrics that they started to utilize to define their success.  Notice that none of these are close to the traditional IT metrics of on time deployment o new solutions of keeping to budgets etc. :

1. Risk Avoidance
2. Time-to-Market
3. Open New Markets
4. Optimize Existing Markets
5. Cross – Selling
6. Vendor of Choice
7. Direct Income 

And by the way, support for IT investments is not an uphill struggle with Stakeholders when IT utilizes this kind of thinking because those investments are directly linked to what the Stakeholders define as Value for them.  So dump those spreadsheets and ask your Stakeholders to define what is of Value to them .