‘We’ seemed to be obsessed by value…
- “Can you give me an example of time a time when you added significant value to the organisation?”
- “This product is really value added”
- “Re-engineering this process will reduce lost value to the business”
Those 3 examples I have heard, live, out of the mouths of actual people in the last few weeks, and in addition to my significant score in lingo bingo it always makes me want to ask the individual espousing how they would define value.
In a previous role I was fortunate enough to lead a project that had the broad objective “to find £2million of additional value in the business”, nothing was off the table and the CEO was our sponsor. In preparing for this we got some external support and it was during that process the following equation was introduced (and unfortunately I don’t have a citation for it):
The first thing that struck me at the time and in subsequent reflection is that in this instance value is subjective, for example, which of the following is of greater value?
Now the answer to the question which is of higher financial value is of course the Aston Martin. But the answer to the value question is far more subjective. If you are a spy evading capture on the lanes of Monte Negro of course the Aston is far more valuable, but for carrying a pallet of products then the Merc is head and shoulders above…
The second thing that struck me and seems stunningly simple (else how could I have worked it out?) is that to increase value there are 3 options:
(a) Reduce cost
(b) Increase function
Or secret answer (c) marginally increase cost to significantly increase function
Given the current state of the economy and the impact that is having on both public and private sectors there seems (at least in the rhetoric) to be an overwhelming focus on answer (a) ‘let’s get the red pen out’, a begrugding commitment to answer (b) ‘we’ll sweat the asset harder but very little discussion on answer (c) ‘let’s make some marginal investment to make this signficiantly better.
In thinking this over that the biggest determinant in these proportions is risk. Cutting cost is (at least in the short term) very low risk:
Person A: “Your need to increase your profitability by 10%”
Person B: “I have reduced my payroll by X and I am 10% more profitable”
Person A: *pats person A on head and throws them a rice krispie treat
But what were all those people doing that is now not being done? What is the impact of this reduction on your customer? What is the long term impact on the true performance of your business?
Sweating the asset harder involves some form of management or dare I say it leadership? That is where you either become the slave driver or even extract discretionary effort from people through increasing their motivation and commitment. Now that’s a huge risk…
My belief on the fear of option (c) is that not only does it involve making the kind of quantum unheard of leaps involved in option (b) but it also means asking for money FIRST, it involves actually making a case to do something better but needing some money to achieve it which involves commitment to a long term output but also means forgoing the pat on the head and the rice krispie treat.
What is written here is a exceptionally simplified take on what are often very complex situations (apart from the fact that Aston Martins are cool – that’s simple) so what did I write it? In the vain hope that if it makes 1 person somewhere stop and take a moment the next time they have the choice between options a, b & c and maybe just maybe they would take the risk, think about the long term and not be driven purely by a pat on the head…..and a rice krispie treat