The Case for Value Management: Part 1: the Extraordinary Need

The Case for Value Management: Part 1: the Extraordinary Need

• Part 1: the Extraordinary Need
• Part 2: the Extraordinary Opportunity
• Part 3: Making it Happen

Pretty much every organization says that Value is a big deal to them. But when you look at what that means in practice, it’s flimsy and disjointed to say the least. What is needed is a dedicated cross-functional Value Management function to put some substance behind the claims of a focus on Value and to deliver on them.

In the first part of this three part series, we’ll see how and why Value is treated differently from other (less important) organizational priorities –  assumed to be understood by one and all, never questioned, and ending up largely left to chance – together with the dire consequences that follow.

Think of some of what organizations say is important to them in their corporate values or in their strategic priorities.

Things like people and quality are often in there – “our people are our greatest asset“, “our commitment to quality is second to none“, etc – and rightly so.

Next reflect how such statements are then usually backed-up in how the organization is structured and in how it operates – there will be an HR department, a dedicated quality function (or manager), and so on.

But now think about Value – Value to an organization’s customers, Value to its shareholders, the values it claims it embodies and that its employees exemplify.

Regardless of what an organization does or doesn’t say here, these are surely what is most important to it – the pursuit of Value is the ultimate origin and purpose of all organizations; the motivation behind all activity – and corporate life is indeed awash with talk of “value propositions“, “living up to our values“, “value for money“, “value creation“, and so on.

Yet in stark contrast to people and quality, etc – specific aspects or components of this overall stated commitment to Value – there is no “value function”, no “value department” and no “value managers”.

So why are Value and values – the things that are most important – treated differently from other (less important) organizational priorities, and apparently just left to chance in this way?

And what are the consequences?

Value: how it atrophies in our organizations

Let’s begin by thinking about why Value is treated so differently in not being given its own specific organizational focus and ownership, and this “neglect” goes right back to fundamentals.

So, when an organization is established, the customer Value that the founders or entrepreneurs have in mind is very much in focus, together with the anticipated value for stakeholders and employees, and the values that the organization seeks to embed and model.

However, two things then happen.

1. Organizational Growth

Firstly, as the organization begins to shift from exploring to exploiting opportunities – hopefully realizing Value to its customers and stakeholders – it grows. However, it typically does so in traditional ways, by adding on specific (vertical) business units and (horizontal) departments, where each unit or department:

• Is given (or claims) responsibility for specific aspects of the original value, with related data and information accordingly dispersed and often then ring-fenced.
• Tends to consider its particular element of the whole the most important (whether it’s legal seeing contracts as the most important thing, HR seeing recruitment as the top contributor to value, and so on).
• Brings in its own distinct priorities and focuses, no matter how necessary (with departmental targets to hit, compliance with relevant standards and conventions to achieve, etc).

It usually looks something like this:

However, at this point, the original Value becomes fragmented, there are competing ideas of how to achieve it, competing priorities in doing so, and distractions and dilutions along the way.

2. Organizational Change

Secondly, time passes and people move on, such that the distance from what was valued at the start now grows, and the original entrepreneurial vision and drive dissipates – including as the focus of the organization decisively shifts to one of exploitation, rather than exploration.

(On a highly relevant side note, how often do organizations seem to change dramatically – usually for the worse – when their founders move on, retire or pass away?)

Put all this together, and without realizing it, things drift:

• Any sense of overall “responsibility” for overall value and values is left to senior management (hence the annual report, new strategic directions from the CEO, etc).
• Fewer and fewer people are involved with, or have a sense of, the “whole” relative to the organization as a whole.
• Because these people are senior, they’re increasingly removed from the “front line”, due to growing levels of organizational hierarchy.
• The organization loses touch with the changing external conditions and customer priorities that ought to drive what is valued.

So, no matter how good a job the original entrepreneurs and founders may have done when it comes to Value, the way our organizations currently develop, scale and operate slowly and imperceptibly – but inevitably – works against maintaining any initial reasons for success.

The focus on Value inexorably and unavoidably atrophies in our organizations, and if there’s ever the realization that this has happened, it’s invariably too late.

When challenged on this, the answer would usually be that the notion of Value is “of course” central everywhere, because it’s embedded across functions and integrated into the overall strategic framework – and some might even say that this is better than value being “siloed” within a single function.

And in a sense, that’s correct – everyone needs to be committed to value; we’ll return to this in Part 3.

But any rhetoric that denies the need for Value Management only needs to be compared to reality to show how misguided it is, because the contrast is stark: as we’ve written about extensively, when you ask people at the front line what they think the Things That Matter are to the organization (and to them), you at best get vague answers, and more typically contradictory ones.

(Take a look at this exercise we ran that proves this point.)

Far from everyone being responsible, the current reality is that it’s closer to being that no-one is responsible.

But there’s even more standing in the way of Value Management.

Value: how it is misunderstood

And that’s because Value is almost always misunderstood and treated as a noun – something to define and then make happen (hence “value creation” to “deliver” value to customers) – rather than as a verb; dynamic, active and changing.

This of course reinforces the picture we’ve described so far of Value being set at the start and then how this atrophies, but that’s only the beginning of the problems.

Value seen as static

The first problem is that the tendency is always to consider Value as static, and to then focus internally on exploitation – Value for shareholders, stakeholders and employees – rather than continuing to try and understand and respond to the constant flux in what customers Value (and why).

Now, it’s of course legitimate to exploit proven Value propositions, and to seek return on the investments made to be in the position to do so.

And this of course works for a time…

…but somewhere along the way, the ability to “explore” – to tune in to change and look for new opportunities – gets lost and whilst organizations may claim to be focused on “strategic value”, what that usually turns out to mean is doing things more effectively and efficiently to create headroom for that Value: ways of working, but not what the work actually is.

Indeed, is it any surprise how organizations often seem to just get “left behind” because they’re stuck in what they’ve always done (even if it’s optimized for efficiency!) – out of touch with the customers they previously seemed so in tune with, and unable to innovate?

Value treated as objective

The second problem is that whilst Value is principally and increasingly subjective and qualitative, it nevertheless remains treated as objective and quantitative – intrinsic to the product or service offered, defined and measured in terms of financials and KPIs, and seen as something to control.

Indeed, you only need to look at how traditional economists often try and express subjective Value in terms of things like “utils” to see how deeply ingrained this empiricist and reductionist bias is.

This bias not only reflects how our brains tend to operate (at least in the West), but is also reinforced by the organizational structures we’ve looked at above, where subjective value doesn’t readily “fit”; only (objective) “value” that has a known and defined “place” to “assign” it.

Now, there is a general awareness that subjective value matters: we see that in things like corporate values, mission statements, behavioral charters, etc, and in relationship workshops, behavioral training and capability development, all of which increasingly attempt to cover (but arguably cover over!) more subjective and intangible areas.

However, ultimately, the way subjective Value is (mis-)handled is that it is:

• Defined top-down by senior management: bolted-on and assumed to somehow percolate “down”, rather than an expression of reality on the ground and collectively agreed and “owned”.
• Detached from operational reality: how often are corporate values translated into anything approaching actionable detail?
• Largely fixed: things like behavioral charters and mission statements are only occasionally revisited.

Not only does this fail to understand that Value is a Complex, emergent and constantly-changing phenomenon, but even more basically (and as polls we’ve run show), people find that the Things That Matter – the elements or currency of Value – end up dispersed amongst any variety of places.

Is it any wonder it’s hard to quickly and easily understand, consider and weigh-up all the factors involved in guiding (subjective) priorities, decisions and actions?

We’ve already touched on some of the consequences:

• The fragmentation of the Value “whole”, leading to competing ideas and priorities, as well as distractions and diversions of focus.
• Loss of shared awareness, responsibility and alignment around what matters most.
• Disconnect between senior management and what is happening and changing at the front line.
• Drifting away from the original entrepreneurial spirit of the organization and from closeness to the end customer.
• Reduced innovation capacity.

But these are only some of the mugshots in the rogues’ gallery of problems caused by the neglect of Value and a failure to manage it consciously and holistically:

• Operational inefficiencies associated with the increased cost and wasted resources of uncoordinated efforts and redundant activities, leading to slower response times and decreased productivity.
• Customer dissatisfaction and being overtaken by competitors, where loyalty and market share decline, and negative word-of-mouth grows.
• Employee disengagement, due to a disconnect from the organization’s goals, from which flow decreased motivation, productivity, and higher turnover rates.
• Compromised decision-making, due to siloing, lack of awareness, and there being no comprehensive view of the organization’s wider objectives.
• Stakeholder or investor discontent, where the organization pursues goals that no longer align with those who have a financial, emotional or intellectual stake in the business (e.g. the Bud Light backlash in the USA).
• Increased risk when it comes to compliance issues, operational failures, and financial instability.

The consequences of failing to properly and actively prioritize and manage Value are indeed dire – nearly all of the problems organizations are currently facing can arguably be traced back to it.

Conclusion

Despite it needing to be the top priority for organizations – and often claimed as such – Value is possibly the least well served area of corporate and commercial activity.

Largely taken for granted and left to chance beyond the original purpose and vision of an organization, the sense of Value and the ability to discern changes both atrophy as time passes, and as the organization grows and gains a momentum of its own.

Compounding the problem is how Value is so poorly understood.

And the problem is dire, leading to widespread operational, strategic, and financial challenges across all sectors – challenges that manifest as inefficiencies, dissatisfaction, misalignment, and under-performance, significantly impacting the organization’s ability to achieve its goals and maintain competitive standing.

But this dire situation also means that there’s an extraordinary opportunity because – if it is possible to appropriately and effectively manage Value – there is scope to transform virtually all of the issues and challenges that organizations face.

That’s what we’ll look at in Part 2.

Transformation Strategy

Description

Your organization develops, monitors and implements appropriate and effective change and exit strategies for its partnerships.

Help

Not At All

No apparent consideration given to when, why and how relationships may change or end.

Slightly

Change / exit strategy is limited to a few standard, adversarial contract clauses about termination. There is very little flexibility in relationship scope, and review occurs only at contract renewal or when termination is triggered. Business continuity is entirely secondary to financial and legal obligations.

Moderately

Consideration of change / exit strategy is reflected in some negotiated contract clauses that describe circumstances in which the relationship may be terminated or altered. These allow for some flexibility, do not preclude new opportunities, and there are periodic reviews to consider change. Business continuity is considered, together with financial and legal impacts on key stakeholders.

Mostly

The contract is complemented by a negotiated change / exit strategy developed alongside the contract This widens the potential scope of the relationship, identifies a range of potential triggers, and is regularly reviewed to try and ensure any exit would be cushioned and new opportunities encouraged. Business continuity is prioritised, and financial, legal and logistical impacts on most stakeholders are considered.

Completely

A jointly-developed and comprehensive change / exit strategy (such as a regularly updated relationship/business plan) is present, and has helped define the relationship since the earliest stage of engagement. It flexibly defines the relationship’s scope and diverse potential change triggers, and remains under continuous review, paving the way for graceful exit, or transformation to seek new opportunities, embrace innovation and adapt to change. Business continuity is prioritized and financial, legal, logistical and reputational impacts on all stakeholders are fully considered.