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Value

What is 'value'? If I give you a pizza and you are starving, then it will be of great value to you. If, however, you have just finished a six course gourmet meal, then it will have no value to you. It might even have negative value, leading to annoyance.

Value is thus defined in the eyes of the person who is receiving the value. But how do they determine that value? Overall, we evaluate things (spot the embedded 'value' word), using evaluation criteria. Criteria can include such as:

  • Time factors (I only want pizza when I'm hungry; I want coffee now!)

  • Task factors (I want my car to get me to work)

  • Financial factors (I can only afford a small pizza)

  • Context factors (I don't like eating at my desk) 

  • Emotional factors (Rock music makes me happy; I hate opera)

  • Comparative factors (This pizza is more expensive than that one)

  • Degrees of desire (I need food; I want pizza; I like steak)

Two overall evaluation factors that work in combination are importance and performance. When I buy a pizza, it may be important to me that it is delivered within 30 minutes, so the delivery performance in terms of time of delivery is significant. These two factors are often plotted on an X-Y graph to highlight this combination.

Overall, criteria can be positive benefits, creating or increasing the value. They can also be about the negative 'costs' which destroy or decrease the value received. You can combine these as:

Value = Benefits - Costs

...or, using the 'return on investment' idea, you can use a ratio:

Value = Benefits / Costs

Either of these can be used to create a numerical term for the value (aside: this numeric 'value' is not the same as the 'received value' that we are discussing here). In practice, however, people evaluate in complex ways that makes the actual evaluation only roughly connected to these.

When all of this is translated to the workplace, it means that everyone's job is to add value for somebody else. They do not do this for nothing: they also get value along the way, from simple financial rewards to companionship of co-workers and stimulation of intellectual challenge. So there is an exchange of value, which is the basis of all business. In fact you can define value as something for which I am prepared to exchange something else. Money is a universal abstraction of value,  which makes a good test question: 'What would you be prepared to pay for it?'.

So what other exchanges are there? Shareholders want returns on their investment, now and into the future. Partners and suppliers want ongoing business, forecasts, etc. The local community have environmental concerns. And, of course, there are the end customers. For a successful business, this whole set of stakeholders must work together in a complex value exchange system. This is also the basis of stakeholder theory of companies.

The most volatile of all the stakeholders are customers, particularly in a competitive market, which means this is where critical attention to value must be paid. Customers are not, as some will have, the meaning of life, the universe and everything, but their power is such that we must, on the whole, treat them that way. It's all to do with value, which has a lot to do with supply and demand: If we were the only food supplier in the world, we could treat customers really badly. But when supply outstrips demand, customers have the upper hand. 

Value-Based Management (VBM) or Value Management (VM) is managing through attention to value. It means understanding what value is created where, from strategic value to the value of making one part of a product one way or another. And when customers are critical, then most of our attention must be on how much value every activity in the company is adding to customers. Value Analysis is a technique aimed for use at the detailed, engineering level (although the principles are scalable.

Value-Added (VA) or Business Value Added (BVA) is a term that is often used to emphasize the central point that all processes should add value, and is sometimes used as a general metric to measure value creation (although some processes outputs are difficult to quantify).

See also:

Value Analysis and Design, Value Delivery Systems, Customer

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