“Nowadays people know the price of everything and the value of nothing,” wrote Oscar Wilde.
The heart of the matter in business, non-profits and in the public sector is value creation. In the past, and present, managers looked along an industrial-like value chain of activities, with stress on cost-cutting.
Another way to look at it is in exploring how to inject, add value based on creativity. Take a dive under the surface to see possibilities.
Imagine you are at the Mombasa coast with your children. Walking along the beach, delighted to finally be able to relax, to feel the sun on your shoulders, and escape from the stresses and strains of coronavirus uncertainty.
A young man approaches and asks if you would like to go out and go snorkelling in the marine park. Yes, why not? In the boat you don the diving mask and snorkel, the kids who are good swimmers love it.
All of a sudden once in the warm water, with the coral, a new almost psychedelic world opens up, brilliant yellows and reds, fish and creatures of all sizes. Thanks to the mask and the ability to see underwater, you are in a whole new world, that one would not have thought possible. A new ecosystem has opened up, that was all the time just below the surface.
Perhaps that is like your organisation. You just need that mask to see things clearly. Value creation of the mask, the ability to see what was impossible to view in the past is amazing.
There are all sorts of ways a business can create value for its customers, but let’s keep it simple, and look at value creation from two perspectives.
Stuck on an industrial value chain
ONE In the past and present, organisations have just about perfected an industrial way of managing work, along a value chain of activities, popularised by Harvard business professor, Michael Porter.
Value chain of activities might be, for example, procurement, manufacturing, marketing and sales and outbound logistics, all supported by functions like finance and human resources, that cut across the whole value chain. Here the stress is on efficiency, productivity, [often] based on economies of scale, aiming to create value at each stage of the process, by perfecting processes and avoiding doing tasks that don’t add a tangible monetary value.
The aim is to sell the product to the customer, make a profit, with a significant margin built-in, greater than the cost of production across the value chain. Nothing wrong with this; the aim is to focus on taking costs out of a process and maximising profits.
But eventually the law of diminishing returns sets in and it gets more and more difficult to extract value across the chain of repeatable tasks. At some point, the additional value created comes to a stop.
Look around you, chances are your clothes, the boda boda you ride on, your phone, backend communications infrastructure, parts of your car are all Chinese. Here is a country that in the past decades was less affluent than Kenya, yet thanks to an economic miracle, China [with a population of 1.3 billion] has gone on to dominate the world economy with quality manufactured products. It is very tough to compete with China’s manufacturing capability.
US and China are the two largest economies based on a nominal gross domestic product [GDP]. The United States is leading at $22.67 trillion, in contrast to the economy of China at $16.64 trillion.
Inject value by creativity - innovation
TWO What about, if as opposed to focussing on taking costs out, the stress was on injecting customer value through creativity? [Remember while Apple products are manufactured in China, they are designed in Silicon Valley].
Creating more value-based on something that did not exist before. Cost reduction will always be important, but the real question for business is: How does one put value in the equation based on innovation.
Basically, there are two types of innovation: sustaining and disruptive. Sustaining innovation is all the [normal practice] improvements an organisation makes to stay current, just to be able to compete.
Disruptive innovation is the game-changer that can transform a non-profit, company and industry. Examples would be, for instance, M-Pesa and other platform business models. The use of hubs in design in the flow of information, goods and services has been in existence since Roman times, more than 2,000 years ago. Like hubs, platforms have been in existence for millennia. For example, a local village market is a ‘platform’ bringing together buyers and sellers.
However, in just over the last 10 plus years, the idea of a platform has changed radically.
Thanks to ICT increases in processing and storage capacity, platforms are a disruptive, innovation game-changer that has created value and in the process transformed companies and industry sectors.
An example of this disruptive innovation in Kenya via platforms would be, for instance, Jumia, Glovo and globally, the dominance of digital platforms like, for instance, Amazon, Google, Uber, Facebook, Airbnb that have changed the face of how we do business forever.
Platforms bring together buyers and sellers. They don’t own any stock, inventory. Uber does not own any cars, Airbnb does not invest in bricks and mortar rooms.
No, you won’t be able to create another Jumia or Amazon. No point in copying, doing another cut and paste, to create value, but think about:
OBSESS ABOUT HOW YOU CAN CREATE VALUE - What do your customers value? Not what you think they value. Ask them what do they really want? How do you define and measure this value? What new product, service or capability will add value? What will amaze your customers? Sit down with your staff to think about value creation, invite some customers to be part of the process, co-create with your clients, over lunch or a cup of tea.
WHAT IS THAT SET OF GLASSES NEEDED TO SEE – What is now being missed? Time for some ‘out of the box’ lateral thinking, to complement a more analytical, facts and figures diagnosis. Traditional linear thinking, from point A to point B has its limits. How can the organisation create a breakthrough product or service, that might have been there all the time, just under the surface of the water?
INJECT A JAB OF INNOVATION – On a more permanent basis. This new value creation route, way of innovative thinking should not be a one-off activity. Make it clear that this is part of a long journey of embedding creativity and stress on value creation in the organisation’s DNA. All this is easier said than done. A reset can be painful, realising the default way of doing things just won’t work anymore. Treat this problem that you're faced with like a wake-up call for creativity and genuine value creation. Time to take the dive. Time to explore, put on your mask and snorkel.
David J. Abbott is a director at aCatalyst Consulting. [email protected]