Besides being a subway train enthusiast (see my previous post), I consider myself an armchair physicist. I enjoy watching documentaries and reading books on quantum theory, the theory of general relativity, and cosmology geared towards neophytes like me. I can’t say I sufficiently understand these theories – nor am I informed of the latest research – but I am fascinated by the beauty, perplexity, and implications of theoretical physics.
We accept as given Einstein’s famous assertion that e=mc2. The equation stating that mass can be converted into energy advanced our understanding of the physical world at both the subatomic and universal levels. Energy in its multiple forms – mechanical, electromagnetic, electrical, thermal, gravitational and nuclear – undergirds the cosmos.
Perhaps we might analogously view business through the lens of E=mc2. Is not value the energy underlying business? Value is key to strategy. Value is the foundation of the value chain, i.e. the interconnected value activities within the firm. Value activities are the physically and technologically distinct activities the firm performs. They are the building blocks by which the firm creates a product/service valuable to its buyers, i.e. the firm’s value proposition.
Unfortunately, most management disciplines in academe and their corresponding functions in the business world lack a common definition of value. An Einstein-cloned business professional wouldn’t be surprised. For if energy appears in multiple forms, why shouldn’t value? Accordingly customer value in marketing, financial value in accounting, shareholder value in finance, supplier value in purchasing, and production value/quality in operations are just different manifestations of business “energy.” The business enterprise should correspondingly facilitate the conversion, i.e. translation and alignment, of “business energy”, i.e. value, across functions while minimizing loss.
I’ll get up from my armchair before I’m accused of being a mad scientist in the business world … back to reality! In an earlier article (see my previous blog post), I noted that strategy aims to increase the degree of ‘fit’ between the firm’s interlinked value activities to create a competitive advantage. Numerous authors describe the process of ordering the firm’s internal and external activities, resources and actors to achieve such ‘fit’. Each business function participates in this process by aligning their respective activities with the firm’s strategy, i.e. the firm’s value discipline. “Lean supply” labels this process “value stream management” whereby value flows uninterrupted across the value stream when the customer receives what he or she considers valuable.
In other words, value should flow like an electric current. In my PhD thesis An Empirical Framework for Evaluating, Implementing and Managing a Value-based Supply Chain Strategy (available through ProQuest publication number 3121355), I propose a meta-definition for the concept of value. The multiple value definitions used by various disciplines / functions in business schools / companies are just different grammatical categories of the language of value. One language but different parts of speech. (Executives I interviewed during my PhD research often stated that fellow employees ‘spoke a different language’ or ‘talked past one another’ when trying to manage value). These grammatical categories – value as a verb, noun, and adjective – map to the three parts of the Integrated Value Process (IVP) framework I developed.
As previously noted, each business function should align its respective activities with the firm’s strategy, e.g. value should be aligned across the IVP. The IVP framework’s five “value gaps” measure the degree of value misalignment across the organization. All business activities should facilitate the seamless translation of value across groups in order to minimize these value gaps. In this way, value management will be optimized for the overall business.
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Andrew Swan, PhD is a multidisciplinary and cross-functional integrator of strategy, processes, and information technology. His focus and expertise center on helping executives increase value creation and optimize value flows in business. Dr. Swan holds four degrees in Management, Accounting & Finance, Information & Knowledge Strategy, and Computer Science from the University of Chicago Booth School of Business, the University of Bath School of Management, and Columbia University.
He frequently publishes articles on value chains, value streams / flows, and Integrative Value Management on his website www.andrewjswan.com. Dr. Swan created the Integrated Value Process (IVP) Framework to help companies optimize the flow of goods & services, funds, and information across their respective value chains for multiple stakeholders. He can be reached at firstname.lastname@example.org or at +1.773.633.7186. He lives in Chicago.