Understanding Value – Folly of the “Elevator Conversation”
I often present my perspectives on value, value chains / streams, and Integrated Value Management to business professionals. Generally the audience is interested in learning the principal insights from my PhD research and findings. It is always a challenge to distill the lessons from a 400-page thesis (whose bibliography alone is 36 pages) on the concept of value. After a recent presentation, I was asked by an audience member “Can’t you just give me the two-minute elevator conversation?” For those of you not “in the know,” this business professional was referring to the hypothetical case where a CEO provides you with just two minutes (the length of a long elevator ride) and you want to gain his / her attention. [ Consider yourself lucky, it could have been a short elevator ride. You would have then needed to deliver an “elevator pitch” in just thirty seconds].
While I understand the intense time-pressures faced by busy executives and the need to concisely communicate value, I also recognize the potential dangers of trying to communicate via “elevator” bursts. First, it is difficult to know ex ante what an audience already knows about a topic. Second, it is nearly impossible to summarize a complex / cross-functional / interdisciplinary subject area like business value during an elevator ride. It’s like trying to describe neuroscience (cognition / consciousness,) physics (theory of relativity / cosmology), or medicine (personal health / pharmaceuticals) in a Tweet! Third, a time-pressed listener cares about information relevant to his or her immediate needs (and usually tunes out everything else).
Given these three considerations, it is highly unlikely ad hoc communications with an audience will “hit the target” or be “spot on” without having a priori knowledge about the participant(s). Effective communication is always a two-way interaction: it entails cognitive interaction between both the receiver and deliverer of a message (see previous article). For this reason, Cal Newport, Professor of Computer Science at Georgetown University, writes about ‘Attention Capital” – the allocation of our limited time to specific uses. “Attention Capital” is optimized when the subject (i.e. the user) intently focuses his / her attention on the “right” object (i.e. the tool). Only then does one achieve the intended result effectively and efficiently.
Value Consultation – “Where does it hurt?”
Relevance and appropriateness are critical. While we all agree with the statement “Be healthy!” we would probably disagree about the actions taken to achieve it. What does the statement mean for me? Should I run in a marathon? Certainly not: I would likely injure myself. (I would also unlikely finish the race!) Today’s executives are similarly exhorted to “Maximize value!” What does that statement mean? A CEO could liquidate / sell off critical resources and assets in an effort to maximize shareholder value. But is that the smartest action? Unlikely so. Whose definition of value should you then use? And where do you start?
When visiting a medical doctor to discuss a physical ailment, a physician is likely to ask the patient “Where does it hurt?” Physicians spend years studying the human body and all the things that might go wrong. They use their understanding of how the various systems in the human body operate, e.g. how organs should function, and combine that knowledge with an examination of what is not functioning properly, i.e. where a body hurts. Only then do they diagnose the likely problem and recommend an effective treatment appropriate for a given patient.
When addressing business value, an executive should follow a similar approach. “Where does the organization hurt?” What are an organization’s “value symptoms” and how do they reflect deficient value management? In an earlier post, I noted that competitive strategy aims to increase the degree of strategic ‘fit’ between a firm’s interlinked value activities and its chosen competitive advantage. Numerous authors describe the process of ordering the firm’s internal and external activities, resources and actors to achieve this ‘fit’. Lean thinking labels this process “value stream management” whereby value flows uninterrupted across the value stream so that the customer receives what he or she considers valuable.
In an earlier post, I also described the interruptions in value flows that I documented in UK and US value streams. In An Empirical Framework for Evaluating, Implementing and Managing a Value-based Supply Chain Strategy (PhD thesis accepted by the University of Bath School of Management —ProQuest publication number 3121355), I label these blockages ‘value gaps’. These gaps result from the misinterpretation / mistranslation of value by the firm’s stakeholders and the resulting misalignment of their intra- / inter-firm value activities. Value gaps indicate where an organization “hurts.” Misinterpretation / mistranslation and misalignment of value cause “the hurt.”
Understanding Value– The Rubik’s Cube
I would spend my elevator ride asking the CEO “where it hurts”. The response would guide any ensuing discussion of value ( preferably off the elevator ). Like a Rubik’s Cube, value is multi-dimensional. To solve a Rubik’s Cube, one needs to (a) sense how “scrambled” the puzzle currently is, (b) understand how the cube can be conceptually solved (unscrambled), (c) apply the relevant solution (the appropriate moves), and (d) focus intently until the desired result emerges (the cube is unscrambled / the puzzle is solved).
While a Rubik’s Cube has six colors (one on each face of the cube), the puzzle is three-dimensional. My discussion of value would also be three dimensional: determining the scope of the company’s “value puzzle”, clarifying the audience’s desired degree of “value knowledge”, and identifying the intended “value objective.” I’ll discuss each separately.
What is the scope of the executive’s “value puzzle”? In an earlier post, I noted that cognitive neuroscience studies our bio-chemical-electrical mental processes at three different levels. It studies the brain as a single physical entity, as a combination of physically distinct regions (each with its own specialized activity / function), and as a set of discrete synaptic pathways. Integrated Value Management — managing value flows across the value stream — also occurs at three different levels. Value can be examined at the overall system / network level (the entire value chain), at the level of the interactions between groups across the value chain (the participating companies), and at the level of the individual functional groups / departments within each company (Marketing, Operations, Finance, etc.). Potential solutions to any system must first be bounded, i.e. defining the boundaries of the problem.
What is the executive’s desired degree of “value knowledge”? In a previous post, I note that knowledge requires integrating multiple interlinked forms of intelligence. In order to understand value deeply, one needs a robust theory of value (conceptual intelligence), a way of properly specifying value (encoded intelligence), an effective way to communicate value (socio-emotional intelligence), and a way to decide which actions / activities to undertake (experiential intelligence). One needs to integrate or synthesize all four areas to manage value effectively – for value to flow. Moreover, many individuals need to do so simultaneously in order for value to flow across the entire organization and / or value stream.
What is the executive’s intended “value objective”? Different value objectives require different degrees of knowledge / understanding. Does the executive want to describe value, control / influence value, forecast value (based on prior results), or predict value (into an unknown future)? These differing objectives require increasingly sophisticated levels of knowledge about value, value chains, value streams / flows, and Integrated Value Management. The system becomes more complex. Its solution is based on ‘hard systems’ thinking, ‘soft systems’ thinking, or complexity theory (with increasing degrees of difficulty). See previous post. Just like consulting a doctor to address a body ailment. To stop hurting, more specialized intensive treatment may be required depending upon the degree of the underlying physiological dysfunction.
Integrated Value Process (IVP) Framework
To manage value more effectively and holistically, I developed the Integrated Value Process (IVP) framework as part of my PhD research. IVP consists of (1) a conceptual framework illustrating the value management process, (2) a methodology to measure internal / external value gaps, (3) five value ‘first principles’ underlying value chain activities, and (4) a ‘meta’ definition of value (mapping to the conceptual framework).
Each of these four parts can be discussed at increasingly granular levels depending on the scope of the “value puzzle”, the desired / required degree of “value knowledge”, and the intended “value objective.” Any presentation on value needs to be customized according to all the above considerations. As do any prescribed actions.
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 email@example.com or at +1.773.633.7186. He lives in Chicago.