Value Should Not be an Abstract Concept

On the factory floor, within the walls of manufacturing firms, and among many executive management teams, value is an abstraction. They talk about it, praise it, claim that they are offering it BUT (that’s a big but) they don’t deliver it. At least that is the conclusion that I have reached after reading articles about how manufacturers compete, their priorities, and talking with quality practitioners.

This next decade is going to be about value, its creation and its delivery. The last decade was about defect reduction and cost cutting. But after all of the cost cutting sawdust hits the ground, someone is going to ask a very important question, “How do we grow our business? How do we become best in market?” Innovative, market focused firms will swim to the top while their less innovative counterparts will flounder and sink.

Yet according to a recent ASQ survey, value creation and delivery as a strategy is being put on hold. According to an article at Industry Week, “respondents believe further cost-cutting measures will continue to be implemented.” Here’s a rundown of manufacturing expectations that underscore their strategies:

1. 61.3% believe their organization will create processes to reduce costs

2. 44.8% expect a pay freeze

3. 41.4% predict a hiring freeze at their organizations

4. 35.2% will have mandatory budget cuts

5. 27.8% expect staff layoffs

6. 24.7% anticipate reduced employee benefits

And, so it appears that cost cutting in one form or another (and given the economic climate it appears appropriate and understandable), will dominate the strategy of many manufacturing firms.

As I’ve said in a number of blogs and articles and as I have preached to numerous management groups, the shift from cost cutting to revenue growing is a significant one. It begins with thinking about value – customer value. Not in an abstract way but rather in a very concrete and operational way. Unfortunately, few firms have the capacity to make this shift. Their mental models are dominated with thoughts of reducing costs and complying with internal conformance standards. Their connection to the markets they serve is weak and tenuous. It typically stretches from the producer to the consumer and lacks the feedback system that tells them how the markets define value and how their value propositions compare to those of their competitors. They assume that their strategic health is fine only to out that as share stagnates or falls, they have been deluding themselves.

Where does the ability to create and deliver value come from? Many firms are turning to options such as DFSS to turn moribund manufacturers into dynamic sources of innovation. Most will fail. What will kill them is an inability to listen to their markets and understand what they are telling them about value. Making the task even more difficult is how to implement the value directives – how to drive this critical information to the key strategic and operational areas of the firm.

Many manufacturers would be well advised to begin to explore and put into place the necessary mechanisms for creating and delivering value. Waiting for a full recovery will cede advantage to competitors and postpone much needed revenues.

What can they do to jump-start a value driven strategy?

1. Start an enterprise-wide conversation about value – how do buyers in targeted markets define value? Be sure to think past the product to include how the product is delivered to buyers. Better yet, invite some customers (those you already serve and some you don’t) to lunch and have a good frank conversation regarding value.

2. If no target market program exists – begin the process. Use the Market Opportunity Analysis to identify key markets or segments. Back this up by creating a Product/Market Matrix to further pinpoint strategic options for the firm.

3. Construct some hypothetical value models for targeted product/markets. Identify and prioritize CTQs (critical –to – quality) factors. Be sure to be as specific as possible so that everyone understands what is meant by a quality factor. Identify the tradeoff between quality and price. Which is more important in value creation and delivery? Ask how you know?

At this point you will have created a set of hypotheses that can be clearly tested by actually gathering information regarding value from current and potential buyers. Further, this initial process will clearly identify what you don’t know and understanding what you don’t know can be very important. The key is to anticipate – best in market organizations anticipate instead of simply reacting.