The value trinity

Matthew Taylor’s third annual lecture as chief executive of the RSA was titled Left Brain, Right Brain. While the left and right alluded to political viewpoints and the focus was on public policymaking, the title would have worked if referring to business decision-making, a discipline which is overly left-brain oriented and heavily focused on analysis.

Our pre-occupation with analysis is partly cultural, rooted in western philosophy’s origins in Ancient Greece. Plato’s search for truth, Aristotle’s classification system and Socratic questioning and challenge have together formed the foundations of western education (including management programmes), prevailing mental models and approaches to problem solving.

An analytical orientation serves businesses well if cost-savings are driving profits growth. But revenue-led growth requires a more whole-brained approach, one which encompasses all elements of the value trinity made up of analysis, design and execution. These components combine to generate value - analysis locates, design unlocks and execution delivers. Firstly an opportunity for value creation needs to be uncovered through analysis (e.g. an activity costing more than it should, an unmet customer need or under-served customer segment). Next potential solutions that release the value in the opportunity (creation of a value proposition, re-engineering the business model) have to be designed. Finally the selected solution has to be implemented, the results of which are analyzed and the process begins again.

All three stages exist in any value generation initiative but the contribution to the total that each makes will vary. For simple cost-cutting projects, analysis creates most value through illuminating what is happening – e.g. where the bulk of costs are being incurred or where costs or working capital exceed industry benchmarks. In revealing the answer, the solution becomes obvious - the need for design is limited. But profitable organic growth requires creating increased value for an increasing number of customers in a way that is increasingly profitable for the business – design skills are critical. But the wealth of productivity opportunities over the past 30 years has obscured this need. Improving operational effectiveness (heavily analysis-dependent) has displaced true strategy development, resulting in design becoming the forgotten business competency.

Business strategy starts with a value proposition to customers. Design skills are required to both make it appeal to customers and manage the trade-off between attractiveness to customers and profitability to the business. Such decisions are as much about what is excluded as what is included – being able to articulate what you will not do (and why) as clearly as what you will do remains one of the best tests of any strategy.

Designers, whatever their field, have a fixed set of components which they need to combine and trade-off. Product designers need to consider shape, colour, texture, material, pattern and ornament. Similarly, interior designers must work with space, light, colour, pattern, texture and focal point. In the same vein, value proposition designers also have a number of core elements which they can use to deliver benefits to customers – performance (e.g. productivity, reliability or accuracy), choice, convenience, feel-good, responsiveness, security and price.

All these dimensions (price being the counterpart to the others) need to be managed in designing both the value proposition and customer experience. A business must sell its offerings in sufficient volume at a price that delivers sufficient gross margin to absorb overheads and deliver an attractive operating profit margin. The key skill is finding what to exclude, what delivers least value to target customers in the context of the other elements.

Delivering the value proposition in a way that achieves the business objectives requires a clearly prioritised operating model. Firstly capability levels must be traded off – identifying which component activities of supply chain, manufacturing and customer management are most critical and should be executed to the highest level possible, those which only require a basic level and those which do not even need to be performed at all.

Once the target capability levels are defined, how they are built must be designed. Capability is a function of the assets employed, how a business is organised, the competencies of the people, the culture the business embraces, the processes it follows, the degree of process automation and technology enablement and the metrics used to measure performance. Choices need to be made both within and across these elements – e.g. the more robust the technology enablement of processes, the lower the level of people competency required – driven by the value proposition and business objectives.

Such trade-offs come naturally to designers but less so to analysts. Both approaches are valuable to strategy development. But continued failure to recognize their complementary roles will ambush growth initiatives and maintain business dependence on productivity gains for profit growth.