Disruptor League

Delivering Value Starts With Defining It

Delivering Value Starts With Defining It

My definition of entrepreneurship has five parts:

  1. The pursuit of opportunity
  2. Working under conditions of uncertainty with scarce resources
  3. The goal is to create multiples of user defined value when compared to a competitive offering or the status quo
  4. Through the development and deployment of innovation (NB: one way is to create a company, but there are many other ways to do so)
  5. Using a VAST business model

The key to innovation is delivering stakeholder value. When you do so, you have created product-market fit. All value is user defined. As Peter Drucker noted, the purpose of a business is to create a customer. If you are creating a new product or service, your estimate of its value is meaningless. The only thing that matters is how much customers or stakeholders value your product and how much they are willing to pay for it, recommend or prescribe it or use it.

There are five disciplines of creating what customers want. These techniques—determining customer and market needs, creating value, supporting innovation champions, creating innovation teams, and aligning the organization—create a total value management approach to creating an innovative organization.

There are several ways to measure value and use it as a benchmark or operational tool. For example, the value of your house or your business, in pure economic or accounting terms, is determined using valuation tools that incorporate many factors, including market comparisons. ratio multiples and cash flow techniques. Mostly it is defined by what someone is willing to pay to buy what you have for sale.

You can use value as an operational tool. For example, suppose your business is valued in the 10 percentile of similar businesses for sale. That’s a sign you have opportunities to improve operational effectiveness and efficiencies to increase its value. Or, suppose your house is for sale and you are getting offers that are lower than similar comparison houses in your neighborhood. Maybe it’s time to paint those dingy living room walls , fix the leaky faucets and get rid of that smell in the basement.

You personal or business value, or net worth, is determined but subtracting your liabilities (what you owe or debt) from your assets (what you own or equity).

Value should not be confused with your values. Hopefully, your profits, passion and purpose are aligned and create happiness.

Measuring the value of your business not only is done when you are looking for investors, but is also used in situations where there is a claim on your asset, for example as part of a buy-sell agreement with co-founders, a divorce or some other civil litigation action.

Value in sick care is defined as the quality of a particular value factor, like treatment outcomes, service, experience or convenience/price e.g value based surgical care.

Sick care stakeholders will value your offering by doing a mental calculation that determines the difference between their defined tangible and intangible perceived benefits less the tangible and intangible perceived cost not just now, but in the future as well. Features that are not user defined benefits are costs to the producer. Take note that 1) the intangible value factors, like speed, convenience, experience, service and satisfying emotional needs usually drives the buying decision, and 2) the value is often perceived, not real, and 3) intangible assets, like intellectual property and customer lists. are increasingly driving valuations. How do you measure how something makes someone feel or aspire to be, for example, luxury items like hotels, watches and $4,000 hand bags? Usually, by how much they are willing to pay for it.

The process of analyzing value moves through several planning phases:

1. Defining value.

Simply put, value is user defined quality of value factors/unit cost.

2. Identifying value factors for each customer segment.

Value factors include not just quality, but elements of convenience, speed, service, and experience. Most companies must choose which value factor to dominate. You can’t dominate in all value factors to all segments.

3. Doing a value factor analysis to determine whether your product or service meets or exceeds the expectations of your target segment.

Carlson and Wilmot noted that VFA consists of four variables: quality and convenience and the costs of each. In equation form this is shown as:

Value Factor = [(Quality benefits) x (Convenience benefits)] / [(Quality costs) x (Convenience costs)]Creating a VFA matrix like the one shown in this article is fast and simple. As a rough guide, a new product or service should have a Value Factor that is 2 to 10 times greater than the competition for the difference to be noticeably significant. That said, calculating a VFA is straightforward:

1) List the product’s attributes (for Quality, Convenience, and Cost) – The number of product attributes will vary from product to product, but users are encouraged to write down as many as they can think of—if you write down less than 10, you’re not trying hard enough.

2) Determine the importance of each attribute to the customer – To get started, these values can be estimated by you and your team. However, you will need to show your VFA to customers to obtain more realistic values.3) Evaluate each product’s performance attribute

3) Evaluate how each product’s performance satisfies the identified Quality, Convenience, and Cost attributes.

4) Calculate the total scores for quality, convenience, and cost as noted in the attached example.

5) Calculate the VFA according to the equation noted above

4. Extending the analysis to your competition to see how your product stacks up against the competition and whether it fills a white space.

Productivity in the US is mysteriously dropping. Economists are also perplexed about measuring it in healthcare.

Sick care is moving towards value based care. There are many stakeholders who value one factor over another. Unlike other industries, for a product or service to be successful, it needs to satisfy the interests of not just patients, but payers, providers, sellers, suppliers, distributors and many more. Some patients will want commoditycare, others value based mass care and even others, luxury care, regardless of the cost.

Those who can deliver the most value the fastest in the shortest time through the deployment of innovation will hold the keys to new kingdom. Doing a competitive value factor analysis and executing its roll out, adoption and penetration will help you get there before the others.

 
Get the Change Planning Toolkit from Braden Kelley

Image credit: Pixabay

Wait! Before you go…

Choose how you want the latest innovation content delivered to you:


Arlen MyersArlen Meyers, MD, MBA is the President and CEO of the Society of Physician Entrepreneurs at www.sopenet.org and co-editor of Digital Health Entrepreneurship

1 thought on “Delivering Value Starts With Defining It”

  1. Pingback: Delivering Value Starts With Defining It – Innovation Excellence - CATALYST TO EVOLVE

Leave a Reply