make progress entice enrich enhance value hierarchy functional non-functional

The Big Picture…

Value, often talked about, but surprisingly difficult to define. Yet, understanding value is crucial for successful innovation and minimising innovation theatre.

The simplistic view of equating value to price paid or volume sold is not really correct. We can really only offer a value proposition, not embed value to be exchanged. Rather, value has two components:

  1. value proposed, and
  2. value co-created during use
What is value?

Both, it turns out, are related to a beneficiary making progress in some aspect of their life – solving a problem, minimising a hassle or getting a job done. We call this, functional progress. A car, for example, proposes to get you from point A to B.

But progress to be made is usually more than just functional. Does a fast car propose more value than a slow car? Or does travelling by train propose more value than a car? It depends on the non-functional progress the beneficiary is trying to make (speed or reducing environmental impact in these cases). Park et al show us our value propositions should entice, enable and enrich. Lindic says they should address performance, ease of use, reliability, flexibility and affectivity. And Almquist et al go deeper, identifying 30 elements of value. Whereas Christensen highlights we help with more than pure customer needs, they are circumstances to be taken into account.

A better definition of value

I define proposed value as the help proposed with:

  1. functional progress – the problem solved, hindrance minimised, job to be done
  2. non-functional progress – which additional elements of value are addressed.

And the value co-created during use – the realised value – as the amount of progress achieved by the beneficiary.

However, only the beneficiary can determine the amount of proposed and realised value. And since they may do so away from us, it can be difficult to measure. Therefore price paid and number of sales emerge as proxies. But these are weak indicators. And realised value may actually be different to the proposed value. Both in terms of amount of progress made and what progress. So we must become more relational in order to determine, support, and increase true value.

Additionally, we must be aware that value can be co-destructed as well as co-created.

Implications

Four aspects emerge out of this way of thinking about value:

  • Proposed value is best expressed as a value proposition
  • We need to be more relational to offer better proposed value and measure realised value
  • Innovation nicely evolves into the act of creating new value propositions offering to help beneficiaries make functional and/or non-functional progress better than they currently can (with some conditions).
  • Enterprises are enabling systems (networks) for potential value co-creation that are constantly updating their value proposition(s) in order to remain viable

The Idea

Can you define value? And how you would measure it?

I think most of us would say we could. But when we try to, it probably becomes a bit of a challenge. Now, that’s a big problem when it comes to innovation. If we can’t get a real grip on what value is and how to measure it, then how do we successfully innovate? And how do we avoid our innovation activities becoming yet another innovation theatre performance?

Let’s take a look at how most of us would probably define value in today’s mindset. And then how we should define value, coming from a service-dominant logic perspective. From there, we can discover how we should measure value.

Ownership as the common way of seeing value

Simplistically, we would probably define value of something as the amount someone is willing to pay for it. What holds more value: a diamond or a lump of coal? Normally, we would say the diamond. Merriam-Webster define value as:

1: the monetary worth of something
2: a fair return or equivalent in goods, services, or money for something exchanged
3: relative worth, utility, or importance
4: something (such as a principle or quality) intrinsically valuable or desirable

Merriam-Webster

In “A business is a value delivery system“, McKinsey say:

Customers base their buying decisions on two criteria: the benefits of a particular product or service and its price. The benefits can be reduced to a single number: the most the customer would be willing to pay for that product or service. That number, minus the price, represents the product’s value to the customer

A business is a value delivery systemLanning, M. and Michaels, E.

This is a very common view, and we will call it using a product-dominant logic perspective. Producers add/embed value during the manufacturing process. Each producer in a chain adds/embeds more value than the previous. Until we end up with a product/service for the end customer.

Crucial in the product-dominant logic is the value-in-exchange event. Where the consumer spends cash in order to own the embedded value. After the exchange, the consumer destroys/wears out the embedded value through use. This is a good thing, as eventually, they will need to buy a new item.

Is there a lifecycle of value

Osterwald and Pigneur expand on the basic create/destroy notion of value we see above. They identify a lifecycle of value (predominantly based on value ownership) in their 2003 paper “Modelling value propositions in eBusiness“. And it covers:

  • Appropriation – where the value is created
  • Consumption – ownership/usage of created value
  • Renewal –  sometimes value can be renewed, for example, when an enterprise upgrades the firmware of electronic devices, giving them new functionality
  • Transfer – customers may be able to gain additional value even when the original value has been used up by transferring ownership (e.g. 2nd hand sales)

Creating, consuming, renewing, value in exchange etc imply that value should be easy to measure.

How do we usually measure value?

When we see things through a logic lens that focuses on exchanging value, we will naturally look to measure value at the exchange point. And that typically means measuring price and volumes achieved.

First, we tend to measure value by the price achieved in the exchange. In “Market strategy and the price-value model” Golub and Henry state simply:

A product’s value to customers is, simply, the greatest amount of money they would pay for it

Market strategy and the price-value modelGolub, H. and Henry, J.

And that leads us to a view that the higher price we achieve at exchange, the higher the perceived value. We see a diamond as more valuable than a lump of coal. Although sometimes we need to contextualise – a diamond is value-less if we want to keep ourselves warm.

Secondly, we tend to measure value through how many exchanges we make. Again, generally the higher the number of sales the higher the perceived value. And number of sales can mean a lot of people buying. Or, it can be a number of people repeatedly buying. Although, in this type of measurement, value is more equated to usefulness rather than price. If the result of the exchange is useful, the customer will make the exchange again.

And let’s not forget that customers can affect perceptions of value through sharing their views. Such as through word of mouth, social media, and online review sites. There are also a multitude of trade and public publications that review products. All this is very reminiscent of innovation diffusion. If the outcome of the exchange is not valuable, the number of exchanges will reduce until they stop.

The diamond having a high price, which should imply high value, but being worthless form of carbon if we want to get warm is an insight into how we can better define value. Value must have something to do with what someone is trying to achieve. And that is our doorway into service-dominant logic instead of product-dominant.

A better way of understanding value

In service-dominant logic, we have a strong alternative to the above view of value. Rather than it being about ownership and exchange, it is about co-creation in use. Even goods we see are a way of transporting service.

Figure 1: A short summary of key principles of Service-Dominant Logic thinking

You can see the foundational premises of service-dominant logic in Figure 1. And it’s the last 4 that have the most impact on our discussion.

Firstly, we can only offer value propositions. That is to say, there is no embedded value. Which consequently means there is no value to exchange. And so, no point of exchange. Instead, we observe value as being created during use of the service. And all actors involved co-create this value. Equally, value can be co-destructed during use.

Secondly, it is the beneficiary that uniquely determines what value is and what level has been achieved. And, they do so phenomenologically. Which is a fancy way of saying beneficiaries bring baggage and are fickle. We’ll come back to this when we talk about measuring value.

With this in mind, we’re now ready to discover an actionable view of what value is. And it starts with understanding what only offering value propositions implies.

Making Progress is valuable

A thirsty person is looking for something that quenches their thirst. When we watch Netflix we are seeking to entertain themselves and fill up some time. Other people want to get from A to B. Some of them as quick as possible. Others in a way that has the least impact on the environment.

What I’m saying is that all beneficiaries are trying to make progress in some aspect of their life. And a lot of the time, to make progress, they need the help of someone else’s skills and competence. That is where an enterprise comes in. As the function of an enterprise is to help to a beneficiary make progress (presented in the form of a value proposition)

And the enterprise may do so through what we readily recognise as a service. Or via what we might call a goods (typically a physical item, but can be digital). In service-dominant logic we see goods are services (skills and competence) that have been frozen so they can be distributed.

So, all enterprises are offering service(s) – value proposition(s) – that the beneficiaries might determine can help them make progress. And when a beneficiary chooses to engage with one of those services, they judge – uniquely and phenomenologically – how much progress they are making.

Value, therefore, must comprise of two things. First the proposed value – the progress the value proposition offers to help make. And, second, the realised value. Which is the value co-created during the use of the service. Or better said as: how much progress the beneficiary feels they have made.

The immediate thought when we talk of progress to be made is functional progress. What problem needs to be solved. The hassle that can be removed/minimised. Or the job that needs doing. And there are probably many value propositions that offer that progress. Or as Christensen puts it in his job-to-be-done theory, many things could be hired. We need to avoid Levitt’s observation of myopia (shortsightedness).

Making progress is probably not a one-off event. There will be the first time progress is needed to be made. And there will be subsequent times. Christensen calls these the “big hire” and “little hire” moments.

Yet making progress is not limited to functionality.

But its not just functional progress

Lindic and da Silva analysed Amazon in “Value proposition as a catalyst for a customer focused innovation“. And they identified that Amazon’s customer innovations (which I argue are new value propositions) revolved around offering improvements in:

  • Performance
  • Ease of use
  • Reliability
  • Flexibility
  • Affectivity

Affectivity maps to our notion of functional progress. But the other four – performance, ease of use, reliability and flexibility – are elements of non-functional progress. Can we do something quicker (performane)? Or is it now easier to do, etc?

Enticing, Enabling and Enriching

In “Brand Admiration: Building a business people love“, we get a broader insight into what we can call non-functional aspects of value propositions. Whilst the research is based on brands, brands also represent the value proposition. They identify that people love brands that Entice, Enable and Enrich them. We can say that enable matches our view of functional progress.

From Eisingerich’s – one of the authors – article we see that customers:

1. find value in brands that enable them. Such brands solve customers’ problems. They remove barriers, eliminate frustrations, assuage anxieties, and reduce fear. They provide peace of mind. With the brand as a solution, customers feel empowered to take on challenges in their personal and professional lives.

2. seek benefits that entice them. Enticement benefits stimulate customers’ minds, their senses, and their hearts. They replace work with play, lack of pleasure with gratification, boredom with excitement, and sadness with feelings of warmth.

3. seek benefits that enrich them and their sense of who they are as people.Customers want to feel as if they are good people who are doing good things in the world. They want to act in ways that are consistent with their beliefs and hopes; to feel as if they’re part of a group in which others accept and respect them; to feel proud of their identities and where they came from.”

Whilst this helps open our eyes to different aspects of making progress, it is still a little abstract.

Value from non functional progress

Almquist et al’s “The Elements of Value” take a deeper look. They identify 30 elements of value. And they place them in a hierarchy: functional, emotional, life changing and social impact. Somewhat reminiscent of Maslow’s famous hierarchy of needs.

Figure 2: Almquist et al’s elements of value

Are we offering the beneficiary the non-functional progress of saving time, avoiding hassles, and reducing costs, like Electrolux do with their vacuuming as a service.

We can use such a list when innovating. And it ties to Blue Ocean Strategy’s value canvas. Take you existing offering and see which elements of value can you increase, decrease, add or delete. And from a strict Blue Ocean Strategy view, you should do that from the perspective of your non-customers in order to find a blue ocean where your competitors are not.

Now we have a view of functional and non-functional progress, we can start fleshing out our definition of proposed value.

An actionable definition of value

Lets get on with defining a definition of value. One that is actionable. And I’ve already mentioned it comprises of two components: proposed and realised. So we’ll start with proposed value.

Proposed Value

As an enterprise, we can only offer a beneficiary help in making progress they are seeking. And we communicate that offer as a value proposition.

It is important, then, that we understand the progress beneficiaries are trying to make. Which means we preferably have a relationship where we can discover this. Additionally,

That progress a beneficiary is seeking to make is functional and/or non-functional. Functionally, the beneficiary is looking to get a job done, overcome a hindrance or solve a problem they have. And in doing so, they are perhaps looking to do so quicker, safer, at less cost, enhance their wellbeing etc. It could even be so that the progress they seek is only non-functional: to look good or feel special, perhaps.

To maximise potential, we have to first know our generic beneficiaries well. And secondly tailor our offering as best we can. The individual beneficiary has many value propositions to chose from. Including the do nothing (or wait until another time) proposition.

What is proposed value?

Beneficiaries evaluate a range of value propositions before attempt to make make progress. And helping make progress means the beneficiary integrates with resources from the enterprise they choose. means rather than embed value into something we exchange, we

Achieved Value

What is Realised Value?

Measuring Value

How should we measure value? Well, it is measured twice. First the beneficiary needs to see that the value proposition can help them make progress. And that the progress that is being proposed is sufficient for them to use some of the service credits they have accumulated. I’ll come to this in a second. Secondly, did the beneficiary gain the progress they were seeking. Complicating things is sometimes the value achieved (progress made) is not the same as the value proposed (progress proposed).

it is for any particular beneficiary it must be how useful the execution of the value proposition has been. Or better put, how much progress has the beneficiary made. Value then must simply be measured by how much progress has the value proposition enabled the beneficiary to make.

Amount of value must simply map to the amount of progress the value proposition has enabled the beneficiary to make

[we need to get relational to understand what value can be propose; and what value was co-created. In the first case we should consider our normal beneficiary, but also as blue ocean strategy lifts up, the non-customer]

Wrapping Up

What is value?

Four aspects emerge from this way of thinking about value:

  • Proposed value is best expressed as a value proposition
  • We need to be more relational to offer better proposed value and measure realised value
  • Innovation nicely evolves into the act of creating new value propositions offering to help beneficiaries make functional and/or non-functional progress better than they currently can (with some conditions).
  • Enterprises are enabling systems (networks) for potential value co-creation that are constantly updating their value proposition(s) in order to remain viable

There are 6 thoughts on “What is Value?”

  • Adam, I really like where you are going with this. Fundamentally you have a toolkit in the 30 items that enable value gap analysis, value creation proposals, value measurement and value reporting as an element of transformational methodologies. They link directly to core purpose when the 30 are equated/mapped against that purpose, and you have the capacity to prioritise value in a transformative journey that keeps the transformation aligned to the core purpose. It is the antithesis of the ‘shoddy’ innovation that results in the vast majority of transformation failures (which all to often values features and vision over purpose and compatibility of culture/alignment to mission. (Apologies – so much management consulting bull in one sentence)).

    Have you a measurement methodology in mind?

    • Bingo Elliot. Pretty much my thoughts when starting this article (even if I have hit publish a little too early!). I want to look at the 30 Almquists items to see if I agree, but they are strong contenders.

      Measurement is going to be tough, I feel. Key will be that needed closeness to beneficiaries, both in determining your value proposition (to minimise that shoddy innovation) and interestingly seeing what those beneficiaries actually do and where they create value!

      • To be honest, it feels like this is the sort of thing that cries out for a modified Balanced Scorecard. You have up to 30 factors that have varying impact on the service consumer, depending on the consumer’s own perspective. Value relates to Fn(Factor(Priority*Weight*Perceived Outcome)) for each factor. The relationship between the factors is important to the consumer (so probably a preceding activity by them to determine) and therefore enables definition of the modifier. If this is mapped against an open index (rather than absolute scale) then the value of the service can be constantly enumerated despite any ongoing transition caused by the maturity/impact of the service on its context. (i.e. treat it like a FTSE index with regular measurement, instead of trying to get an absolute value against a perceived target – you are probably well aware that I am a huge advocate of this approach to measurement since it tends to open the door to analysis rather than shut it down in the way that absolute values do.)

    • I’m starting to think the measurement question leads to an observation not yet surfaced in service-dominant logic (at least that I have seen).

      The amount of value co-created has to be related to the amount of functional & non-functional progress achieved by the beneficiary. The beneficiaries determine that. And not all beneficiaries will make the same determination. And would they do that determination in our presence? Maybe for pure service; probably not for pure goods (even though for me those are frozen services that have been transported). So, that is going to be difficult to measure.

      Like with a lot of service-dominant logic there’s a wider insight rather than an observation that the goods-dominant way is wrong…

      If determination of value takes place away from you, and you don’t have the means to follow up, then the price paid and/or number of sales are proxies (or weak?) indicators of progress made by beneficiaries.

      1) If not enough beneficiaries make enough progress, then, through innovation diffusion?, the number of sales will be low; and vice versa.
      2) Price paid effectively equates to number of service credits a beneficiary is prepared to swap to make the progress offered. As a group of beneficiaries there must be a max level at which they need to offer their service to gain credits they then use to make this progress.

      We do loop back to a foundational premise of service-dominant logic: the ideal situation is we need to be beneficiary oriented and relational. To be able to ask/observe the amount of progress beneficiaries make and how much effort they are prepared to make to gain service credits. Where we can’t (or didn’t observe that we previously needed to) then number of sales and price paid become proxies for that – good or bad, strong or weak, I don’t now, yet….

      • ” the ideal situation is we need to be beneficiary oriented and relational” – I like to imagine that there is a sleight of hand that can be played here. Returning to the concept of a measurement index, when we imagine the FTSE we see that it is an abstraction of a highly complex array of service-centric measurement – the services are related to actions upon the values contained within the index and the companies that constitute it. This only works because of its abstract nature – The measurement has become a thing separate to that which it is measuring. If your measurement of service is in fact a thing in and of its own doing then the concept of value becomes a) truly related directly to the consumer (whatever the pattern of factors they employ) and b) abstracted to the point where all consumers can be interrelated despite having different definitions of value.

        • that abstraction is probably “price paid” and/or “volume sold”. Initially I was tempted to write they were wrong measurements, but eventually settled on them being aspects that are visible in the absence of better understanding. They do kind of act like an abstraction. If we are selling a lot, or at high price, then the offering must be helping beneficiaries make progress. And given the fickleness of beneficiaries, it’s hard (?) to say which types of progress, but on aggregate there must be enough . Which is a good “conclusion” as they are clearly used today so this view of value needs to explain why price and volume are currently good enough indicators.

          Do we need to do better? I suspect for some service no, for others yes.

          Particularly when we think that the value proposition needs to appeal to as wide an audience as possible – in most cases I suspect you need volume to be viable. But, once a beneficiary picks your proposition, then customisation to improve the offering (before starting, and during) can be a benefit to the beneficiary. Hence the need for relational aspect. The beneficiary oriented is the need to remember you create nothing of value, value only comes from it being useful to the beneficiary)

          Interesting stuff to think through, and thanks for thoughts

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