To outsmart their competition, organizations develop strategies which are largely based on augmenting beneficial changes in cost and quality. While doing that they operate in confined boundaries of known territories. This approach is often called Value Engineering,
Value engineering concepts are bit rusty, however. Instead, we focus on Value Innovation.
Value innovation has been suggested by management scholars as a key variable underpinning the creation of competitive advantage and superior value for customers. The basic objective of Value Innovation is to create new market spaces that enable companies to outperform rather than “out-competence” competitors.
Value Innovation and Technology Innovation, when perfectly blended, result in value creation. An easy way to understand the value created here is with a simple equation. Value for any business, service, process, product, or system can be equated by performance divided by the cost of obtaining it.
Let’s look at the two variables, performance and cost. The following illustrates the alternative ways that performance and cost can interact to increase value:
There are essentially three platforms upon which successful companies work and measure performance and the cost of obtaining it: Product, Service, and Delivery. The definition of each varies by industry, but in general the product platform is physical product, the service platform deals with maintenance, warranties, distributor and channel partners, and the delivery platform encompasses supply chain and logistics.
Often product managers try to create value through the product platform and don’t pay much attention to other two elements, i.e., service and delivery.
Take the example of the switchgear business, where switchgear manufacturers think about value creation every day. They often use the traditional value engineering approach to reduce product costs in order to create value. In the long run, concentrating only on products might not be very beneficial and does not provide opportunities for sustainable value innovation. As customer requirements change, continuously focusing on innovation and technology across all three platforms – not just products – provides immense possibilities and creates broader opportunities for value creation.
At Schneider we work on innovation at every level, at each of the platforms as I mentioned, to create value. That’s our approach to delivering smart, energy-efficient solutions and services, real time performance monitoring, asset management, maintenance, and optimized total cost of ownership for single and multisite operations. And it’s two transformational developments that allow us to meet the challenge of energy efficiency and create value through it. The first is the convergence of operational technology and information technology, which is accelerated by the Internet of Things, and the second is the emergence of smart grid technology that propels a new world of energy that is more electric, digitized, decentralized, and decarbonized.
In the end, Value Innovation is key to exploring many possibilities for value creation, in order to deliver better customer satisfaction.