Demystifying Value Added
by Derek F. Martin

Walk around the offices of corporate America today and you will hear whispers of the cost cutting and employee layoff villains. Where can we turn to, what force will combat these scourges? In the same hushed breath, people often answer with a focus on value added. First termed at business schools and consulting firms, the value added concept is hailed as the mystical cure to the problems of inefficiency. But despite its widespread acceptance, few people can actually define value added in a way that enables them to apply it. Read this article. Take the time to understand the components of value added so that you can employ it in your own activities.

What's the mystery? Not just consultantspeak, value added is a powerful concept that frames the approach to every business activity. It is based on the belief that companies should spend their efforts and resources on activities that enhance the value of the company, and eliminate those activities that do not. But what is value and how can you be sure if it was created?

Activities are rarely black and white. Business decisions require the careful balancing of expected outcomes, costs and risks. By understanding the components of value add, one can pinpoint and support its sources in every aspect of the business. From the way a salesperson spends their time to the production process to the product portfolio, value added is a mantra for enrichment.

Value Added Components:
Try to describe the concept of value-added without using the words value or added. It has to do with increasing the utility or contribution of an asset or process. But how? This seemingly fundamental idea has two underlying components that must be satisfied for it to be true - Relevance and Quality.

Relevance: Whatever the activity, product, or asset, its outcome must be relevant to the outstanding need. For example, no matter how good a retail web site is at attracting page views, if the site is not generating sales or information that lead to sales, it is not relevant to the task. There are several focal points to which activities and assets must be relevant, including:

  • The company vision
  • The business objectives
  • The customer
  • The production / delivery process

Quality: My father always told me, "if you are going to spend the effort to do something, it better be done right." Locked in that phrase is the secret of quality. Whatever the task or product is, it must be completed to the specified requirements. If you are below the requirement, you will incur substantial reworking or returns cost, not to mention lost sales from dissatisfied customers. If you are above the required quality you may be spending more than necessary, producing a Rolex when a Casio is what is needed. Three points are critical to assessing the required quality:

  • The Product (usage)
  • The Process (defects)
  • The Brand (image)

Applying Value Added:
From the way you spend your time to the way you view products and services, value added is a tool for improving the contribution of time and assets. Armed with this tool, you can take both a reactive and proactive approach.

Reactive: Pretend you just got out of a meeting where your boss mandated that you cut 10% from your budget. Your head spins as you try to figure out where to cut from what you believe is an already lean operation. How can you be sure that the cuts you make will not destroy value? Value added can help. Take a deep breath - you can do this. First revisit the company vision and business objectives in relation to the activities under your control. Is everything you do relevant to the vision and objectives? Do your activities maintain the required quality? Now ask the same questions relative to the customer (even if it is an internal customer) and the production/ delivery process. You may be surprised to find that some activities may not be relevant to the customer or process. Or perhaps the level of quality you are producing is above or below the requirement. This analysis identifies areas to improve the contribution of value by realigning to more relevant activities and ensuring the required quality levels are maintained.

Proactive: No less important is the proactive approach that applies the value added concept in everything you do. In these unstable times, infusing 'value added' in your everyday actions is a powerful way of maintaining your own value to the company. Take some time to look at your daily schedule. Out of your workday, what percentage of time can be considered relevant and quality? If you are a salesperson, for example, how much time is spent on customer issues versus internal meetings. How many meetings with customers can be considered satisfactory quality? What could be done differently to improve the relevance and quality of your actions? Before undertaking any new assignment, make sure you understand why the assignment is important and what are the quality expectations. Without those key details you cannot be assured that you will have a positive impact.

Not just a business buzz-word, value added infuses business activities with positive impact. Use Relevance and Quality to go beyond the mysticism. Apply value added to improve your own value.


Derek Martin is a consultant with The Pacesetter Group, a management consulting firm specializing in business strategy and organizational performance improvement within the pharmaceutical and financial services industries. For more information, contact Derek at dmartin@pacesettergroup.com and visit www.pacesettergroup.com .

Also by Derek F. Martin:
Cutting Costs Without Losing Your Shirt - A Strategic Approach to Cost Reduction

Many more articles on Performance Improvement, Competitive Strategy, Strategic Planning
and Leading Change in The CEO Refresher Archives

   


Copyright 2001 by Derek F. Martin. All rights reserved.

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