Perspectives on Value

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Perspectives on Value
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Topics

• Why the focus on value?
• What is value?
• Elements of value
• Traits of value-based strategies
• Outcome Vs process
• Value cycle
• Describing value

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Why focus on value?

• Conventional wisdom
• Firms are in business to make money
• The primary measuring stick of performance is
  profit
• If a firm is doing a good job, then it will make
  a profit
• When business is down, firms must respond by
  cutting costs
• Each function must strive internally to meet the
  objectives of cutting costs and increasing profit

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Why focus on value?

• Problems with conventional wisdom
• profit is not a perfect measure of performance
• output based thinking
• short term orientation
• reduce product development
• cut back maintenance
• buy low-cost/low quality

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One Firms Vision

• We are in the business of making money, not cars
• Cars are primarily status symbols. Styling is
  more important than quality.
• The American car market is isolated from the
  world
• Workers do not have an important impact on
  quality or productivity
• A fragmented, compartmentalized understanding of
  the business is best

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A New Perspective

• Firms exist to satisfy a customer at the lowest
  total cost
• Firms are value driven
• generate highest relative level of value to its
  customers
• keys
• lowest total cost
• sustainable competitive advantage
• value
• Profit is a RESIDUAL

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One View of Value

• In todays economy, customers prize value. They
  will pay for value. They will not pay for any
  action or activity that contributes to overhead
  without contributing to value. If you cannot
  justify your overhead to your customer, that
  person will not buy. That is their right, just
  as it is your obligation to eliminate those
  actions that contribute to waste.

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Value

• Defined - the customers subjective evaluation,
  adjusted for cost, of how well the product or
  service meets or exceeds expectations
• Old paradigm focus on cost
• New paradigm focus on value
• Opposite of value waste

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Paradigm Shift

• Old Paradigm
• Large Scale Production
• Cost Reduction
• Adversary Relationships
• New Paradigm-
• Continuous Improvement
• Total Quality Control
• JIT
• Cooperative Relationships

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In Other Words.

• Perception of the degree to which a firm is able
  to recognize and satisfy the needs of its
  customers
• Value Equation
• Performance/Cost
• Performance
• Function, Lead Time, Quality, Flexibility
• Cost
• Quantitative
• Qualitative

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An Equation View of Value

• Value (B1 X Quality) (B2 X Speed) (B3 X
  Flexibility)
• Cost
• Bs weighting factors dependent upon customers
  desires
• Quality how well a product meets a customers
  expectations
• Speed how quickly a firm can deliver a product
  to a customer or design and produce a product
• Flexibility how easily the firm can change the
  product to more closely match the needs of the
  customer
• Cost all subjective and objective costs a
  customer incurs to acquire, use and dispose of a
  product

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Elements of Value

• Lead Time
• Flexibility
• Quality
• Cost

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Lead Time

• Elapsed time intervals
• Measures of lead time
• means
• variances
• point estimates Vs distributions
• Dimensions of lead time
• time to market
• time to product
• Importance of lead time
• New product development

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Dimensions of Time

• Time to market
• concept time
• design time
• prototype time
• first run
• major production
• Time to product
• time at customer
• time in plant
• time to customer

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Why Lead Time?

• Major measure of effectiveness of system
• Impact of simultaneity
• Critical impact on
• capacity planning
• material and priority planning
• inventory levels
• quality
• cost
• Lead times have value to certain customers

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Flexibility

• Ability of the system to respond quickly in terms
  of range and time to changes, either internally
  or externally generated
• 7 major types
• mix
• changeover
• modification
• volume
• rerouting/program
• material
• flexibility responsiveness

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Costs

• Traditional focus of value definition
• Two approaches to cost
• output Vs effectiveness
• Imperfect indicators of actual costs
• An area of extensive current change
• Activity Based Costing
• Throughput costing

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Quality

• Definitions to ponder
• Conformance to specifications
• Quality is the extent to which a product
  satisfies customer expectations
• Quality is the extent to which we meet or exceed
  the promises that we made to the customer at the
  time that the customer bought into the process.
• Differences between
• Quality and quality assurance

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Foundations of Value

• Various thrusts
• No Time
• No Where
• No Matter
• Mass Customization
• No Risk
• Value moves from encounter to encounter
• Moments of truth

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How Do We Compete?

• What do we sell to our customer?
• Product
• Capacity
• Capability
• Process
• Shift from product to process
• Increasing awareness of the importance of process
• general
• customer

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Strategies for Competing on Value

• Time-based competition
• Quick Response, Rapid Deployment, Wal-Mart
• Mass Customization
• Building unique products at mass production speed
  and prices
• Total Quality Management
• Corporate strategy for generating value through
  quality

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Traits of Strategies

• Recognition that value is dynamic
• Focus on efficiency and effectiveness
• Recognition of presence of four major outputs
• goods, services, information, knowledge
• Focus on processes
• focus on core competencies
• Balance the Value Diamond

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Value Cycle
value design
value creation
value delivery
value renewal
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Describing Value

• Order Winners
• those traits which are sufficiently important to
  the customer to win orders
• Order Qualifiers
• those traits which process/firm must satisfy to
  be considered -- performance minimums
• Order Losers
• those traits that cause firm to lose either
  existing orders or future orders

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Value Diamond
customer
process
product
metrics