Improving business value can be undertaken through developing skills and competencies, improving organizational processes, and/or enhancing the technological infrastructure that supports a firm’s product and/or service offer. Mistakenly, many firms attempt to work in all directions at once, more out of concerns that ‘everyone’s doing it’ than as a result of their organizational strategy. Even worse, it is common to find contradictory initiatives between departments and between subsidiaries competing for a company’s limited financial and human resources. Charting the proper roadmap for business improvement depends upon management’s deeply rooted beliefs about where the value in their organization resides. Three fundamental questions correspond to three distinct dimensions of the Business Value Matrix:
To what degree do you measure success in improving the efficiency of business transactions (time and cost), and to what degree does success depend upon the effectiveness (quality, longevity, fidelity) of the interactions between your firm and its clients?
In crafting strategy based on management’s deeply rooted beliefs about the sources of a company’s value proposition, you inherently increase the chances of success.
Where Does Value Come From?
Certain firms build their competitive position upon the strengths of their human resources: the quality of their managers, employees and/or business partners. These firms openly recruit and reward managers and employees who rise above the pack, and openly encourage creativity, innovation and initiative. Management will buy into proposals for process improvement or integrating new technology only to the extent that they improve their workforce’s skills and competencies. In such a mindset, the roadmap to business value should focus primarily on how organizational and technological initiatives improve their human resources.
Other firms base their value proposition not so much on the quality of their human resources as on perceptions of an optimal organization of their human and physical capital. They believe that success resides in an organization of their processes and procedures that is ‘better’ than that of their competition. The roadmap for improving business value is fundamentally different here from that of those firms seeking to integrate the ‘best and the brightest’; they should focus on how their managers and employees can use information technology to improve the organization’s efficiency and/or effectiveness. The goal here is to improve the underlying business processes rather than the skills or competencies of their employees.
We put our label on it!
Pedro, as the European Director for Strategic Investments of one of the world’s major computer companies, had been invited to be the keynote speaker in a French MBA’s workshop on the Information Economy. He began his talk with a description of the long journey of his company from its incorporation as a computing, tabulating and recording company in 1911 to the Internet today. He paid considerable attention to an analysis of corporate strategy that had shifted from a focus on products to an emphasis on services and value. Before taking questions, he proudly showed the students what he considered to be his company’s most innovative product.
It appeared to be similar to most other PDAs on the market: same size, same design, same programs and even the same components. The students’ first question was how could he be so proud of a product that was certainly invented by a competitor, and that was neither revolutionary nor unique? He readily concurred, suggesting that the whole product was subcontracted from the initial requirement studies to after-sales service. Pedro concluded that the only thing his company produced for the product was the label, which was why the product had been sold successfully for 50% more than its competition. |
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Finally, some firms base their value proposition essentially on the quality of the tools that they put at the disposition of the organization. The underlying vision here suggests that value will come from putting the right tools in the right hands at the right time. Focusing organizational efforts on obtaining and deploying superior technology is seen as a source of competitive advantage. Although organizational strategies usually involve some combination of skill development, organization and technology, the effectiveness of the strategy will depend upon how companies view the source of their competitive advantage and where they believe their efforts will be most productive.
Where Do You Look for Value?
On a second dimension, the company can focus its efforts to build business value on individual managers, teams or departments, or the market as a whole. If the company’s management believes that its value proposition is based on the quality of its individuals, business strategies should be deployed specifically to develop the individual’s effectiveness in the organization. If the value proposition is based on people, this strategy suggests that efforts should focus on developing individual skills and competencies. On the other hand, if the goal is to optimize organizational processes, efforts at the individual level should be directed to perfecting training and education. Finally, if the company believes that its value proposition is technology-led, it could target its efforts at developing and maintaining personal productivity tools.
The view is quite different for firms that believe that the emphasis of building business value should be on developing the quality of its teams and departments. At this level, the company that wishes to favour human or social capital should focus on strategies that develop team skills and competencies. This belief is founded on the premise it is not individuals’ skills that add value to the organization, but their capacity to work as a team in addressing organizational challenges. Firms that privilege process over human capital will design knowledge management approaches that focus on organizational rather than individual learning. Firms that favour a technology-driven approach will develop portal strategies that provide the infrastructure to facilitate knowledge management and skill transfer throughout the organization.
It could be suggested that organizational strategy would best be served by firms focusing business strategies neither on their employees nor on their departments, but on the market itself. The belief here is that the market determines the value of a company’s service offer, and therefore business strategies should attempt to develop knowledge of current and potential clients (prospects, business partners, government and regulatory agencies) likely to work with the company and the skills to deal with them. For firms focusing on people, this strategy would translate into efforts to improve the components of the company’s service offer. If the company prefers an organizational approach, efforts would be directed at strengthening the processes that affect the quality of the interactions between the company and its external clients. Finally, firms that focus primarily on technology will begin by designing an information infrastructure that improves the company’s impact in its markets.
How Do You Measure Business Value?
The third dimension of the Business Value Matrix concerns how each organization measures business value. As suggested previously, efficiency refers to transactional improvements in tasks, activities and processes. Improvements in efficiency are most often evaluated in terms of savings of time and/or cost. Conversely, effectiveness is about the degree to which human experience, innovation and knowledge constitute the foundations of business value. Effectiveness is more easily measured by a firm’s external clients than by its technology, and is usually expressed as perceptions of quality, reliability and service.
Efficiency and effectiveness are not mutually exclusive, but constitute points on a continuum that includes profitability, innovation and passion. Both are necessary in building business value; the Business Value Matrix may be presented face up (or face down) depending on how each client views value. Nonetheless, the blend of value metrics should be adjusted to organizational beliefs concerning the source of business value and the level of intervention. Metrics can be constructed to measure the contribution of human resources, organization or technology to each organization’s value propositions. Similarly, metrics can be captured at the individual, team or market levels consistently with where management feels value arises. The importance of specifying appropriate metrics is critical here, for they will influence how management evaluates market opportunities, measures business initiative, and communicates business value.
What Have We Learned?
Several conclusions can be drawn from this discussion. First we suggest that there is no one best way of using information technology to add value to business. Organizational strategies for business should be based upon the company’s convictions about the source of its value proposition, as well as on what level it wishes to focus its efforts. Although there is clearly an interrelationship among a firm’s skills, organization and technology, organizational strategy should be tailored to coincide with the particularities of each organization’s culture and belief structure. Developing business strategies inconsistent with organizational culture, for example insisting on business process improvement in a company whose reputation has traditionally depended on the reputation of its managers, is unlikely to provide value.
In a similar vein, we suggest that improving business practice is not a ‘packageable’ solution but the core of business strategy. Organizational investments in information technologies will impact on, and be influenced by, investments in the key processes of the company. Just as importantly, the firm’s IT infrastructure provides a great deal of information on the challenges of developing specific value propositions to improve business practice. The gaps or inconsistencies in information, the bottlenecks in delivering information to your clients, also indicate where and what employees, managers and business partners need to learn. Business strategies will benefit greatly from leveraging a company’s current capabilities and future technology investments.
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