This blog is about “adding value” to your market. Value that not only will make a difference but also matters to your industry.
Adding value should make a real difference with real consequences. Simply claiming a difference is false pretence.
The process of adding value – not only gives a business a difference that matters to that industry but also improves the firm’s performance in order to deliver the added value. A win-win outcome.
IKEA, took many problems within its industry – poor standards, inefficiencies, marketing challenges, massive lead time and frustrated customers, price wars and customers willingness to pay less – and made a virtue through ‘adding value’. This meant IKEA had to step up its performance by focusing on lean manufacturing, efficient flat pack delivery, and engaging store layout and design.
Major players like Wal-Mart, Easy jet, Ryan Air, Southwest Airlines, BMW, Porsche all ‘add value’ along the same lines.
How to strategize ‘value creation’
Value creation is not a ‘nice to have’ list. The underlying force behind value creation is the purpose. The purpose determines the direction of ‘value creation. (Read more about Building Your business on ‘Purpose’)
Cynthia Mongomery in her book “The strategist” illustrates this process very well.
In the diagram above, a firm treading water is squeezed between what the customer is willing to pay (low prices) and what the suppliers are willing to supply (high cost). The gap – the value generated by the firm – is very small. This is the default mode for many small businesses.
How to increase the value captured by the firm?
Create massive value to others. The likes of IKEA and Wal-Mart have programmes designed to help their suppliers save money. These programmes include training, reporting, sharing information etc… As a result, their suppliers sharpen their business practice and get better at producing goods at lower cost and larger scale. On the other hand, they (the firm) also improve their customer offering in accordance with their purpose. (Building your business on purpose)
In a nutshell, the value created in both directions (customer and supplier) allows the firm to expand the total value created hence gain higher value for itself.
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