Value Management and Fashions

During the past 20 years, I have supported businesses located across Europe and the USA through the journey of Value Management. These enterprises could be categorised as Start Ups, Stable Businesses and Radical Downsizers, and I would help deliver Value Management in a manner tailored to their lifestage. In the current economic climate, the priority for a business at whatever stage can be argued to be survival. Those more enlightened and confident organisations are considering preparations for growth. Research in October 2009 shows that 15% of UK businesses are looking to increase borrowings as business confidence begins to pick up. Amongst these companies, the balance of borrowing to expand versus borrowing to stay afloat is 2 to 1. The freeze at the banks may be showing signs of initial thawing, nevertheless external capital is still relatively difficult to come by.

The resources is one side of the equation which Value Management is concerned with. On the other is the needs and wants of stakeholders. I would like to share some thoughts with you about how Value Management works in action and what mistakes might be made along the way. I’m going to present to you some of the fads and fashions in Value Management which, by this very description, will only have a short lifespan and won’t lead to sustainable improvement. Finally, I’d also like to present a flavour of best practices I have developed and witnessed over the years in trying to strike the all important balance between needs and resources. I hope to exemplify that Value Management is an ongoing process, about relationships, and not about isolated gains.

The Tools approach to Value Management.
Every time I have been involved with any sort of management tool I have come across common challenges, some of which I have listed below:
Urgent actions and quick fixes are expected.
Solutions are implemented before the problem is recognised.
Low hanging fruit are attacked first.Leadership is delegated.
Impressive paper savings somehow fail to get to the bottom line.
Actions are aimed at waste elimination but are not connected to Customer Value.
Company X could do it, so it must be right.
Actions are focussed in one department.
Failure is punished: success is not shared.
Process improvement is implemented without people buy-in.

Are there any points on this list which you recognise? Clearly you are not alone.

The Techniques approach to Value Management.
My experience of using Techniques is a bit like farming, where the full cycle – preparation, planting, maintenance, harvesting, cash-in – must be employed to gain the desired results. In my recent experience I have come across several instances where a fragmented approach had been taken, and I’d cite the following as typical of these. I was introduced to a company where the improvement techniques were being implemented in what was believed to be the priority departments: the (front line) call centre and production. My first task was to change the focus to the departments responsible for cash in and cash out, as well as a thorough examination of the full Value Chain.

Again, is there anything in here which you recognise?

Businesses rely on customer spending for something they perceive has value. If the cost of provision is lower than the value, then profit normally flows. Put simply like this, Value Management would appear to be a vital consideration for businesses. Here’s my summary of how we can practically use the tenets of Value Management to survive these difficult times; recover our business, and even look to the end of the recession as a growth opportunity.

Borrow from somewhere.
This is possible, but unlikely and it might well be expensive.

Release energy from the balance sheet, mainly focussing on fixed assets and working capital.
A reduction in overall inventory and speeding up the number of inventory turns would be practical steps to release working capital. Similarly, simplifying the Value Chain and freeing up bottle necks gives a good place to start. For service companies, cash could be released by carefully managing receivables, or selling assets.

Deploy the best talents of the employees on Value creation.
I have found many examples of the best people being used to simply check the work of others which is a complete waste of their talent, demotivating, and a serious blockage to real improvement. Our best staff are always our best way forward but they are often inappropriately assigned.

Communicate the company direction to everyone.
I have seen so many poor examples of this key item. As a minimum, a good communication system needs clear feedback and ownership by people who can make a difference. Leadership is not a one way “command” process.

Focus on profitable customers, and reduce the range of suppliers.
I have found many cases of loss making customers being subsidised by others for no real reason. Similarly, too many cases where inter company or inter department so-called sales confuse the real profitability. In one extreme case the sales team were paid large bonuses for increasing sales when in fact real sales had dropped, but this was hidden by inter company inventory movements. Reducing the variation in suppliers will often assist freeing up working capital as the amount of inventory needed is reduced.

Value Management is an on-going mission. As listed above, fashionable tools or techniques are used for short term gain. They are not sustainable. When all the elements of the Value Chain are linked and the improvement benefits are shared, sustainability can be achieved. This means that relationship development is critical to success, especially the relationships to the cash generators.

I hope that these personal experiences and pointers are of use to you. The road through survival, stability and on to recovery and growth is a challenging one. If I can give any further assistance please contact me, through the comments, LinkedIn or the website.

Anthony Abbott

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