3 Keys to Success: Value Quality Innovation

Value Attracts Customers!

Definition - (val-yü) – Worth; A fair amount of goods or services considered to be a suitable equivalent for a fair price; Usefulness or importance to the Customer.

In the late 1940’s, Larry Miles, a clever young GE Engineer was trying to reduce costs in his new role in the Purchasing department.  He determined that Value is a ratio of Benefits and Costs. 

• Value=F/C
• F relates to the Useful/Quantitative Functions the Product (or Service)
• C relates to the Associated Costs.

The ultimate goal is to maximize Value for your targeted Customers. The most common approach for improving Value is focused on reducing the denominator, Costs. Although Cost Reduction is a necessity in today’s competitive landscape, it is not always the best approach because of the possible negative side effects, including:

• Degraded Functional performance.
• Commoditization of the Offerings. (Commodity – A situation where the only differentiator between competitive offerings is cost.)
• Decreased Margins, the worst side effect, because we are competing on Price.

An alternative and often overlooked approach to Value Improvement involves working on the Numerator. Value improves when we can improve the numerator by:

• Increasing the number of Functions,
• Increase the reliability of the Functions, or
• Improving one of the many parameters associated with this Function (i.e. capability, consistency, speed, convenience, etc.)

Doing this may lead to a USP (Unique Selling Proposition).

• A USP is an idea that offers a compelling reason why your product/service is uniquely qualified to solve a problem or fill a need (present or latent) for your Customer.

USP’s can increase Market Share, demand higher Profit Margins, and Improve the Value of your offerings.

Check out our Systematic Innovation Workshop and Value Engineering Workshops to find out more strategies to improve Value.