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Businesses meet their goals because they have a good business model supported by good strategies (or good strategies supported by a good business model), and - this is important - businesses that thrive make them work. And the way they make them work is to make sure their value always has the right qualities needed for the markets they want.
Unfortunately, making business models and strategies work is complex. Lots of different resources and activities must be coordinated to take company value and develop it into market solutions. Plus, there's the constant assault on the business from change; change in technology, markets, skills, and customer requirements, among other things. The effect: "Good" and "right" are constantly being re-defined. And that brings up a problem: How will companies keep business models and strategies working?
By periodically asking and answering questions about the most volatile part of the "thriving" equation, value. Business models and strategies do change, but not as quickly as the value needed to make them work. Plus, customers don't buy business models and strategies; they buy and use the company's value that's been formed into solutions.
Since value is so important, business needs a measure, and a process to get it, that explains its ability to identify new or improved value that customer's need - enhance the value proposition - and its ability to create and deliver the value that satisfies those needs - execution (yes, execution is part of the company's value). And, because it's about value, the answers to the questions that get the measure's rating should also help predict the business' future performance.
The Competitive Value Index (CVI) is that measure!
It's a measure that, essentially, describes the effectiveness of the proposition, the ability to produce it and shows how much each can be improved. This information is useful for making proactive decisions about managing strategies, initiatives, projects, and programs (collectively know as "initiatives" from here on out) and understanding why customers are buying and will continue to buy.
When a company decides to measure its value position, using a framework focused on finding value ideas, it's also deciding to answer questions like the following:
Measuring CVI: The Framework
To get a complete, profound picture of a company's value position, a wide range of components that make up the value proposition and execution abilities are used to measure CVI. Components like customer operations knowledge, the company's skills and resource management capabilities, among others, help define this position. CVI should also reflect the relationship between these components (e.g., good products rely on skills and enough people with them).
Measurements are taken to answer pre-determined questions. Successfully evaluating CVI requires asking critical questions that focus on activities and assets that are related to producing value. Therefore, an accurate CVI depends on picking the right value proposition and execution components and the criteria which questions their ideal performance.
Although they can be unique for each business, the components selected should cover "customer needs" knowledge - like quality goals, geographic considerations, and custom requirements - as well as knowledge about company's operations - like project management skills, innovation process, communication tools, and time management.
CVI is found by rating each component (against ideal performance criteria) in each of the following groups:
The ratings, when multiplied together, define CVI and the relationship between the three groups (see the cube to the right, a visual representation of CVI).
The results of a CVI evaluation will give the business at least two valuable insights to its competitive value position:
By organizing the components into more focused, congruent value sub-groups, the evaluation process can produce even more revealing results. For example, the "Creating Value" group can be broken into skills, processes, and tools sub-groups.
Regardless which components and associated ideal performance questions are selected, they need to be asked frequently enough to create a continual process of competitive value assessment. Periodically asking these questions helps apprise the company of any change in the business' competitive abilities and its customers' needs!
A successful CVI evaluation also depends on the evaluation standards used to get "ratings". Picking more than one can add to the usability of the measure. Therefore, each value component should be assessed with regard to:
Also, it would be interesting to correlate the ratings of effort, criteria compliance, and value contribution with other measures like EPS, ROI, profit margin, and product quality. It seems that the three standards used in assessing for CVI can go a long way to explain the ratings of these other measures, which could help business analysts better understand company performance, past and future.
CVI Process and Benefits
A successful CVI assessment process uses personnel from up and down and across the business (those who best know the functions). Since each participant gets to challenge ratings and observations, these different perspectives and experiences increase their accuracy. The assessment(s) can either be facilitated, consist of surveys, combinations of the two or any other method that allows assessors to collaborate.
CVI programs can be as simple as assessing a business unit or a group of functions within the unit. Or they can be made a little more complex by including customers, suppliers, and partners. Programs can be planned of the beginning of major initiatives, like implementing CRM or ERP systems or forging into new markets. Or they can be conducted during troubled projects to discover possible roadblocks.
Regardless of the program, the five step process outlined below, or a modified version of it, is used to find the company's competitive value position.
In addition to rating the CVI's components, the evaluation process outlined above gets answers to questions like the following:
Another performance predictor for companies is the future prospects of their customers. Any customer's ability to buy depends on their value position. A CVI rating for representative customers in well defined segments - categorized by, e.g., profitability, revenue generation, service costs, or others - can be useful. (Segment definitions will depend on the goals of a CVI program.)
CVI programs for customers provide insight to their needs, their core competencies, why they succeed and why they fail. This is useful information for planning purposes and, more importantly, for identifying value opportunities, such as forming training programs that focus on non-product issues, but are based on factors common to the segments, like HR operations.
A formal CVI evaluation of customers can provide answers to questions such as:
The business' suppliers have a profound affect on its future performance. And, of course, so does the competition. Comparing the business' CVI to theirs can certainly shed some light on future performance, not to mention getting insight to theirs.
How about if CVI shows that the business has an outstanding competitive value position but its financial measures (or other performance metrics) are poor? It could be that there was an error rating CVI. This is an evaluation measure. It requires a fair, thoughtful assessment of the criteria by people with different perspectives in order to provide its intended value. The output will only be as good as the input.
Why CVI is a Good Measure
Besides being easy to understand, the CVI metric has the following characteristics of a good measure:
It Produces Actions: Business models and strategy turn into financial value because of strong value propositions and execution abilities. By performing the process to get CVI, companies will have a clearer picture (the "cube") about which value components need strengthening and what actions are needed to accomplish the task. Good measures highlight "improvements" and action, not just problems.
Focuses on the Organization: CVI is based on the company's value components which connect jobs, people, departments, and other company units; generally speaking, they are not independent of one another. Well planned CVI assessment programs can show all participants in the business a picture of the value system and how they affect the quality of that system.
Sensitive to the Time it takes to Calculate: Some may think that evaluating for the CVI rating will take too much time. But, by using a well-defined framework and committed personnel, getting the CVI rating will be efficient.
Some perspective: How much time (and other resources) is taken to calculate the results of your company's financial position? How much time do managers spend on managing to financial measures, most which communicate what has been done?
But, how much time does the company proactively spend managing, adjusting, and measuring their propositions and execution abilities, two key business model components that define company actions? Remember, the quality of the company's value drives the quality of the financial results.
A value proposition that doesn't work or execution gone awry: Think about how either turns a well thought out initiative into an experience the company or its customers weren't expecting! Think about the implication: The actions taken to "repair" these results take away from the actions that could be applied to other value creating initiatives. Think about how asking questions, like those in this paper, could have made a difference.
This is a paper of questions because measures are the result of answering well thought-out ones. It's a paper about value because value shapes the experiences that compel customers to buy. It's a paper about questioning value because the answers help prepare business for the expected and the unexpected so it can minimize misdirected, unproductive actions.
Predicting a company's future performance requires finding out what's known and unknown about performance. It requires finding out what's known and unknown about customers.
Getting a CVI rating is a good way to find these things out.
Jonathan Narducci uses his 30+ years of experience in business, management, and quality systems to lead international companies in their search to locate and implement the ideas that helps craft the business performance needed for the business results expected. For more information visit www.narduccienterprises.com
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