Use These Proven Value Creation Methods to Succeed Faster
Curt Carlson, Ph.D.
Professor of Practice, Northeastern University and Distinguished Executive in Residence, WPI
Value creation is a complex activity: win by using the appropriate methods and processes
Introduction
Complicated:??Have you ever assembled a thousand-piece, all-white picture puzzle???The puzzle is so complicated, at the start you likely used every available clue. Not surprisingly, most look for edge pieces with straight sides and then build toward the middle. A white picture puzzle is a complicated task. It might take months to figure it out, but if you work hard and long enough, there is a solution.??
Complex:?Value creation is a complex task, not just a complicated one.??If it is a significant innovation, success is seldom straightforward or guaranteed.??At the start, there are known-knowns, known-unknows, unknown knowns, and unknown unknowns. Eventually, they must be understood and integrated into a compelling and defensable new offering with a viable business model. While developing the proposed offering, endless things will likely change or go wrong. For example, serious competition arises, an investor backs out, or the team dissolves over a personality conflict.??
Nevertheless, like with the all-white puzzle, you want to first focus on the few items that will rapidly move you forward. You want to simplify the inherent complexity of the challenge by focusing on the few critical issues.??Adding more complexity at the start is profoundly counterproductive.??
In previous posts, I described aspects of complexity analysis along with concepts to help value creators move forward more rapidly, such as a family of reframing methods [1,2]. Because value creation is inherently a complex learning, improving, and knowledge synthesis activity for solving real-world problems, it must be based on "active learning” principles.??These principles are from the education sciences and complement those from complexity theory by describing how we best learn and improve [3].???
A Potential Error:??Here I describe a family of useful value creation practices.??Developing an innovation begins as a complex task and then becomes progressively more complicated as the product is built and then delivered to the marketplace.??Of course, value creation never stops.??Complex and complicated problem-solving activities require different tools and methods.??However, if these tools and methods are not used appropriately, they can slow, or even destroy the value creation process.?
NABC before BMC
Business Model Canvas:?A popular framework for value creation is the Business Model Canvas (BMC). Teams use it in various ways. One formulation consists of thirty-five questions about a company’s various business activities plus a second Value Proposition Canvas (VPC), which adds seven more questions about the customer [4].???In use, a team places sticky notes on selected areas of the BMC and VPC to help identify issues and develop new solutions across the enterprise. Although the BMC and associated VPC frameworks contain forty-two questions, they surprisingly do not ask why a proposed new offering might be better than the competition and other alternatives. Differentiating an offering from the competition is a fundamental value creation practice.
The BMC and frameworks like it are checklists for helping advance solutions to?complicated?problems.??They help ensure that all items have been addressed, like when installing a new security system. The BMC lists many of the areas across the enterprise where different forms of innovation are possible, such as in manufacturing, service, or distribution channels. When used for these purposes, it is valuable. However, checklists are beneficial only for solving complicated problems, not complex ones like value creation.??
A more useful value creation tool is DARPA’s “Heilmeier Catechism,” with eleven significant questions [5].??But neither the BMC nor the Heilmeier Catechism is easily remembered, which is a significant barrier to transforming an enterprise’s value creation mindset and culture.? If you ask a dozen professionals, who say they use Heilmeier's questions, to write them down on a sticky note and then post them on a wall, you will inevitability see a dozen different answers.
NABC Action Plans:?Success at value creation requires a different approach. At the start of the value creation process, the challenge is to develop a complete and quantitative value proposition.??Four critical questions must be answered, called an NABC value proposition. NABC stands for the significant unmet customer and market Need, the Approach for the offering and its business model, the Benefits/costs (i.e., value) to the customers and other stakeholders, and the Competition and all other alternatives [6].??
The goal is to identify an important unmet customer and market need and then satisfy it with a unique and defensible Approach for the offering and business model, which has superior Benefits per costs compared to the Competition and all other alternatives.??We create NABC Action Plans by having an opening Hook to state the proposition’s purpose and to gain the audience’s interest and then an Action at the end to describe next steps [7].
NABC is a Complex System:?The four NABC questions are essential. Eliminate one question, and it is impossible to know if the initiative is going in the right direction.??They also interact. If one changes, the other three likely change too.??Thus, the four NABC questions represent a complex adaptive system (CAS) [8].??The power of this structure is that it contains the absolute minimum number of value creation variables.? Since, the search space grows exponentially with the number of variables, we must start with the most basic ones.
Since all innovations require satisfying multiple stakeholders, value propositions must also be developed for them, starting with the end-users or customers, investors, and employees.??But note, value creation always starts by identifying and working to satisfy an unmet customer need.?
Big As:?Unless a team is addressing a trivial problem, addressing the NABC questions is a challenging task. The most common failure is for teams to jump immediately from a problem to a proposed offering. We call these "Big-As," because they are all about the person's approach [9].??But a problem seldom indicates the actual need to be addressed, and all subsequent work is wasted if the need is wrong. The Big-A is, by far, the number one mistake we see.?
Reframing:??As shown in the figure, the original Big-A must be reframed.??To uncover the actual need and solution, the value proposition is looked at from multiple perspectives, including the end-user, investors, employees, and other stakeholders.??Each reframing must then be tested, lessons learned and recorded, and the NABC improved.??This process continues until a complete, quantitative NABC Action Plan is created [10].?
Identifying the few key insights that define the actual unmet customer need along with a compelling, defensible offering and business model can take many hundreds of iterations.??After working with over a thousand teams and with many in top 50 companies, none has been able, at first, to answer the NABC questions satisfactorily.? That one observation indicates the magnitude of improvement possible in value creation and innovation.
These realities indicate why long checklists are potentially problematic when used as value creation frameworks. These factors must be considered:
Our experience with companies that use the BMC is that they have sometimes taken a step backward. It can seem like an attractive framework because it gets provides an overall business perspective.??But it also encourages the idea that there is an easy path forward.??There is not. Frameworks like the BMC are only useful after you have identified the unmet need and a viable solution. Jumping to the end state immediately is always a mistake. In addition, it has added complexity to the value creation process, which makes the challenge harder.??Teams can end up even more confused about what to do and how to progress.
Large Company Example:?The CTO of a large global company called me and said something was going wrong with their R&D initiatives. They had just spent millions of dollars teaching their staff a methodology based on the BMC. He wanted to hold one of our workshop to figure out what was going on. I suggested that might cause a problem.??The company had spent all that money and time and the staff might be annoyed at introducing still other ideas.??But he insisted.??So, I finally agreed but only if he brought together the company's top six initiatives. Little would be proved unless we engaged the company’s top teams working on the company’s most significant initiatives. He agreed, and we held the workshop.
During the two-day workshop, we discovered that the employees were superb professionals, and most had been working on their projects with adequate resources for months to years. This was not a surprise.??We rarely find that employees or resources are limiting a company’s value creation potential.??The issue is always the inefficient way they are working.??
My partner Len Polizzotto and I start our Innovation for Impact workshops by asking teams to give a three-minute NABC value proposition for their projects. Given the quality of the teams, the project’s significance, and the length of time they had worked on them, this might seem easy.??But, as is almost always the case, none of the presentations were complete, compelling, or quantitative. Most were Big-As.??As a result, it was impossible to understand at first the significance and viability of the initiatives presented.
In our two-day workshops, we progressively add other value creation concepts that build to a complete action plan for going forward [11].??In every other case, after the two days, teams fundamentally improve their value propositions and their paths forward.??But not this time.?
At the end of the workshop’s second day, the six teams were still struggling to define their directions.??To help, for the first time we stayed over a third day.??When we left, all six projects had made significant pivots, not just 10 degrees but often 90 degrees or more.??When I was CEO of SRI International, it is likely several of these projects would have been redirected or gone away.
We concluded that the use of the BMC had added confusion that was obscuring the main issues to be addressed. The disturbing part in cases like this is not the money wasted, but the loss of human potential from using practices that get in the way of success.?
MVEs before MVPs
Minimum Viable Product:??A second popular concept is the Minimum Viable Product (MVP). An MVP is often needed – it allows uncovering customer insights by building a bare-bones but functional version of the offering for use by early adopters [12]. After all, intense customer iteration and acceptance is ultimately the only way to evaluate an offering. Of course, the MVP must be a good representation of the offering's features or the results may be misleading.?
HDTV Prototype:?The MVP is often confused with building a prototype. The purpose of a prototype is to prove a system's functionality. For example, we made a prototype to compete for establishing the US HDTV standard. It consisted of multiple large racks of hand-wired circuits, as shown below. Clearly, it was never going into anyone's home as an MVP.??
Of course, we had shown HDTV images to audiences for years, so we knew the image quality was going to be spectacular. The HDTV prototype’s purpose was different.??It was to participate in the FCC’s competition to decide, among other prominent TV companies, which HDTV system performed the best and would become the U.S. standard. We won a significant part of that competition, and our team received an Emmy with others for setting the U.S. HDTV broadcast standard.
Autonomous Motorbike Example:?Another fascinating SRI project was to develop an autonomous driving motorbike for Yamaha called MotoBot [13].??You might ask, who wants an autonomous motorbike? In this case the object was not to build an MVP but rather a prototype.??Yamaha’s goal was to develop AI and stabilization technologies to dramatically improve bike safety.??Aspects of the technology developed were eventually incorporated into MVP bikes for customer feedback and eventually the product.? The intriguing idea of an autonomous motorbike has also helped Yamaha gain a large amount of positive publicity.
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Minimum Viable Experiments:??In our workshops with leading companies, almost every team has initially failed to identify the actual unmet customer need to be addressed. Nevertheless, they all want to build their idea immediately.??It is, after all, what engineers want to do – build things.??They are sure everyone will love the new idea once they see it.??Because the MVP concept is easy to understand and supports people’s natural desire to immediately start building, it often results in waste.
The alternative approach is the Minimum Viable Experiment (MVE). At the start of significant innovations, usually only one to two key issues establish the project's viability or have major risks. It is a mistake to scale up the project, build a prototype, and then an MVP until those key insights are identified and the risks mitigated [14].??
For example, consider the key insight for addressing the unmet market need for satellite communications [15]. The high cost limiting progress was, in significant part, due to burning up the satellite launch rockets. They had to be reused if the cost equation was to be improved.??That was the key insight for the unmet need -- reuse. The key insight for the solution was also clear.??Elon Musk had to establish that the emerging stabilization technologies allowed an object as big as a 400-foot building to land on its tail. He had to establish that concept before he started building rockets, which he did.??Musk always emphasizes the importance of focusing on the fundamentals. It is interesting to note that Segway had earlier demonstrated the possibility of a similar form of stabilization at a dramatically reduced scale [16].??
Design Innovation:??When conducting product design, MVEs are a principal method for rapidly learning and improving [17]. The non-quantitative value from a product’s look and feel is often best learned by making a drawing, mockup, or simulation. A mockup allows potential customers to look at the product and experience selected features. The example shown below was created using a low-cost 3-D printer.??That technology enables rapid, low-cost customer and partner iteration about a product’s design and structure.??
Mitigate Risk Fast:??Risks that threaten the success of innovation come in many forms, including competition, marketing, technology, suppliers, manufacturing, staffing, timing, and the business model. Addressing an initiative’s significant risks is often the most challenging task a team must conduct.??
An issue we often see is companies overstaffing teams.??Overstaffing and managing the complexity of a large team encourages employees to build things – to show progress.??But building parts of a product before addressing their significant risks is incorrect.??And, after assembling a large team, it is often difficult to change direction and add and subtract staff as new knowledge is learned.
Addressing the critical risks often requires a small, fast-moving team, so the cost is modest. The chart summarizes two paths; “mitigate risk fast” and “build fast.” A company that mitigates risk fast will inevitably be much better at using its investment resources than one that builds fast, because in every portfolio of proposed innovations, many fail.??
The proper value creation sequence is to:
Buoy Example:?The image below is from SRI International when I was CEO.??We developed a technology called “electroactive-polymer artificial muscle” (EPAM).??If you pushed or pulled on a block of EPAM, it created electrical power.??
A Japanese investor asked if the EPAM material could be used to build an ocean buoy driven by wave motion. When I heard about the project, I was concerned about the system’s survival in the harsh ocean environment with extreme heat, cold, and corrosive salt.??I asked the team to provide some evidence we could build it successfully.??
A week later, one of our employees produced a realistic video simulation of a red buoy bouncing on the ocean, as shown in the picture below (i.e., the MVE) and in this video [19].??As the buoy bounced along, one of the four cylinders on the sides of the buoy became transparent, showing a long block of EPAM with a weight at one end.??As the buoy went up and down so did the weight attached to the EPAM, showing how power would be produced.??
This quick, few thousand-dollar simulation proved our EPAN buoy design had little risk – it was an elegantly simple design, and all the moving parts were completely sealed.??It also allowed us to develop additional patent disclosures and the first draft of the project plan.??That was used to create the prototype shown in the image and finally the eventual product.?
A Common Company Mistake:??In our experience, few follow the eliminate risk fast path. When I worked for RCA, we rarely did.??It ultimately resulted in huge financial losses and the company being bought by GE and broken apart.
We once worked with a large company committed to the build fast MVP approach.??They had just canceled a 120-person, $40 million project, which was stopped because of an insolvable problem.??They told us the MVE approach would have prevented that failure.??We estimate that by just following the mitigate risk fast approach using MVEs, many companies would effectively double their R&D budgets.??
Key Performance Indicators:??Managers measure performance using Key Performance Indicators (KPIs) [20].??As with the BMC and MVP, KPIs help drive performance when used correctly.??They mostly apply to complicated tasks, like building a new integrated circuit plant or a web-hosting facility.??That is, they apply to most of the ongoing operational activities in a company.
Measuring the performance of significant value creation activities is harder. It is confounded because, as the project progresses, it is constantly modified, and success is not guaranteed. Ultimately only success in the market matters.
With large, $10 to $100 million, U.S. government innovation programs, measuring progress is always an issue.??Government agencies count the noticeable artifacts, such as published papers and patents.??But these only matter if they result in new significant innovations, which can be five-to-ten years after the research begins.??
In practice, publications and patents are very poor indicators of innovative performance.??For example, it is estimated that less than 5% of patents are commercialized [21].??Given these issues, what KPIs can help management understand the likelihood of commercialization during that five-to-ten-year value creation gap???
Measuring Value Creation Progress:?SRI International is an enterprise devoted to creating new innovations.??As CEO, my board asked me this question every meeting; “What is the probability of success and how do you measure it?”??That is, what are the KPI’s???As expected we had KPI’s for basic business measures like backlog, bookings, and revenue.??But when creating potential major innovations, success is often years away.??The only measurable artifacts that can be measured are from the value creation process itself.?
Our “KPIs” for value creation included those described in this post.??For example, were the teams working on significant opportunities???That is, those that impact a large and growing group of people???Were they making progress toward creating a compelling, quantitative NABC Action plan???Were they systematically adding the additional artifacts listed here [22]???Had they assembled a small, three-to-five-member team to get started, with each teammate adding essential skills???Were they presenting regularly at Value Creation Forums??
The operation management professionals on my board were never fully satisfied with my answer.??It was certainly not like a KPI that states, “The IT department will finish the new Internet service in three months.”??Nevertheless, we always had a portfolio of a dozen new ventures under development, and I was confident it would pay off if our teams adhered to the practices mentioned.??During my tenure as CEO we grew SRI by 3.5 times and consistently created significant innovations, like HDTV, Verb Surgical, and Siri.
Conclusions
Value creation is a complex activity, not a complicated one.???It involves many elements that interact and are then combined.??Success requires rapid learning and adaptation as the solution emerges. But, because value creation is a complex adaptive system (CAS) activity, the most critical issues must be addressed first at every stage.?
When used properly, a family of frameworks, heuristics, processes, and tools help teams move forward more rapidly.??Often teams misapply helpful tools by confusing those that are appropriate for complicated activities as ones for complex ones, like value creation.
The most effective starting point for all value creation activities is by developing an NABC Action Plan.??It applies to all functions and all professionals in the enterprise. Professionals all have the responsibility to solve the problems of their customers, whether outside or inside.???If there are significant risks, MVEs are used to rapidly mitigate them before building a prototype and, if needed, an MVP.??Finally, the KPIs for value creation are the artifacts of the value creation process itself, such as those described here.
References
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Go here for Coursera:?https://www.coursera.org/learn/valuecreation
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2 年You remember one of the best moments in my life Curtis! Hope you’re doing well!!!