Ride The Value Wave: Turn Your Business into a Value Engine
Think About ‘Horizontal’ Value Waves Instead of ‘Vertical’ Strategies
Would you use an ancient stone battle axe to build a modern house? Hardly likely. Yet, we still employ strategic tools created many years ago for managing armies, not businesses.
But the Six Value Waves concept helps solve this problem.
To wake up a dinosaur
Electronic impulses travel through your neural system at a speed of 8 meters (27 feet) per second. When you accidentally touch a hot oven, your body reacts in a fraction of a second.
But diplodocuses, long-necked herbivorous dinosaurs, were 50 meters (160 feet) long. If you bit one by the tail, it would take the neural signal 12 long seconds to go to its brain and back. So, predators had enough time to make a getaway with a chunk of Diplodocus meat in their teeth.
No wonder these giant creatures were extinct.
I always recall this story when dealing with some large corporations as a customer. They function like large armies of Napoleon Bonaparte’s time – or like Diplodocuses.
Their management is too top-down. A boss always knows better.
All the decision-making centers are located in the headquarters (where bosses spend their days).
The ratio of the number of decision-makers to the total number of employees there is as small as the ratio of the mass of a Diplodocus’s tiny brain to its enormous body.
Their primary information channels are vertical.
And as information travels slowly through big bodies, these organizations are cumbersome.
Diplodocuses’ life tasks were simple – eat enough, survive, reproduce.
The past armies’ goals were also relatively straightforward – to defeat their enemies. And they could afford to treat the soldiers, suppliers, and civilians merely as resources.
However, a modern business faces much more complex and challenging issues.
Yet some strategies still look like Alexander the Great’s plans to conquer Persia.
Strategy in the modern world
Thirty years ago, strategic documents resembled great battle plans.
A company had a Great Goal, a BHAG, a North Star. And it always was about shareholder value.
The North Star cascaded down to the objectives and projects.
The entire functioning of these vertically-organized businesses revolved around the North Star.
All obstacles and constraints, both external and internal, had to be decisively eliminated.
They called this elimination a ‘strategic plan.’
I visualized the approach in the picture.
But modern companies don’t have the luxury of such simplistic thinking.
Citizens of a country can’t choose the army that conquers it. But customers choose whose products they will buy.
A company must consider the interests of six major stakeholder groups (read more below), not only shareholders.
The top-down management system has its advantages – subordinates ask fewer questions. But in a highly competitive environment, the quality of ‘horizontal’ processes is more important than strict adherence to hierarchy.
The last point is crucial.
A company should create value for customers and other stakeholders. It sounds like a cliché.
Yet, if you ask a group of top executives to visualize the value chains in their business, they’ll fail. Chances are, they have never looked at the issue from this angle.
And although Michael Porter introduced his value chain concept almost 40 years ago, in 1985, you won’t find the word ‘processes’ in most strategic books.
The Value Waves Management fixes the problem.
Value Waves Management
We discussed The Six Value Waves concept previously. Just to recap:
Every company, whether it is small or giant, must deliver value for six groups of stakeholders:
Customers
Employees
Shareholders
Business partners
Regulators or watchdogs
Society
The business does it by balancing six respective streams of value – Value Waves. When a wave or two prevails over others, the business is in trouble.
Many companies worship their shareholders. They favor those who take money out of the business over those who bring it in – customers.
Behemoths like big banks often face another problem. Since shareholders are too far above and customers are too far away, executives seize power. They do what they like. The wave’ company-employees’ (or ‘company-executives’) gathers oceanic power.
We need Value Waves Maps to strike a balance.
Value Waves Mapping – Pro Tips
First, you need to have a list of key stakeholders in every group.
Second, you should identify their needs. Important note: don’t think FOR stakeholders, ask them. We’ll discuss it in some future articles (by the way, don’t forget to subscribe if you haven’t yet).
What needs do stakeholders have?
What value does the business create for each of them?
How can we measure this stakeholder value?
In the third phase, build a macro-level map of your company’s major business processes.
It may look like the one in the picture. Since it’s hard to see all the details in the picture, you can use a free template at the link (no registration or email required).
You may use your own templates if you like. Our main task is to list your company’s core business processes (Value Waves), identifying how and to what extent each affects the satisfaction of all six stakeholder groups.
So, simply put, we need to address two key questions:
What are the most critical processes in our business?
How do they influence stakeholder satisfaction?
Please note that we do not prioritize processes based on:
their cost
their complexity
our personal view of their importance.
Instead, we set priorities according to their impact on the satisfaction of key stakeholders.
Some important notes about your Value Waves Map:
I recommend that you don’t go into too much detail right away. Begin with a higher-level overview. You’ll detail it later.
I recommend dividing all the processes (Value Waves) into three groups.
The first group consists of processes directly influencing stakeholder satisfaction, typically core manufacturing processes. These processes can be easily visualized as a chain, with arrows indicating the execution sequence.
The second group includes processes that indirectly impact stakeholder satisfaction, such as developing the company’s IT infrastructure.
The third group covers management and development processes within the company.
Remember, this format is not set in stone. The crucial point is to ensure that no critical processes are overlooked.
Discuss this with your team. Identify the processes that critically affect stakeholder satisfaction. As a result, you may create a table of the following kind:
You can use this template or create your own – it’s up to you. Some teams use tables similar to CJM (Customer Journey Maps). We’ll discuss the alternative approaches later.
But at the end of the day, we must find the answers to two questions. Let me repeat them:
What are the most critical processes in our business?
How do they influence stakeholder satisfaction?
Why do we need it?
We need it because a company’s purpose is to build a robust and resilient business that can reach various goals in different circumstances.
Managing and balancing the six Value Waves makes a company strong.
And a strategy is a concept aimed at maximizing the value the business creates for an increasing number of stakeholders across all six groups.
To be continued. Stay tuned!
Read also: Winning Without Playing: Taylor Swift, Tesla Car and Market Competition.
I’m a big fan of architectures. You have to know how things flow through the company, how each person and process contributes, where the bottlenecks are, etc. to have any understanding of what’s going on.