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Value creation
The document discusses the importance of value creation in organizations, emphasizing that it varies across sectors and must align with stakeholder expectations. It presents the lean value creation matrix, which helps organizations identify the type of value they create and for whom, while detailing various growth strategies associated with value creation. The text highlights empirical evidence showing that innovation leads to greater profitability compared to traditional optimization methods.
Value creation
- 1. Value Creation Matrix @joelfariss 00 Value creation isthe function of every organization. While the definition of value, and who you are creating value for, varies across sectors and industries, it is an imperative that must be embraced for anyone who wants to remain relevant to stakeholders and shareholders alike. The fundamental equation for value creation is “who, what, and how,” those these variables will change depending on the type of value being created.
- 2. Value Creation Matrix @joelfariss 01 The Lean ValueCreation Matrix was adapted from the Lean Startup Matrix popularized by Eric Ries. This matrix allows organizations to think about the kind of value they are creating and for who they are creating value. Improvement Innovation New Users Existing Users
- 3. Value Creation Matrix @joelfariss 02 Modern management theorywas born out of the bottom left quadrant during the early 20th century – post war managment theory continued to build on post-industrial process optimization, but has not changed significantly in the recent shift to the knowledge economy. In the last 30 years though, strategic management practice has grown to include new ways of creating value. The value of innovation and creativity has grown as these new practices become more relevant in an ever-changing market landscape. Improvement Innovation New Users Existing Users New Wallet Share Operational Efficiencies New Market Share Brand Excellence
- 4. Value Creation Matrix DiversificationMarket Development Market Penetration Product Development Improvement Innovation New Users Existing Users 03 Ansoff’s Diagram showshow these value creation practices translate to growth strategies. Market penetration is the least risky since it relies on optimizing the existing resources that the organization has. Diversification is most risky since it requires both product and market development, and may be outside of the core competencies of the organization. @joelfariss
- 5. Value Creation Matrix Bottom Line Improvement Innovation Top Line New Users Existing Users 04 While innovationis uncomfortable for organizations, the emprical research shows that the return on innovation far outperforms mere product and process optimization. A recent Boston Consulting Group study showed that innovative companies were six percent more profitable. In the last five years both MIT Sloan and IBM have conducted studies to prove the same maxim – innovative organizations always outperform the competition. @joelfariss
- 6. Value Creation Matrix Blue Ocean Strategy Red Ocean Strategy Improvement Innovation New Users Existing Users 05 When creatingvalue for existing customers, users, or stakeholders, organizations will often be using the same best practices as the competition. When innovating for a new user, you will be freed to spend the most amount of energy of solving a problem. @joelfariss
- 7. SOURCES / CREDITS Noneof this thinking is my own, and is borrowed and adapted from the following thought leaders: Eric Ries, Author of The Lean Startup Michael E. Porter, Harvard Business School Chan Kim, Author of Blue Ocean Strategy Renée Mauborgne, Author of Blue Ocean Strategy Igor Ansoff, father of strategic management Strategyzer.com Special thanks: Jay Chilcote, Enterprise Innovation Strategist @joelfariss