What we’re thinking
Value, at first glance, seems straightforward. But give it more thought, and it quickly becomes a complex, elusive concept.
Our traditional model of value – value-in-exchange – boils it down to the simple idea of how much someone is willing to pay. This model, wildly successful since before the time of Adam Smith’s Wealth of Nations, has blind spots that we are now hitting as we hunt for growth.
The alternative – value-in-use – sees propositions only creating value when they are actually used. This model gives rise to service-dominant logics, which addressed many of the previous model’s blind spots. Yet, these logics fall short in exposing the levers guiding us to successful innovation.
As we evolve from value-in-use to value-through-progress – where value is seen as a set of progress comparisons against expectations – we unlock those innovation levers while still reaping the benefits of value-in-use. However, this comes at the cost of added complexity.
Introducing Value models
Let’s explore the concept of value – a fundamental driver shaping how we perceive the world. Our beliefs about who creates value, how, and when, have far-reaching implications for how we approach, and succeed with, innovation.
On the surface, I’m sure you often label things as valuable in your everyday lives. But if pressed to define what value truly means, most of us would struggle to offer a clear, general definition. The more we try to pin it down, the more complex and elusive the concept becomes.
Value is, indeed, “a concept that is difficult to define,” as noted by Grönroos in his 2008 work, ”Service logic revisited: who creates value? And who co-creates?”. Anderson and Narus echo this sentiment, pointing out that “remarkably few suppliers in business markets are able to answer” questions like “How do you define value? Can you measure it?” (”Business Marketing: Understand what customers value”, 1998). Meanwhile, Karababa and Kjeldgaard highlight the existence of multiple value concepts, each lacking a definitive basis (“Value in Marketing: Toward Sociocultural Perspectives”).
If I were to guess your current view of value, I imagine it aligns with what I’ll call the traditional perspective – also known as value-in-exchange. This view equates value with the maximum amount of cash one is willing to pay for something. It’s a widely accepted perspective, rooted in centuries of economic thought. We can trace its formal documentation back to Adam Smith’s famous Wealth of Nations in 1776, but it is seen even before that. It’s what is taught in economics and business classes around the world. However, its very nature of focussing on a point of exchange gives rise to several growth blind spots.
When we move beyond – or don’t need to consider – value as monetary worth, we might begin to associate value with usefulness. As Grönroos observes:
It is of course only logical to assume that the value really emerges for customers when goods and services do something for them. Before this happens, only potential value exists.
Grönroos (2004) “Adopting a service logic for marketing”
Now you’re moving away from a goods-dominant logic observed from manufacturing and based on value exchange, toward a service-forward ones. One that shows promise in minimising value-in-exchange blind spots and removes growth blocking, and ultimately often limited benefit, discussions on goods vs services. Although this perspective is gaining traction, it’s still relatively niche, given the world’s obsession with goods-dominant logic and maximising the exchange of value for cash.
Service-dominant logics are the way forward. Yet we need to push for one more evolution in order to reveal the levers necessary to drive systematic innovation. Enriching service-forward logics with the concept and framework of progress does just that. It also reveals that we should focus on improving progress, which is much more actionable and measurable than value, from which increases in value naturally follow.
We’ll highlight these three models of value in this article, linking to deeper exploration:
- value-in-exchange – our traditional model and aligning with goods-dominant logic
- value-in-use – from service-forwards logics
- value-through-progress – the basis of the progress economy
Each model offers solutions to the challenges of its predecessor. At the end of this article, I’ll compare each model against a range of properyies so you can quickly see the differences.
Let’s start with value-in-exchange.
Exchanging value (value-in-exchange)
You’ll likely recognise the traditional value-in-exchange model:
value-in-exchange
Our traditional model which has historically been wildly successful.
- It revolves around manufacturers successively embedding value into products through the supply chain and exchanging them for other valuable items, typically cash (it’s the basis of goods-dominant logic).
- We try and force services into the same model, though find them poor relatives, they are: intangible, inconsistent, require involvement, can’t create inventories and production/consumption are inseparable.
- Our innovation mentality is about creating/adding value. Increasing the customers incentive to buy. The intention is to result in either increased price per exchange or increased number of exchanges.
Historically, this model has been wildly successful. It’s the one you most likely perceive that you observe “in action”. It’s also the one taught in economics classes around the world, and the one newly minted MBAs and management consultants will try and get you to focus on. This is how we’re taught to see the world.
However, the model has inherent blind spots. These appear before, after, and across the point of exchange, which, not least, blind us to growth opportunities and encourage a non-circular economy mindset. It also inserts a goods vs service mentality, favouring goods, which challenges the known “shift” to a service economy and further blinds our solution space.
It’s behind the shocking statistic from McKinsey that 94% of executives are unhappy with innovation activities (see “our innovation problem”).
Whilst this model has been wildly successful in the past, it is now hindering future growth.
Using propositions (value-in-use)
With the value-in-use model, we address most of the value-in-exchange blindspots. It starts with Grönroos’ observation we saw eralier that value is only created when value propositions are used (ie it is not embedded and exchanged by manufacturers). We lose the point of ”value” exchange allowing us to see the time logic of exchange as continuous and that exchange becomes one of direct or indirect service exchange.
- The model removes the problematic point of exchange, helping us minimise the related blind spots.
- Everything is a service: the application of skills and knowledge for the benefit of others, or oneself (as in service-forward logics, such as service-logic and service-dominant logic)
- Additionally we’ll find goods are distribution mechanisms for service. Removing the unhelpful divisions between goods and services.
- Value, in this model, measures the increase in wellbeing of the service system, which includes the beneficiary.
- Now we innovate to make propositions more useful and increase system wellbeing.
value-in-use
Minimising the blind spots of value-in-exchange by removing the deep focus on a point of exchange.
Despite these advances, defining and understanding value (or usefulness/wellbeing) in actionable terms remains a challenge – what does increasing service-system wellbeing really mean? We also lose the definition of price – which previously was a measure of value – and that certainly still exists in the real world.
Making progress (value-through-progress)
When we deeply think about things, it turns out that making progress is what we’re trying to make in life. We “value” achieving that progress as well as entities, and their propositions, that can help us achieve that progress if we are lacking resource to do so ourselves (time, knowledge, skills, physical attributes, eg strength, etc). In fact value is a trailing metric of progress made and a prediction of potential progress (no wonder value is hard to define normally).
Progress, when seen as a verb, noun, state, and state transition is much more actionable and measurable than value. And we should focus on achieving and improving progress; value comes through making progress. Welcome to the value-through-progress model.
value-through-progress
Defining value in an actionable way – or more correctly, realising value emerges from making progress.
- We build upon the value-in-use model, inheriting its advantages over value-in-exchange.
- Our focus shifts to understanding progress – moving to a more desirable state. What is sought? Where are we starting from? Where are others offering to help us reach?
- “Value” naturally emerges as a trailing metric of progress reached (towards that more desired state) as well as a prediction of future progress (progress potential).
- Value is the outcome of a set of progress comparisons balanced against six progress hurdles.
- Innovation becomes the actionable process of finding and executing some combination of
- making better functional and non-functional progress within a defined context progress towards an individual seeker’s progress sought from their progress origin
- reducing one or more of the six hurdles to progress
- accelerating how/when seekers recognise value.
I firmly believe that the value-through-progress model is the future of fostering innovation and driving future growth – hence the concept of the progress economy.
Though there is one more aspect of value in the progress economy to uncover – value emergence vs value recognition.
Recognising emerged value
How much value is there in reaching c c 80km today of a 100km journey? Well, value emerges as progress is made, so s ome value has emerged. But is that value meaningful to the seeker? That depends.
To a seeker that can rest overnight and continue the final 20km tomorrow, there is meaningful value. For a seeker that needed to arrive at the 100km point by a set time today, there is no meaningful value; the attempt has been a waste of resources (at least time). In the progress economy:
- Value emerges as progress is made
- But it needs to be recognised by a seeker for it to be meaningful to them
- Value recognition is a process akin to revenue recognition used in organisations
- Emergence and recognition do not have to happen on the same timeframes; they often do not
- Another aspect of innovation emerges: helping change the seekers value recognition timeframes.
value recognition
Value needs recognising – akin to revenue recognition – for it to be meaningful
Recognising emerged value
Comparing the models
So how do these models compare? We can take various attributes, such as how value is defined, measured, created and destroyed, and which actor and resource focus, as well as how they impact innovation and the challenges the model had:
| value | -in-exchange | -in-use | -through-progress |
|---|---|---|---|
| defined as… | …most a customer will pay | …increase in beneficiary well-being | * …potential to reach seeker’s progress sought from their current progress origin * …how close seeker gets to their progress sought from their current progress origin (note that progress states comprise: functional, non-functional, and contextual elements) |
| measured through | * price | * increase in (service system) well-being | a set of progress comparisons to expectations that vary per phase (before, during, and after), for example: * progress potential vs progress offered * progress reached vs progress offered * progress offered vs progress sought as well as heights of six progress hurdles |
| determined by | * firm * (can argue subsequently by market judgement of price asked) | * beneficiary | * value is determined by the progress seeker * in some cases the progress helper may make their own progress comparisons (ie when creating/updating a proposition; or with a specific seeker when determining if making resources available will lead to a successful service exchange (direct or indirect)) |
| created by | * firm through embedding it in products | * co-created by all actors including the beneficiary during the use of value proposition | * emerges as seeker makes progress – on their own or with a progress proposition – progress-making activities may be driven by seeker, helper, or a combination * emerged value needs to be recognised by progress seeker – a process akin to revenue recognition – in order to be meaningful to them |
| destroyed by | * end customer after exchange made | * Potentially by actors in-use * often mis-represented as co-destruction to align with co-creation position | * one or more involved actor hindering progress being made |
| resource focus | * operand (those that need acting upon for value to be created, typically goods) | * operant (those that act upon other resources resulting in value creation) * (goods are seen as mechanisms that freeze service for temporal/location distribution) | * operant * (goods distribute service) |
| actor focus | * firm | * beneficiary * a proposition sits on a continuum between enabling/relieving propositions | * progress seeker drives seeking progress * seeker drives progress attempt through progress-making activities unless they lack resource * helper provides supplementary resources including proposed progress-making activities * a proposition sits on a continuum between enabling/relieving propositions, located based on who (seeker or helper) performs majority of progress-making activities |
| innovation aims to… | * get higher price in exchange by embedding more value * or get more exchanges through lowering price | * improve well-being (beneficiary and/or service system) | * improve progress through some combination of: – improving how to make today’s progress – improving progress potential closer to individual seeker’s progress sought – reducing one or more of 6 progress hurdles – improving value recognition without impacting survivability of progress helper(s) |
| challenges | * has a number of blindspots * provides no obvious framework for innovation | * provides no obvious framework for innovation * price becomes undefined * (addresses the blindspots of value-in-exchange) | * gives a complex view of value * (however that complexity provides a framework for innovation) * (inherits how value-in-use addresses value-in-exchange’s blindspots) |
So, are you ready to explore the fascinating world of value and progress? I suggest starting with the traditional view – value-in-exchange – and see why it has been so successful but why it ultimately is now hindering innovation and growth.
Then move on to value-in-use to see how that addresses the value-in-exchange blind spots yet does not give us the necessary levers to drive innovation and growth. Before delving into our progress economy’s value-in-progress model to see how that unlocks growth and systematic innovation.
Let’s progress together through discussion…