Innovation: through value-in-exchange lens
Innovation though the value-in-exchange lens may “limit” us to incremental innovation to minimise disrupting flow of exchanges
Comparing Models
[DRAFT] Attributes comparison of value-in-exchange, -in-use, and improving well-being through progress.
Value-in-exchange: stalling growth
Over recent decades, growth has been stalling; a worrying sign!
Value-in-exchange: Powering Growth for Centuries
The recent centuries explosive growth comes from following the value-in-exchange model.
Value-in-Exchange
The value model that built industries and economies – embed, exchange, use-up. But is increasingly holding us back with its blind spots increasingly stalling your innovation and limiting your growth.
Value-in-use
The value model underlying service-dominant logic, which sees value created as products are used and having only potential when not used. We see usage as improving well-being.
The Progress Economy
your new operational model for innovation and growth
Tag: Value
Value as a unit of strategy helped create extraordinary growth during the past few centuries. But growth has slowed and economies have become increasingly service-based, digital, and interconnected, it is worth asking whether value remains the most useful unit for understanding innovation and creating growth
What is Value
Boardrooms, financial institutions, and business schools are filled with discussions about creating value, adding value, exchanging value, and co-creating value. Few concepts have become more central to management thinking
By almost any measure, value has become our predominant unit of strategy.
Yet despite its ubiquity, value remains surprisingly difficult to define, measure, and operationalise. To understand why, we must first examine the dominant ways in which value has been understood.
Value in Exchange
Our prevailing mental model of value remains value-in-exchange. Which is heavily influenced by Adam Smith’s The Wealth of Nations from 1776, if not before. He, along with Karl Marx, and other economist since saw value as something embedded by manufacturers in products, exchanged for other items of value (typically money) and then destroyed or used up by end customers
A car exemplifies this perfectly. The car is more valuable than the component parts, tires, body panels, engine etc; which are more valuable than the raw materials needed to make them. The car manufacturer sells the car to you and I (often through a dealership). And then part of the value is immediately destroyed when driving off the from the dealership, the remaining is slowly used up through wear and tear.
Much of the growth over the last few centuries can be understood by how we have optimised this model. Value becomes, as Golub and Henry say:
A product’s value to customers is, simply, the greatest amount of money they would pay for it.
Golub, H., and Henry, J. (1981) “Market strategy and the price-value model” via “Delivering value to customers”, McKinsey (2000)
This perspective remains deeply embedded in contemporary strategy, pricing, innovation (add more value), finance, and economics.
Value in Use
Yet even Adam Smith recognised another possibility: value-in-use.
Under this model, value is not embedded and exchanged, rather it emerges during use. It is created through the performance of activities and services. It may be co-created by multiple actors, and it may be destroyed.
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”
This perspective shifts attention from products to outcomes. A drill has little value because of the metal and plastic from which it is made. Its value emerges when it enables a hole to be created. A restaurant meal creates value not when it is prepared, but when it satisfies hunger, creates enjoyment, or supports social connection.
During Adam Smith’s time, global trade of products was the obvious driver of growth. Maids, servants and shopkeepers were not.
Recent economic thinkers have revisited this, not least because services now deliver a high proportion of economic activity. It is the basis of both Grönroos’ Service Logic as well as Vargo & Lusch’s Service-dominant Logic.
The challenges with Value
At first glance, value appears straightforward – especially from a value-in-exchange perspective. It is, as we saw, the most a customer will pay.
Dig deeper though, and that definition, despite driving substantial growth over the centuries, becomes shallow. Grönroos’ research tells us value is a “concept that is difficult to define” (Grönroos (2008) ”Service logic revisited: who creates value? And who co-creates?”). More worryingly, Anderson and Narus found that many businesses struggle to answer basic questions like, “How do you define value?” or “Can you measure it?”. (Anderson and Narus (1998) ”Business Marketing: Understand what customers value”)
And we find there are many different types of value:
…use value, exchange value, aesthetic value, identity value, instrumental value, economic value, social values, shareholder value, symbolic value, functional value, utilitarian value, hedonic value, perceived value, community values, emotional value, expected value, and brand value…are examples of different notions of value, which are frequently used without having an explicit conceptual understanding in marketing and consumer research.
Karababe, E. and Kjeldgaard, D. (2013) “Value in Marketing: Toward Sociocultural Perspectives”
This creates a practical problem. When managers say they are creating value, are they discussing financial outcomes, emotional outcomes, social outcomes, functional outcomes, or some combination of them all? The answer is often unclear
At the same time, the world that value-in-exchange helped build has changed dramatically. Services dominate advanced economies. Digital offerings can be replicated at near-zero cost. Ecosystems routinely create outcomes that no single organisation controls. Customers increasingly seek ongoing improvement rather than discrete transactions.
Worryingly, growth has stalled in recent decades – the IMF is warning of the “tepid 20s”.
The world is facing a decade of stagnation — the “Tepid 20s”.
International Monetary Fund
Value in exchange model has three cracks, that are increasingly impactful in our modern world
- Value is difficult to define
- The world has changed since value-in-exchange was king
- value-in-exchange is an incomplete model
The Progress Economy’s view
The Progress Economy builds on Service-Dominant Logic’s observation that actors seek to improve their well-being.
Rather than operationalising this improvement through the ambiguous concept of value, we operationalise it through progress.
Progress is the movement to improve well-being. Value is the judgement of that movement.
