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.

Value is difficult to define

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”).

I’d guess you’re first answer to ”what is value?” would be like mine: we often label things as valuable in your everyday lives. But if pressed to define what that 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. In more enlightened moments we might say ”this is valuable as it helps me do/achieve/make something”, but we’re conditioned to see value in a different way.

Our traditional view

Almost by default, our view on value above aligns with what I’ll call the traditional view – also known as value-in-exchange. This view equates value with the maximum amount of cash one is willing to pay for something.

value-in-exchange – is our traditional model where we boil value down to the simple idea of how much someone is willing to pay.

It’s a widely accepted and taught perspective, rooted in centuries of economic thought. We can trace its formal documentation back to Adam Smith’s famous Wealth of Nations in 1776, though the concept is seen long before then.

Value-in-exchange is what you learn in economics and business classes around the world.

However, we also learn Porter’s generic strategies of which the above view of value is only one: differentiation – which often is partnered by higher cost/price. Porter also identifies cost leadership as a second strategy. That immediately tells us that consumers don’t always see higher cost as value. A slight flaw in our traditional view of value.

Another challenge for this view of value is that focussing on a point of exchange gives rise to several growth blind spots. Not least leading manufacturers to focus on the next exchange and not on what they could do after that point. I’ll expand on this lower down.

Evolving to value being generated in use

When we move beyond – or don’t need to consider – value as monetary worth, we 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 we’re moving away from what is termed a goods-dominant logic observed from manufacturing, toward service-forward logic. Ones that shows promise in minimising value-in-exchange blind spots and removing growth blocking, and ultimately 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 more successful, and systematic, innovation.

Enriching service-forward logics with the concept and framework of progress does just that. By fundamentally switching focus from hunting value to hunting how to improve progress we immediately align better with real needs. Progress is something that we can better understand, and is more actionable, compared to value. Value reveals itself as a set of dynamic progress judgements. And out of this thinking switch a neat set of tools and levers fall out helping us drive innovation.

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:

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.