GPM First
Powered by Gower
Chapter 5 of Value Management (978-1-4094-0955-7) by Roger H. Davies and Adam J. Davies

Intended Value

CHAPTER 5

Objectives

After reading this chapter you will be able to:

  • Define key outcome objectives

  • Build strategy maps that link objectives within a Balanced Scorecard performance management framework

  • Define chains of cause and effect, themes, that provide specific focus linking to financial objectives

  • Identify business capabilities that will be enabled by programme deliverables which are essential to cause benefits

  • Define the partnership between benefit and deliverable owners

  • Map deliverables precisely to objectives

 

Precision Question

What are intended stakeholder outcomes, what new business capabilities are required to deliver them and who is accountable for success?

Outcome Focus

Most programmes still focus on inputs and outputs. Input focus concentrates on delivering the programme on budget; output focus on delivery of timely functionality compliant against specification. Conversely, outcome focus is most concerned with delivering intended benefits in relation to the resources consumed.

In other words, outcome focus is about delivering the overall programme value. For a programme, benefits result from deliverables, which are new business capabilities.

Outcome focus represents a shift from accounting for what is spent to accountability for value that the spend delivers to stakeholders.

Outcome focus is both the mindset and process of clearly defining intended benefits, together with the causal means by which the benefits are achieved, then retaining that clarity throughout the life of the programme. Therefore, outcome focus comprises two essential components as shown in Figure 5.1:

  • Intention: this is the precise definition of outcomes together with what is needed in order to enable the benefits. Intention is about doing the right things.

  • Attention: this is the perpetual measurement, feedback and correction to ensure that outcomes are realised. Attention is about doing things right.

 

 
Figure 5.1 Outcome focus

graphics/fig5_1.jpg

Intention is a strong word. It does not mean wish, aim, target or marks for trying. Intention means commitment to a standard of achievement and that anything below that standard is deemed to be unacceptable. Standards require unambiguous measures against which to assess achievement, together with a ‘failure is not an option’ commitment. This combination of precise definition and total commitment is evident in safety-critical industries, such as airlines and nuclear power, where standards cannot be compromised legally, morally or commercially. In Value Management, we apply this level of commitment to value delivery from programmes; financial health is business-critical.

Attention also has strong meaning. We get what we direct our focus to, whether this is what we most want or most fear. In business, this translates into, ‘we can only manage what we measure’. Therefore, combined with clear intention, we need to be specific about what that intention will look, sound and feel like, defined as precise criteria for success.

Outcome Focus in Private and Public Sectors

Traditionally, the commercial private sector has been most concerned with making profit in order to deliver acceptable returns to shareholders, whilst the public sector focused on accountability for spending taxpayers’ money. If only it were that simple. In today’s complex world, with integration of, and interdependence between, public and private sectors, these distinctions are not only less significant, they can be outright dangerous. For example, several fatal crashes involving poorly maintained infrastructure in the privatised UK railway industry were partly blamed on the pursuit of profit at the expense of safety. Conversely, there is still massive waste in the public sector that would have been driven out in commercial enterprises through the profit motive.

The challenge is to balance the best of private and public sectors to optimise value.

We stated earlier that for a business, whether private or public, to remain sustainable there must be equitable, although not necessarily equal, value across stakeholders. In other words, there must be sufficient win–win so that stakeholder behaviour is mutually supportive. Outcome focus provides this by considering how the interests of all stakeholders are met. In Part III we demonstrate through a case study the integration of private and public sectors to generate the greatest overall, sustainable value to all stakeholders.

Channel Tunnel Story

After the Channel Tunnel opened, the shiny new Eurostar train fleet was soon packed with passengers enjoying smooth, high-speed journeys from London to the heart of Paris and back. Business travellers enjoyed the speed and sophistication of the trains, with mobile phone coverage all the way, whilst the leisure market boomed as a long weekend in Paris or Brussels became more practical and affordable.

Soon, Eurostar became a victim of its own success. The volume of sales enquiries in its burgeoning Ashford call centre grew rapidly, and lost call rates rose. A greater capacity was needed urgently, and the solution seemed obvious; get a bigger call switch (a simple technology issue). However, the visionary call centre manager was not convinced that the challenge was that simple and instigated the development of a business case.

He was right. The value-based study of the call centre operation and Eurostar’s wider business strategy revealed a more complex picture. Although there was a problem with call volumes, other issues became apparent. Call durations were rising, driven by more complex customer requirements and in turn, queues were growing leading to lost calls. These problems drove declining customer satisfaction and lost business.

However, Eurostar had ambitious goals to build repeat business, driven by crossover trade from business to leisure, and to increase cross sales and up sales. This was reflected in the business strategy which projected new revenue streams, developed by offering customers a range of ancillary services such as hotel booking and tickets for local attractions. The increasing importance of the Internet in travel and leisure markets was expected to drive a new distribution mix, changing both the predicted volumes for the centre, the type of calls to be handled, and consequently, the skills mix required for the agents. In outcome focus language, Eurostar’s objective was to ‘own the destination’ in the eyes of its customers, that is, to provide for all their needs whilst in Paris, ensuring that they had a memorable visit all thanks to Eurostar.

Standing back from the surface operational problem had made it possible to see a richer picture against which both short- and long-term solutions could be directed. Applying skills-based routing techniques and a new team structure relieved the immediate pressure, and allowed time to develop a robust, long-term technology platform that supported the wider Eurostar business strategy.

Front line managers, such as the Eurostar’s call centre manager, are beset by today’s operational issues, in this case, average wait times, call durations, absence rates, team rosters and many more. It is natural and right that they develop an operational mindset to get work done as efficiently as possible. This is classic input and output thinking to ensure that capacity meets demand and therefore it must be an integral part of the programme design to ensure that requisite operational functionality is delivered.

However, by shifting to an outcome focus, not only were these operational imperatives met, but the value model directed solutions that delivered far greater value across the business stakeholders. Customers got better deals, staff greater satisfaction and the company was able to make more money through the direct sales channels. This was achieved through a combination of reframing the problem from just the need for a bigger call centre switch, chunking up to a more strategic, customer-centric perspective, and using Meta Model questions to match solutions against the key value propositions.

Mission, Vision and Objectives

Mission

Business is purpose driven and the highest purpose of a business is its mission, which is usually articulated in a mission statement that answers the essential question, ‘Why is the business in existence?’ This is simple but not easy. Some years ago we built a Balanced Scorecard for an international military client whose main operations involved the planning and running of inter-service exercises, with the aim of maintaining battle readiness. We began the workshops, attended by senior officers from several countries and spanning all the armed services, by establishing the mission. We learned that it was defined in a thick document which described in detail what they did, inputs, and what the outputs were, such as completed exercises and reports. After several workshops, the outcome mission was condensed to one line; to maintain peace in their geographic theatre. For Eurostar, the mission was to transform the journey into part of a great customer experience of visiting cities served by the company.

A mission defines the primary purpose of the business.

Vision

The vision defines where a business will be within a defined time frame. This is often expressed as profit, size of organisation, market share, the number 1, 2, 3 and so on, in the market or ‘to be the supplier of choice’ for a product or service. The vision then provides a foundation upon which value propositions are formulated. Value propositions generally fall under the three categories defined by Treacy and Wiersema:1 [19] product leadership, operational excellence or customer intimacy. For Eurostar, the vision was ‘to own Paris’. This emotive phrase expressed the intention for Eurostar to provide a portal through which customers purchased all travel and entertainment services, in support of delivering their overall experience.

The vision describes where the company will be when success is achieved.

Objectives

Objectives are those things that must be achieved in order to realise the business vision. For the Eurostar direct sales business, the objectives centred on capacity to meet call volumes and efficient utilisation of agents. These were extended to include more effective targeting of propositions, greater sales conversion rates, customer retention, particularly the high-value business customers, and greater overall customer value.

Objectives define what specific achievements are needed to achieve the vision.

Essential Value Dynamics

The core tenet in Value Management is explicit causal linkage between programme deliverables and benefits experienced by stakeholders. It follows that we need to define the essential causal process by which this value is created by the business. In The Profit Zone, Slywotzky and Morrison2 [20] identify 22 named profit models which define the highest level mechanisms by which enterprises make money. For example:

  • General Electric (GE) is a customer solutions profit model which involves investment in understanding customer needs against which to target high-value propositions

  • Pharmaceuticals have a blockbuster profit model, demanding large up-front risk with extraordinary returns, but only if they are first in the market

  • Microsoft has a de facto standard profit model, with a locked in customer base (although that is now being challenged by players offering new operating systems, such as Google)

 

The value chain describes the core process through which value is generated. Slywotzky and Morrison propose that the traditional value chain, starting with assets and core competencies, is reversed to become customer-centric. A customer-focused value chain for Eurostar is shown in Figure 5.2.

 
Figure 5.2 Customer-focused value chain

graphics/fig5_2.jpg

If we combine a customer-focused value chain with a Balanced Scorecard, we define the essential value dynamics of the organisation as shown for Eurostar in Figure

 
Figure 5.3 Essential value dynamics (value chain strategy map)

graphics/fig5_3.jpg

Strategy Maps

Kaplan and Norton3 [21] define a strategy as a set of hypotheses about cause and effect. A strategy map links key objectives causally through the perspectives of a Balanced Scorecard. A high-level strategy map for Eurostar is shown in Figure 5.4.

Strategy defines how success will be achieved.

 
Figure 5.4 Strategy map for Eurostar

graphics/fig5_4.jpg

In Value Management we present strategy maps differently from the most common approach in which objectives are linked in a vertical thread through the perspectives in the order resources, process, customers and financial. The structure as shown in Figure 5.4 is used to facilitate conversion of the strategy map into a cause and effect map and dynamics model in which causation operates in feedback loops.

Themes

The power of strategy mapping lies in themes, which are focused chains of cause and effect linking objectives, and associated measures, through the Balanced Scorecard perspectives to financial outcomes. Themes read as stories. For Eurostar, there were two key themes reflecting the cost and revenue components of the profit and loss account:

  1. customer value theme

  2. operational efficiency theme

 

Customer Value Theme

Knowledge about the market and customers enabled precisely targeted value propositions, with higher sales value. In addition, close matching of propositions to customers resulted in more repeat sales with higher sales value sustained over longer periods due to better customer retention.

Operational Efficiency Theme

By defining precise value propositions targeted to customer segments, each agent could be trained to be more productive, handling more and a greater range of calls, thereby requiring fewer resources to provide the capacity needed to cover call volumes and mix. Precise propositions also enabled agents to be more effective, so increasing the conversion rates for customers and sales which, in turn resulted more precise knowledge concerning customer needs. The operational efficiency theme for Eurostar is shown in Figure 5.5.

 
Figure 5.5 Operational efficiency theme for Eurostar

graphics/fig5_5.jpg

It is important to recognise the mutual interdependence between the themes; targeted value propositions, enabled by precise market and customer intelligence, increased revenue for a reduced costbase; that is, both effectiveness and efficiency.

Deliverables

Deliverables enable new business capabilities that are needed to achieve the objectives. These may include resources which are not currently being used effectively, in which case a deliverable may be staff qualified with new skills, or completely new business capabilities requiring IT solutions. Deliverables become programme outputs. Usually, programme outputs are defined as functional capability. For example, typical deliverables for Business Intelligence (BI) programmes may include reports. However, what is important is the value that can be created as a result of the deliverables, in this case, reports. Here we need to be specific. For example, as a direct result of applying the information contained in a marketing report we can offer the best value propositions to customers, thereby increasing sales and profit.

Deliverables enable business capability that causes benefits.

However, it is inherently difficult, and usually unhelpful, to assign specific benefits to a single low-level item, such as a report. There are two reasons for this. First, we end up with a set of complex piecemeal benefits which are impractical to manage. Secondly, value creation is dependent on a combination of capabilities working together. For example, in order for report information to be translated into value, we must also be able to configure products and services, both to meet customer needs and be profitable, and then promote them effectively. The report is only one component in the total capability needed to deliver benefits to stakeholders.

In Value Management, we overcome this dilemma by chunking deliverables up to a level at which they can be most readily translated into business capabilities that cause benefits. So we combine the lower-level outputs into a single deliverable, such as targeted customer propositions.

Deliverables are derived by asking, ‘How will we cause objectives to be achieved?’ For Eurostar, the key deliverables were defined as follows:

  • switch capacity

  • management information

  • customer and destination information

 

Switch capacity referred to the ability to handle the increasing call volumes without losing calls. Management information included resource management which enabled the call centre manager to optimise deployment of agents in order to maximise utilisation and contain costs. Customer and destination information, which included a data warehouse, enabled Eurostar to match value propositions to customers.

Deliverable Independence

It is also important at this early stage to define deliverables to be as independent as possible from a value perspective. There are several reasons for this that will become more apparent in subsequent chapters. First, it is much easier and more effective to attribute benefits to deliverables: we cover this in Chapter 7. Secondly, deliverable independence enables value alignment, examined in Chapter 8, and reduces risk, which we discuss in Chapter 9. Finally, it is much easier to track and correct negative variances, the subject of Chapter 10, if deliverables have a degree of autonomy.

Deliverable independence is also achieved through the chunking up process, by combining functionality to a level at which benefits can be attributed to specific deliverables. The aim is not to eliminate dependencies between deliverables, which are both inevitable and essential, but to identify benefits attributable to each specific deliverable operating independently or in conjunction with dependent deliverables operating in alignment.

Value Ownership

A consequence of the switch to an outcome focus is that the level of engagement of key stakeholders in programmes has to change. Tension between the typical operational and programme management mindsets, focused on outputs, can be a problem. Many large organisations find running programmes tricky, not because they do not have robust programme management methodologies and processes, but because of a failure to work in partnership with stakeholders effectively. The key is to set up a governance structure which can stand the various strains that the programme will create. Outcome focus is achieved through a total commitment between those accountable for delivering business capability, deliverables owners and recipients of the outcomes, the business stakeholders, as shown in Figure 5.6. In practice, deliverables owners will be programme managers and benefits owners key people within the business representing both internal and external stakeholders.

 
Figure 5.6 Value ownership

graphics/fig5_6.jpg

Building Certainty

The core tenet in Value Management is delivering intended stakeholder outcomes from change programmes with certainty, through precise causal linkage of deliverables to benefits. The partnering commitment between deliverable and benefit owners is maintained throughout the life of the programme, by ensuring at each step that deliverables will result in the intended benefits. Financial benefits will be achieved through the interaction of changes defined in themes. Therefore, certainty is injected by mapping deliverables against each theme. At this stage, deliverables are mapped against objectives in each theme. Deliverables–objectives mapping in the operational efficiency theme for Eurostar is shown in Figure 5.7:

 
Figure 5.7 Deliverables–objectives mapping

graphics/fig5_7.jpg

This mapping process builds certainty by exerting the discipline of ensuring explicit links between deliverables and the outcomes. We add precision to this initial map as we work through the Value Management framework, leading to full alignment and exhaustive risk analysis.

Essence

The principal learning from this chapter is summarised below:

  • The first significant reason for the failure of programmes to deliver intended value is lack of clarity, precision and management of stakeholder outcomes

  • The solution is a shift in mindset and process from an emphasis on managing only inputs and outputs to an outcome focus

  • Outcome focus demands two components: intention, which provides clarity of purpose, and attention to ensure precise measurement, feedback and correction

  • The mission, vision and objectives define the purpose, destination and prerequisites for achieving the vision

  • The essential value dynamics of a business is the highest level definition of how value is created and is founded on a customer-centric value chain

  • A strategy map is a hypothesis of how the objectives and associated measures are linked causally to deliver the vision

  • Themes are causal chains through the strategy map that provide explicit linkages to financial outcomes

  • Deliverables enable business capabilities needed to deliver intended stakeholder outcomes

  • Accountability for value delivery is governed through a total commitment partnership between deliverable and benefits owners

 

Submit your own content for publication

Submit content