What is Value Addition?

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 Service Excellence & Methodologies

Jul 1, 2011 | Total views: 283

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I was facilitating an innovation workshop recently for the Business Application Product (BAP) industry group at MindTree. Ram, who heads the group, kicked off with an inspirational, yet simple opening line:

“Our customers are happy working with us and they say that it is time to add value.”

There seemed to be an air of agreement from the participants. As we progressed through the session, I realized that may be, we need a simple definition of value addition. All of us have heard of value addition emanating from all corners of the globe, but I don’t think I have heard of a simple definition for it yet.

Then I hit upon something that I thought was simple enough and that was an interpretation of one of the TRIZ tools called, Ideal Final Result (IFR).

The equation that people use for IFR is:

(Σ Benefits)
________________
(Σ cost+ Σ harm/risk)

Now, the ideal product or service has all the benefits, but no cost or harm/risk associated with it.

Coming back to value addition, I think value addition is:

(Σ functionality or work done)
_______________________
(Σ components or team size)

Let’s examine this equation and find out what it truly means. The popular tagline ‘More done for less’, traditionally used for value addition can be derived from this equation. The ideal product or service is where work is done without any team involvement – Automation: A product with no components, but functioning.

The numerator has to be increased and the denominator has to be decreased. The team was asked to come up with more functionalities or more projects for themselves. The constraint, of course, was – you can’t add more people or components. In fact, they were asked to toy around, removing people or components.

At this point, there was a huge murmur among the participants. When I enquired, I found that this was a time and maintenance project and the more people are staffed, more is the revenue. That brings us to an interesting point – customer IFR or value is very different from vendor/partner IFR or value.

More people in a project = more revenue for the vendor, and the operating costs of the customer go up as well. This is a contradiction and can certainly be solved using TRIZ principles.

To sum up, what is value addition for a customer? Provide more functionalities or components with reduced team size or components in a system.

This brings us to resources (cheap or freely available) which, I will talk about in another instance.

The team was convinced that this is a good teaser for thinking about value addition for our customers. Next time, somebody talks about value addition, you can ask them:

“Are we removing components from the system and/or adding functionalities?”

P: S – Please pardon the scientific lingo like equations, derived. Once a scientist, always one!