Lean Value Propositions
The new economic paradigm has shifted. Business life has changed. How you conducted business last year or even six months ago probably isn’t going to work right now and maybe things will never be like the good old days. I just started working with a new client who said we’re stuck and need help. My advice to this new client is that we are going to develop some lean value propositions to cope with the realities of the new economy.
What are lean value propositions and how are they going to help my new client? In this difficult economy, it is essential for clients to evaluate the effectiveness of their value propositions. A value proposition is an offer that provides value to both the buyer and the seller. Creating win/win situations increase sales volume and throughput establishing a competitive advantage. This is a better option than waiting around and hoping the economy returns to the days of good and plenty. This might never happen.
Value propositions are linked to what drives customer’s value and influences what they will buy. These elements include:
Throughput, or the rate at which the system generates money through sales, are driven by these elements of value. We apply lean accounting to our pricing so we can maximize throughput to fulfill the capacity of the business. Since we can’t borrow our way through the recession, it is imperative to find a value proposition that will provide the necessary cash and liquidity needed to survive and thrive regardless of economic conditions.
Value propositions are focused around three disciplines. I call these disciplines a three legged stool since you will deploy each of the disciplines while one of the legs will represent the primary value proposition. The three value disciplines are:
1. Operational excellence – the combination of quality, price, and ease of purchase that no one else in your market can match.
2. Product leadership – the best product or service period
3. Customer intimacy – delivering what a specific customer wants
The key is to make the appropriate choices in developing and utilizing market and competitive intelligence information.
I call these lean value propositions since I utilize the concepts of developing value propositions in conjunction with lean accounting and lean work flow. Lean initiatives require us to know where we are and why we are here. From this foundation we can then create alternative value propositions and operating models that will provide customers with perceived unmatched value.
The process of establishing winning lean value propositions will requires an assessment on whether competitors can match or exceed the value created. Additionally, the operating model needs to produce the value proposition at a profit. This takes a commitment to change and managing risk associated with this change.
A critical component of lean value propositions is to provide unmatched value in the market plan for the selected value proposition and meeting the threshold standards in other dimensions of value. From this foundation, it is necessary to make the value proposition better every year and to build a superior model to deliver on the promise.
Success associated with creating new winning value propositions requires making a commitment to change that will stick and produce results. Change is a topic for another blog post. However, the current economic crisis should provide the necessary urgency to make change and lean value propositions a reality.
Lynn Northrup, CPA, CPIM - Lynn's focus is on building business value for both family-owned businesses and other CPAs. I also specialize in lean accounting, process improvement, internal control, and assessment of audit risk. Other accomplishments include publishing two books, development of self study programs for Bisk Education, and an Adjunct Professorship at Villanova University. My wife Jessica and I live in southwestern Colorado and we look forward to contributing to the AccountingWEB community.