Throughput Value Propositions
I utilize my training programs as the basis for live discussion topics in the on-line education courses which I teach and decided to convert some of them into blogs. One of the more timely topics is value propositions and how they are utilized to create situations that are win/win for everyone.
Throughput value propositions are grounded on the elements of value and it is important to understand these concepts. The factors which drive customer value and influence what they will purchase are price, time (delivery), service, and quality of the product or service. Converting value into throughput or revenue is the essential element for success and survival.
Throughput is a component of the Theory of Constraints and represents the rate which the system generates money through sales. Investment is all the money the system invests in purchasing items the system intends to sell. Operating expense is all the money the system spends in converting investment into throughput. A factor associated with capacity, and an important component in today’s economy, is variable cost. This represents the amount of cost which varies based on the increase or decrease in sales volume.
In order to generate more profitable throughput, it is vital to provide effective value propositions. These represent an offer provided to the customer that generates value for both the buyer and the seller. Value propositions create win/win situations and create a competitive advantage. This competitive advantage drives the acceleration of throughput.
We need to realize that a new world of competition has developed where everyone is lowering costs to accommodate rising customer or client expectations. Associated with this reality is the need to provide effortless, flawless, and instantaneous performance to deliver premium service with superior innovative features.
The products and services offered will provide the dimensions of customer value in terms of what we sell and how we do business. Here is where we link price together with reliability, durability, dependability of service, and convenience. Aligned with cost are benefits that include unique features, a brand experience, expert advice, and personalized services.
Some rules for providing customer value include the following:
• Provide the best offering in the marketplace by excelling in a specific dimension of value.
• Maintain threshold standards on other dimensions of value.
• Dominate your market by improving value every year.
• Build a well-tuned operating model that is dedicated to delivering unmatched value.
Without customer value, there will be no sustainable business.
In an effort to create value leadership and profit there are options for delivering products and service. You can provide the best total cost by achieving the lowest cost product and service support. Another option is to provide the best product by building a better product or service for which customers will pay a premium. Finally, you can provide the best total solution by solving the client’s broader problems and then sharing the benefit. This represents the essence of a win/win situation.
In an attempt to create winning value propositions there are three value disciplines from which you can select. These three options include operational excellence, product or service leadership, and customer intimacy. Making these decisions requires leadership choices because these value disciplines are similar to a three legged stool. You will select one of the three as the primary value discipline, but will still need to provide acceptable levels of support with the other two disciplines.
The answer to continued success is by providing unmatched value of your chosen value discipline to the market place and then meeting threshold standards in each of the other dimensions of value. It is essential that you make the proposition better each year and build a superior model to deliver on the promise.
The concept of value propositions applies to all businesses, but I think CPA firms could really benefit the most from the concept. Just think about how you could apply the value proposition to your client’s business and deliver ways in which both of you could share the benefits. This is a vehicle that could take CPA firms past the age old concept of billing based on the hours spent on the engagement. Now you have happier clients and you are getting paid more for delivering the value which clients perceive they should be receiving. It is a different paradigm of thinking, but it is easy to see the benefit after you give it some thought.
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.