What is Value Management? (And Why Should You Care?)
NOTE: This article is an excerpt from a paper written by an open group of value management practitioners and consultants who are interested in promoting value management. Several experts in the field collaborated on the paper and made it available for publication.
Value management and its related disciplines has become a hot topic in the business press, within leading companies and among pricing consultants. Its advocates assert that value creation and capture can and should be what companies try to optimize and around which they should be organized. By value is meant the value provided to customers, not the value extracted from customers or shareholder value.
Value management is a holistic discipline that supports the cycle of Create → Communicate → Capture → Assess of Value all based on a foundation of Understanding as is summarized in Figure 1: The Value Management Cycle.
Figure 1: The Value Management Cycle
What is Value and how do I understand it?
- Value can be a slippery term and it is used in many different ways. In value management the term is understood as follows:
- Value is relative to an alternative – value cannot be judged in isolation
- Value is composite and decomposable – value can be analyzed into a set of value drivers
- There is more than one aspect of value – in B2B the most important aspect is the economic impact but other aspects such as the emotional, environmental and social can also be considered
- Value can be quantified – economic value can be quantified in a currency, other aspects have their own forms of quantification such as Quality Adjusted Life Years in healthcare or Carbon Footprint for green solutions
The standard way to quantify economic value is shown in Figure 2: A Standard Economic Value Model.
Figure 2: A Standard Economic Value Model
- There should be a mapping from the value metric (the way in which the customer gets value) to the pricing metric (the way in which the seller charges for value)
- Value is realized in exchanges across networks and not in isolation
Value management relies on information about customers, competitors, external factors, offers and costs from both inside and outside the organization to build understanding (both perspectives are mandatory).