The ability for a business to sustain itself depends on the organization’s capability to continually deliver value to existing and new customers. The value proposition for a business depends on the type of business and how it serves its customers. A distribution business differentiates itself in ways other than a product-based business would. Regardless, an organization must constantly assess whether the value proposition of any given offering is meaningful and relevant to customers. When that value proposition is no longer relevant to customers the impact is realized in the form of declining margin and revenue.
Revitalizing value demands innovation and delivering on an innovation initiative is one of the most important activities an organization will undertake. The challenge of delivering on such a critical endeavor should not be viewed as a Sisyphean task but is also not something to take lightly; understanding an organization’s capability is paramount to success. In an environment where there is relatively low cost of capital, companies that understand the risk of undertaking an innovation effort internally and have the financial means often de-risk this by outsourcing through acquisition or open innovation.
Understand Your Customer Value Proposition and Internal Value
When a particular value gap cannot be closed via strategic alternatives a company must pursue the innovation organically. This is one area where the challenges faced by an emerging business and an established enterprise are nearly identical. The ability to deliver is heavily dependent on the capability of the organization.
To understand the capability of an organization one must take the time to fully understand and validate the intended customer value proposition—that being the reason a customer will decide to utilize and pay for the company’s product or service compared to other alternatives. It is also imperative to understand the internal value or strategic intent of a given innovation effort. Together, these value propositions provide the objective function upon which all project decisions should be evaluated against.
Lack of clarity within the organization regarding the external and internal value proposition is the single greatest issue facing organizations when pursuing organic innovation efforts.
Identify Critical-To-Value™ Elements for Realizing Value Proposition
After clarifying and validating the customer and internal value propositions the next step is to identify those Critical-To-Value™ elements that are required to realize the value proposition. These are the “critical few” actions that must be completed to fully realize the intended value of the innovation.
With a robust and consistent understanding of the value of an innovation and the identification of the Critical-To-Value elements required to realize the value proposition, one can use a structured approach to evaluate the probability that an organization has the capability to deliver on the innovation effort. Research has shown there are a handful of key factors impacting an organization’s capability. Assessing the capability of an organization involves understanding how a company’s people, processes, structure and strategy potentially impact desired outcomes and value. This gives the organization the requisite knowledge to address those identified higher risk capability gaps before the project is adversely impacted.
Some simple examples of potential problematic interaction between organizational capability and critical requirements to execute could include:
- a lack of a skill set within the personnel in the organization that is critical to realize a key development objective, or
- processes that make it difficult to order and build different configurations of a product on the manufacturing line when customization is a critical element of the customer value proposition, or
- a structure that makes it difficult to obtain feedback from the field to provide input for necessary product improvements when it is critical to implement a form of minimum viable product, learn quickly and adapt to create and serve a market.
Ensuring alignment of these organizational competencies with the expected customer and internal value propositions at the point of impact is critical to success. Identification of misalignments does not automatically doom a project but not engaging in an active plan to overcome such misalignments is sure to guarantee a sub-optimal result either for the customer or the business or both. A systematic approach to identifying higher risk areas that require special attention provides the greatest probability that the innovation is efficiently realized in the timeframe promised while achieving the desired value.