MANWhen it comes to earning a good living for ourselves, we have to produce things that are valuable-- things people will pay for. Now, a lot of us assume that means manufacturing them. But that's naive. There are three major steps of value creation in the production process. And the first is about the magic of creativity. Yes, the first is coming up with a new product or process, like pilkington, built on the research of scientists and engineers. Only then comes part two, the manufacturing-- the machine in the middle that churns out the process. This is the tangible bit of the process. Now, this does add value. Of course it does. But less than you think. There's so many nations can do this well. Then there's the third step. The marketing, advertising, and branding. Teams of people coming up with innovative ideas to make products appealing. Now, in the modern value chain, it makes sense to us with our brained-up workforce to innovate in the first stage, coming up with the idea, and the third, selling it. That's where the biggest bucks can be made. I know it's not a very British example, but let's get a measure of this. One study broke down the cost of a $300 iPod. Now, most of the price goes to the retailer, and for the people who supply all the components that go inside. But on the back it says, "Designed by Apple, assembled in China." Well, for the design, Apple get about $80. For the assembly, China gets less than five. That is the value of creativity and branding. The clip is taken from the 2011 BBC television series Made in Britain in which Evan Davis asks how Britain can sustain itself in the global economy; and in particular if it is right for Britain to concentrate on excelling in the knowledge economy (commercial awareness is of course vital for nation states as well as for companies).The three stages mentioned in the video are:creativity: coming up with a new product or processmanufacturing: churning out the product (this is the tangible part of the chain but it adds less value than you might think)marketing, branding and advertising.Having watched the video, now consider your own position within your organisation.Does your work fit neatly and exclusively into one of these three stages?In terms of a value chain (such as those described in the video) are you closest to the ‘inputs’ or the ‘outputs’ of your organisation? (Roles close to the input end might be procurement, enquiries, goods received, etc., those nearer to the output end might be invoicing, delivery, after-sales services, etc.).We talk of a value ‘chain’ – but to what extent does a linear chain (receiving work and passing it on, with added value) represent your work situation? Are there loops of feedback or more complicated connections between what you do and how others in the organisation operate?In the video it is clear that value relates to being competitive, and being competitive means being able to do things differently or better than others. At the level of the organisation, this means being more efficient (e.g. doing more with less, being quicker or reducing the number of repetitions, reducing costs) or more effective (e.g. doing things that are more relevant, have greater priority or are more useful or desirable). When we understand what our objectives are in these terms, it makes it easier to suggest how to improve practices to eliminate waste, and enhance each individual’s contribution to the total value. Crucially, it allows us to compare the value added by techniques we apply to those used in other organisations.But how does this talk of value fit with our central concern: developing better commercial awareness? Why is identifying value valuable in that context? Why is it valuable to members across an organisation?Recognising the value you yourself bring and contribute to the organisation:helps to align your day-to-day activities, short-term and ‘local’ objectives (e.g. what you want your team to be achieving this week) with the longer-term, ‘global’ aims and objectives of the organisation (e.g. what it is your organisation is here to do; its mission and purpose)provides enhanced motivation as you see your own effort and achievement manifested in the total achievement of that organisationprovides enhanced motivation as you understand how your internal customers and other close colleagues perceive your worth and the array of benefits you bring to themcan assist in raising your profile through your organisation as you realise (and communicate) the value you add to those more distant colleagues in your organisation (including leadership teams)by widening your appreciation of your own capabilities (and potential capabilities), puts you in a stronger position to seize opportunities to develop yourself, your team and your organisation.Recognising the value others across the organisation contribute:widens horizons – it breaks you out of the dreaded ‘silo mentality’ which can cause teams and individuals to stagnateallows you to be more agile, responding to the needs of internal customers better and working smarter with those colleagues on whose work your own is dependentexpands your reach into diverse sources of potentially useful information and human resourceenables initiatives to be taken – having a better grasp of what others require and what situations demand, you are able to offer more and discover areas where you and your team can influence, serve and be recognised for taking the initiativemakes for a stronger sense of organisation and shared purpose, which in turn helps to harmonise working and also provides the basis for resilience and better resolution when there is conflict or discord between individuals or teams.4 Recognising valueCustomers select the product they think is a superior value (benefits minus price). Competitive advantage is delivering a superior value to enough customers at a low enough cost to generate wealth. So a business is a system for superior value delivery: choosing a superior value proposition, and echoing it through the business system by providing and communicating it.(Lanning and Michaels, 1988)Everyone knows what is meant by the 'price' of a product. But just as important for strategic purposes is a product’s value to the customer, something that is far less conspicuous because it often depends on the customer’s subjective assessments. A product’s value to customers is, simply, the greatest amount of money they would pay for it. In other words, a product will rarely be purchased when its price exceeds its value to the customer. Conversely, whenever the value of a product exceeds its price, customers can improve their lot by buying it.(Golub and Henry, 2000)The above quotes highlight the widespread sense of value as something that can be measured relative to the price paid by a consumer for a product or service. If the average consumer will pay a higher price for product A than product B, that is thought to be because the average consumer values A more highly than B. But this is not to say that higher-priced items are always those with the higher value.In the price–value model illustrated in Figure 4, the organisation behind Product B is managing to deliver a higher-value product than the producers of product A. Product B has a higher value than Product A, but a lower price. This gives producers of Product B a competitive advantage over the manufacturers of Product A.The products have been mapped against a reference product (with reference value 100, reference price 100). To gain an advantage over competitor products, manufacturers must aim for products that sit above the line of indifference. Customers offered a product with value 200 and price 200, i.e. a product that sits on the indifference line, are unlikely to switch from buying a reference product (value 200, price 200) with the same value–price ratio.This model was specifically designed to aid strategic decision-making about which products to release onto a market. But you may like to consider how the thinking behind the model can be applied throughout an organisation, and in situations where there is not an obvious relationship between value and price.Why am I studying this? The reason for presenting this to you is that when you have identified value (through your commercial awareness), an obvious next step is to review and enhance the value being generated, or the costs and mechanisms by which that value is generated; a process which will require more insight gained through commercial awareness. Ultimately your actions, wherever you sit in an organisation, will have a bearing on how end users value the organisation’s outputs. A fraction of the value of an end product or service is (at least in principle) attributable to you. But to recognise the value you’ve added doesn’t always require you to analyse the final product offered by your organisation. The interim products or services that you deliver to internal customers, and those that are delivered to you by internal suppliers, might also be considered in terms of value–price or in terms of cost–value ratios, which will help deliver services in a more cost-effective way. Within this course and its treatment of value, where we have focused on prices (and costs), the discussion has assumed an intimate link between value and money; it has assumed the recipients of the outputs of organisations always want ‘value for money’. However it is important to note – although this theme will not be developed – that there are alternative assessments of value. The following extract gives a flavour of such an alternative and its importance in commercial environments.companies are more than instruments for generating money; they are also vehicles for accomplishing societal purposes and for providing meaningful livelihoods for those who work in them. According to this school of thought, the value that a company creates should be measured not just in terms of short-term profits or paychecks, but also in terms of how it sustains the conditions that allow it to flourish over time.(Moss Kanter, 2011)These sorts of values may be difficult to measure and quantify – they may even run counter to certain political or corporate agendas – but they are values none the less, and what is presented in this course is applicable to these too.5 Knowing your place‘I know my place’ is a phrase that can seem negative and defeatist; consider some of the things it might suggest: I know my place, it’s not my place to be doing anything other than this task. It’s more than my job is worth to step outside my role. I’ll leave it to the bosses to make decisions – I’m just going to do what I’m paid for, do as I’m told and keep my head down. I’m used to my place and it’s where I feel happiest. Why mess with what works for me now?This course seeks to rehabilitate the phrase ‘I know my place’ because knowing your current place in an organisation – knowing how you ‘fit’ with other individuals and teams – can be a very positive and enriching thing:I know my current place in the wider set of things our company strives to achieve. I know how what I do helps us to achieve our mission and deliver the things that keep us operating. I know that without someone like me fulfilling the role I do, a link in the organisational network would be broken – and the organisation would be weaker – it might well fail. But I also know that ‘my place’ isn’t the same as it was last month, or as it might be next month. The organisation, like the world around it, is dynamic – and for it to respond effectively, I need to too.Activity 2 Things that would stop without youAllow 20 minutesIn this activity, you are invited to take a sort of mental holiday and see how your organisation would get on without you – or someone like you – fulfilling your role. You may be familiar with the film It’s a Wonderful Life (Frank Capra, 1946) in which the lead character George Bailey is led to appreciate his achievements in life by being shown how things would have been had he never existed. That’s what this activity is getting at: give yourself an out-of-organisation experience by imagining the knock-on effects of your work not being done.What sort of requests for service or attention would come in to your workplace, in-tray or inbox, and not be addressed were you (or someone in a role like yours) not there to handle them and add in the value demanded or expected elsewhere?Who would be waiting on the work that is not getting done? What would not happen and why would that be of interest or concern to those you deal with? What about two or three steps further removed along the value chain; what further ramifications would there be affecting the ultimate delivery of goods and services? Your bosses’s feelings matter of course, they’re likely to be upset if you’re not at your post – but of more use on this course is thinking about the wider effects of your disappearance, in terms of drop in effectiveness, income, service level or any other measure by which the value of your organisation is assessed.Look at the gap in value – the you-shaped hole that has opened up between where your work comes in and where it goes out. Taking a view from the positions of your (internal or external) customers and your (internal or external) suppliers opens up a broader picture of what value you are adding.Why am I studying this? This may strike you as a round-about way of answering the question ‘What am I here at work for?’. The reason for taking this approach is to stress the dependency relationships that exist between you, the people from whom you receive work, those you pass it to and the wider network of stakeholders.6 Thinking in systemsThrough our discussion of value chains and interdependencies we’ve reached a good place to highlight an important distinction between ways of looking at and thinking about business. These ways are not mutually exclusive – indeed, it is strongly advised that to be commercially aware, managers should be adept at many different methods of analysis. To introduce the two broad approaches for contrast:Reductionist approaches: these reduce or break down issues into smaller chunks. In the process much of the real-world complexity of an issue can be lost. The benefit of this approach is that you can focus on a small scale, look at individual problems which are well-defined and (often) easier to deal with in isolation from the ‘mess’ of the rest of the organisation.Systems approaches: these refuse to strip down issues into something less complex. A much larger-scale, holistic system is considered in which there are multiple causes, with different aspects of the organisation interacting with other aspects in ways that are hard to pin down. Often the problems tackled in systems thinking remain ill-defined – but the level of analysis is wider and recognises the richness of interaction across an organisation.Within your organisation or industry you may be a skilled professional – someone experienced in a particular field or line of work. Your substantive role may be to apply specialist expertise for the benefit of the organisation and its clients or customers. There will be things which you can do much better than your colleagues – qualities that you are called on to display and make use of. In that respect we are, each of us, ‘experts’ – and to fulfil our specific roles it is inevitable that we often adopt a reductionist attitude to our own business.If you continuously and exclusively think in whole-system terms you may not get the low-level, well-defined portion of your workload completed. However, whilst your expertise may be vital to fulfilling your role – the very reason you are employed as you are – it is only part of the story when it comes to being commercially aware. Full commercial awareness requires far more systems thinking than you may have realised when training or studying for the profession you now find yourself in.Optional activity: Short introduction to systems thinkingAllow 5 minutesTo extend your understanding of this section of the course, you may wish to view an introductory video on systems thinking such as Video 2. Towards the end of the video is an example of how a systems approach might be adopted in car design.