What is value?
As a consultancy we charge fees based only on the value we deliver for clients. But what is value and what do we mean by value?
What is value?
As we base our fees, and much of our project work, on defining “what is value?“, I thought it worth discussing.
Well it seems there are many different definitions of value. I looked up online and searched “what is value on Dictionary.com”; it has 15 noun definitions and 3 verb definitions!
Rather than going through each of these, I thought I would discuss our definition of value a little conceptually and then compliment this by walking you through a recent proposal.
When we think about what is value in terms of a client project, we think about it in two ways;
- What value will achieving the project objectives bring to the client?
- What are the options we could take to help them achieve that and how valuable are those different options going to be to our client?
Therefore, the first thing that is worth pointing out when one asks “what is value” is that this is about looking to create much more than purely short-term financial gains for a business.
One thing that comes up when I talk to clients for the first time about establishing the value of a project, is that they assume we are simply talking about economic value that the project will create. For example, they assume that we will target say a 5% uplift in revenue, establish what that equates too, and assume we’ll then base our fees on a percentage of that revenue increase.
It’s a logical thought because our work is focused on delivering improvements in marketing and sales. The easiest way to establish if that work has made a difference is to look at before and after sales figures.
This makes sense but there are also many different ways that this can be achieved, are they the most effective ways and what are we anticipating to learn along the way? There is value to a client in these aspects too, in addition to the purely short-term economic value that is created.
There is a slight irony here because in exploring my definition of “what is value” I am highlighting an analysis process that I think all organisations need to focus on in terms of their place in the market. But hey, I digress.
A value based proposal example
Perhaps these two dimensions we use to work out value, is better understood through a more practical example.
I will discuss here the nature of a project proposal we recently completed. I have changed elements of it, as it is client confidential, but hopefully there is enough here to help understand where I am coming from with this.
The project has a number of objectives. These are well defined and I worked together with the client to define clear triggers to identify when they had been achieved.
The client I am working with is responsible for providing technology solutions to various “customer” organisations.
One of the things they needed to do was to establish exactly what those various organisations wanted to achieve so that they could better tailor the technology solutions they were providing.
Although they have a good understanding of what these organisations wanted, they have recently been getting mixed messages back. This has led to enormous amounts of wasted time and efforts on all parts, coupled with an equal measure of frustration.
So, although one of the objectives of the project was to better establish the needs of the various customer organisations, part of the value the project had to deliver was actually to improve my clients reputation and relationships between all involved.
In addition, the part of technology they had in mind was unproven in the operational environments that their customers were using. If it worked as planned there would be very real benefits to the customers, however, there was an element of uncertainly about how things would work out in practise.
We therefore evaluated the whole value of what achieving the objectives would mean to the client. We then worked on preparing three options for achieving those objectives so the client could have a choice.
It’s an important note here that ALL three options would have achieved the objectives of the project. So in the example we are discussing, all three of the options we proposed would have given my client a better understanding of their customer organisations requirements.
Why the three options then?
Well, because each option would achieve the objective with a successively high level of confidence and customer acceptance. Therefore each option offered increasingly greater depth of understanding and greater opportunity to improve relations.
The three options therefore offered different value to the client and so each had a different level of fees.
For information, the option 1 involved a series of interviews and meetings with a selected number of customer organisations. These structured discussions would be designed to tease out the customer requirements. We planned to show some generic technology demonstrations to the customer organisations and then ask them to imagine how they could apply this (or not) within their specific operational environment. The client and I could then evaluate these answers in the context of the technologies capability and previous experience in the field. This process would be relatively quick and give the basis for technology development direction.
The second option, involved all of the above, but we would then take the feedback and build mock-ups of how the technology could work for the customer based on their initial ideas. We’d then show our interpretation of their requirements back to them via the mock-ups and aim to get further detailed understanding of what they were after. This created an iterative loop in the requirements discovery phase, and gave the possibility of gaining a deeper understanding of what the customers needs were. Doing this exercise, and continuing to involve the customers in the process would also improve relationships and potential buy-in, should the technology function and operate in the manner described in the mockup.
The third option, again involved option 1 and 2, but then included actually building a fully working version of the technology that the customer could try out and live with. By having a working version of the technology in their hands, the customer would be able to give much deeper feedback, specifically on feature priorities and possibly discover some other requirements that they’d previously not considered. The further added value of this approach for my client was to be able to prove the functional behaviour of their technology within the customers unique operation environment.
We gave them appropriate timing estimates and fixed prices for delivering each option. As is consistent with value-based fees we also offered unlimited, unrestricted access to our project team throughout the period of the engagement.
You can hopefully now see from this example that the overall objective had a value but this was complimented by the way in which we’d be working together to achieve this. Therefore there are two dimensions to consider, and in this case not really any economic considerations (which is why I chose it as an example).
I hope the example has given you a taste of how we arrive at understanding value and how we structure project proposals?
As another final aside, I would regard that project as a marketing project. My technical colleagues may think otherwise perhaps I don’t know.
Perhaps a definition of how we think about marketing would be good for a future blog post? Please let me know!