NordDesign 2014 August 27 – 29, 2014 Espoo, Finland / Melbourne, Australia Test Results of Practical Value-Centric Business Development Methodology Merili Randmaa1, Tauno Otto2, Thomas J. Howard3 1 Tallinn University of Technology merili.randmaa@ttu.ee 2 Tallinn University of Technology tauno.otto@ttu.ee 3 Technical University of Denmark thow@mek.dtu.dk Abstract Design and the creativity and innovation involved in it are “living things moving in a field.” By limiting their movements, they may be described with greater accuracy, but their natural movements then slip away from the scope of such delineation [1]. It is a challenge to give valuable suggestions to an organic system. Current research has been done on multiple levels in order to gain an understanding of valuecentric design from practical perspective as well as from theoretical perspective. During first stage (Descriptive Study 1) of our research we gained practical experience and knowledge from within one construction company [2]. During second stage (Prescriptive Study) we conducted a wide literature review, analysed cases on literature bases and developed a practical methodology for value-centric product, service and business model development [3], [4]. As a last stage of our research (Descriptive Study 2) we test our methodology on 2 case companies from different fields. This article is giving a short overview of test results. Keywords: value-centric design; value system; value activity cycle; business development, case study 1 Introduction Value is in the centre of economic system. It is being created, exchanged and transacted, and perceived [4]. Many different scientific fields (marketing, Product/Service Systems, virtual organisation, business and entrepreneurship, psychology, environmental sustainability, engineering design etc. ) have discovered the importance of “value” in customers` every-day decisions and started opening up the field. We, the authors, see value to be the core concept of integrated product, service and business development and thus propose that a value-centric model of these processes will be beneficial and is much needed [4]. Companies create value by their offerings and customers judge the value of products and services [5]. However, no two people can have the same experience- each experience derives from the interaction between the staged event and the individual’s prior state of mind and being [6]. Therefore perceiving the value is individual and context dependent [3],[4]. Value 642 for customers is created throughout the relationship with the company, partly in interactions between the customer and the supplier or service provider [7]. The car would have no value if no one knew how to drive, had access to fuel and maintenance, and functioned in social networks, for which particular automobiles have particular meanings, etc. The car only has value when the customer makes use of it- in the context of his or her own life. In this case customers, manufacturers and social services cocreate value [2], [8]. The most widely known concept of value creation is Porter’s value chain [9], where value is created by multiple actors within a chain and then offered to the market. However, this concept has proved not to be suitable in the context of intangible products (services, knowledge, financial products) [3], [4]. New approaches in science and economics show that “value” can also be shared or co-created (open innovation, open source software, strategic alliances etc.) by combining different assets and resources into a value in the same process (value star) [4],[10] or in interlinked activities (value network) [4], [11]. Value propositions are borne by objects which can be products (physical goods), services, experiences, events, persons, places, properties, organizations, information or even ideas that describe quantifiable benefits that individual organizations making an offer promise to deliver [4]. Therefore propositions include many interlinked activities and actors that are not creating value in sequential pattern. Success of a company depends on how efficiently it can convert one form of value into another [11]. 2 Research within case company A As roots of the entrepreneurship paradigm are also in psychology and sociology, where it makes sense to use qualitative methods while digging deeper into our research [12]. Qualitative approaches are used when wishing to go beyond mere description at a generalizable level in empirical investigations [12]. During the first stage of the research we gathered information, experience and feelings from within a construction company. We were included in decision-making, managing, marketing, bidding, accounting, construction, processes during 3 years, that was a sufficient time for gaining a feel of how the company worked within its economic landscape and help it develop its value propositions and business-model. During and after active research-period we conducted various qualitative data collecting strategies, such as interviews, conversations, observations, documentary studies and selfreports [2],[12]. Although the economic landscape is constantly moving and the business is constantly developing, we also tried to perpetuate the moments and compare the numbers, indicators and trends before, during and after the research [2]. This is how we gathered quantitative data for the research. 2.1 Case Company A 2.1.1 General description of Company A After analysing Company A, we can describe it as a successful micro-sized company founded in 2006 and offers turn-key solutions in the area of industrial construction, using developed modular solutions. Regular clients are industrial companies and farms that need fast and effective construction service [2]. Company A is outsourcing all the services it needs (accountancy, construction drawings, material transport, montage etc.) and is mostly seasonal (projects are executed from late 643 spring till early winter, when the dirt is soft). Small size gives it some advantages: low fixed costs, dynamics, independence, and efficiency, easy and transparent management. Company A is customer-centric, trying to understand the context and needs of every client. It is open and honest, telling potential customers that „in the end, you are paying for everything“, therefore the client is motivated to choose what he wants to pay for and what not (whether it wants to pay for additional security and storage room or let construction workers keep their machinery in customer`s existing facilities). 2.1.2 What did we learn about Company A? Company A is using successfully a different business model than other construction companies in Estonia. 1. Company A is aiming for system efficiency and cost reduction: a. Is trying to view the whole value system b. Is enabling its customers to contribute to construction process c. Is outsourcing most of the services it needs. This also keeps the company dynamic d. Is gathering information from construction workers, designers, production companies etc. for better ideas and development e. Is ordering from smaller companies from all over Estonia 2. Company A is flexible in order to achieve win-win-win solutions a. Contracts are simple and developed for mutual win, if possible b. Company A is listening to suggestions from its construction workers, manufacturers etc. 3 Development of value system analysing methodology After analysing and understanding research data from Company A in depth, we conducted a literature review and numerous case analysis on literature basis (IKEA, Merrild, American Express, Amazon etc.). We developed a new value-centric methodology for developing products, services and business-models [4]. 3.1 Literature review and case analysis Before developing a practical value-centric methodology, we gained a better and more comprehensive unerstanding of the term „value“ in different fields of science [4]. The term „value“ is one of the central terms in many research fields related to engineering design, product development, marketing, Product/Service Systems, psychology et. Though the term has many different contexts and applications, we, the authors, see value to be the core concept of integrated product, service and business development and thus propose that a value-centric model of these processes will be beneficial and is needed [4]. Business strategy and marketing literature on rethinking customer value and the value system prove the relevance of the topic and need for a model that would help companies to understand their value system (big picture) and aid them in discovering new potentials within the system. Next we analysed different cases on literature bases in parallel to the results of our case Company A and our understanding of term „value“. We started noticing common success factors, such as: x Successful companies know their customer`s needs, wants and wishes more perciesely and they are able to see their context. x Successful companies have found ways to overcome some barriers and restrictions and are able to offer better propositions for their customers. x Successful companies have learned to expoilt previously unused resources and potentials, that takes their efficiency to a next level. ICED11 3 644 x Successful companies know their own, clients` and partners` processes well and are able to see the „big picture“. We put our findings on paper and created a two-stage value-centric product, service and business model development methodology. We then tested our methodology, on literature bases, on one successful company [4]. The methodology seamed to fulfil the goals. 3.2 Value-centric product, service and business model development methodology Our developed vaue-centric business development methodology consists of three stages [4]: 1. value activity cycles, 2. value analysing matrix, 3. analysis of the effects of possible changes within the value system. Value activity cycles make it possible to see some interlinks, opportunities and barriers between the customer and the company. Analysing this model with the help of value analyzing matrix from activity perspective, helps companies to see the big picture about the situations the customers, itself and other actors go through. Analysis of the effects of possible changes within the value system help to foresee benefits and risks of possible changes. By describing the big picture about the situations the customers, the company itself and other actors within a system, it is possible to see potential interlinks for value co-creation, sharing, transaction and find ways to overcome barriers within a system. 4 Testing value-centric business developing methodology Developped methodology is aimed to be practical and easy-to-use tool for every company from any field. We have tested it on 2 different companies with different businessmodels and are in the middle of analysing process in third company (Table 1). Table 1 Overview of companies, where value-centric business development methodology has been tested Company B Company C Company D 250 workers 50 workers 50 workers No. of workers Machine building Production Engineering Field Example of x Heavy cranes x Metal parts and x Drawings, products calculations, assemblies for Mother x Platforms for oil rigs company. optimization of x Other XXL products different x Some sub-contracting constructions, activities conveiers etc. Close x Head contractors x Mother-company x Clients relationships x Sub-contractors of x Sub-contractors of x Sub-contractors with Company B company C x Concern (Company D is one x Innovation-partners part of bigger concern) As it was first difficult to find companies to test our methodology on, we were forced to reduce the amount of time the companies need to invest in analysing their business by using our value-centric methodology. The research was conducted in table tennis principleresearchers created a draft of one stage of analysis and sent it to case company (Figure 1). 645 Case company improved and corrected the draft and sent it back to research team ect. After proposing such working principle, the companies agreed to participate in our research easily. Figure 1 Principal process of the testing phase 4.1 Stage one of value-centric business development analysis Based on information gathered from meeting with company representatives, we created activity cycles of all actors within the value system. Results of Company B are shown in Figure 2. 4.2 Stage two of value-centric business development analysis In second stage we analyzed previously specified activities in 3 perspectives, for all actorsx Why the actors are acting like that? (their needs and wants), x Can they act differently? (their potentials, resources) and x Why don`t/can`t they act differently? (their barriers, restrictions). A small fraction of the matrix is shown on Figure 3. ICED11 5 646 Figure 2 Current value activity cycles of Company B Figure 3 Value analyzing matrix of Company B (a small fraction) ICED11 6 647 4.3 Stage three of value-centric business development analysis In third phase, we analyzed the impact of changes within the value system (Figure 4): x What precisely can be changed within a value system? x What are the expected benefits of the change? x What are the expected dangers of the change? Figure 4 Matrix for analysing the impact of changes in Company B (a small fraction) Based on the understanding gained from value-centric analysis methodology, we proposed practical strategic suggestions and described in concised manner their impact (Figure 5). Figure 5 Strategic suggestions and their impact in concised manner 4.4 Testing results Companies were rather happy to participate in our value-centric business development research. They were open in giving input to our research and replied research draft within 2-3 days (this might indicate their belief in our methodology). After value-centric analysis process was finished, we asked them to fill in questionnaire. The results are shown in Table 2. ICED11 7 648 Table 2 Answers to questionnaire ŽŵƉĂŶLJ After analysing companys` value system with our methodology, the Company knows what actions its clients perform BEFORE perceiving their product or service. After analysing companys` value system with our methodology, the Company knows what actions its clients perform DURING perceiving their product or service. After analysing companys` value system with our methodology, the Company knows what actions its clients perform AFTER perceiving their product or service. After analysing companys` value system with our methodology, the Company knows what its clients and partners NEED and WANT . After analysing companys` value system with our methodology, the Company knows its clients` and partners` RESOURCES and POTENTIALS . (material, technological, intellectual, timely etc. ) After analysing companys` value system with our methodology, the Company knows its clients` and partners` BARRIERS and RESTRICTIONS . (What makes it difficult for their clients and partners to act). After analysing companys` value system with our methodology, the Company knows how to create offers and propositions, that harmonize with clients` and partners` values and processes. Analysing Companies` value system with our methodology helps the Company to see the "BIG PICTURE". After analysing Companys` value system, the Company understands its OPPORTUNITIES better. After analysing Companys` value system, the Company understands its RISKS better. After analysing Companys` value system, the Company understands its BUSINESS MODEL better. After analysing Companys` value system, the Company understands its POTENTIALS for development and next steps to take. ŽŵƉĂŶLJ EK  z^    z^  EŽĐŚĂŶŐĞƐ dž EŽĐŚĂŶŐĞƐ dž EK  dž    dž    dž    dž  dž    dž    dž   dž    dž   dž   dž    dž     dž dž        dž    dž   dž    dž    dž   dž   dž    dž   ICED11 8 649 Analysing Companys` value system with our "Value Activity Cycle" methodology was EASY. Analysing Companys` value system with our "Value Activity Cycle" methodology was USEFUL. z^ ZĂƚŚĞƌEŽ ZĂƚŚĞƌzĞƐ EK z^ ZĂƚŚĞƌEŽ ZĂƚŚĞƌzĞƐ EK dž     dž    dž     dž    Company’s` representatives evaluated the methodology to be easy and useful. They gained a better understanding of their clients and partners, and know how to create offers that harmonize with their clients and partners values and processes. The methodology helped them to understand the “big picture” and discover development opportunities as well as potential risks. From practical point of view, the methodology helped companies to understand its development potentials in deeper level and know what steps to take next. Going through our methodology took in average 3,5 hours of time from Company’s representatives and 14 hours of time from the research team, which is perceived as acceptable and worthwhile investment of time. 5 Conclusions During first stage (Descriptive Study 1) of our research we gained practical experience and knowledge from within one construction company [2]. During second stage (Prescriptive Study) we conducted a wide literature review, analysed cases on literature bases and developed a practical methodology for value-centric product, service and business model development [3], [4]. As a last stage of our research (Descriptive Study 2) we test our methodology on 2 case companies from different fields. This paper introduces the results of our research projects final stage- testing of our valuecentric business development methodology. Test results show that our research project has been successful. We have been able to develop an easy and useful practical methodology for manufacturing companies to use to gain a better understanding of the “big picture”, its clients and partners, its potentials and risks. Further tests will be done in other companies from different fields (Company D is an engineering company, providing drawings and calculations). As we are living in a volatile world, companies need to be proactive and use their resources effectively. Our methodology helps companies to easily analyse and do research in their value system Citations and References [1] [2] [3] Editorial board of IJDCI., “Perspectives on design creativity and innovation research. Introduction”, Perspectives on design creativity and innovation research. Vol.1, Iss.1, 2013. 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