CXO

Total Value Management helps balance priorities

Total Value Management (TVM) helps organizations assess the long-term implications of their actions and aims at striking a balance between the needs of all stakeholders. Find out how to craft a basic strategy for approaching TVM in your organization.


By Michael R. Wood

Once upon a time, the buzzword was TQM (Total Quality Management). Now, you have to look at more than quality. Today's successful businesses are about value. Welcome to the age of Total Value Management (TVM).

We have all heard of TQM. It started with Edward Deming and has taken many twists and turns since then. After chairing the conference on Meeting Project Stakeholders’ Requirements, I realized that it is all about value. I also realized that meeting a single stakeholder group’s requirements is not very hard.

The trick is to strike a balance between all stakeholders; thus TVM.

TVM would then be the process of delivering superior value to stakeholders in a balanced and sustainable way. This means that the proper emphasis needs to be placed on the often-competing needs of owners, customers, employees, strategic partners, and community. Finding the right mix becomes the challenge.

For example, if too much focus is given to ROI for owners, then we might tend to discount service levels to customers to save money, or we might discount growth opportunities to employees, or disrupt longstanding vendor relationships by driving too hard a bargain.

In the short term, this looks good, but in the long term, it spells disaster. So sustainable value is the key.

Look what has happened in the airline industry over the past 10 years. Service levels have declined, customer loyalty has all but disappeared, and profits are harder to find than ever. Yet airplanes are packed full of uncomfortable travelers who hate the whole experience of flying.

What happened? My guess is that the value provided to stakeholders is out of balance and misaligned. This is somewhat borne out by the success of smaller regional airlines that provide a total first-class experience for about the cost of normal coach fares. In the case of one such carrier, the profits are high, the customer loyalty outstanding, and the staff appear to be quite happy.
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Getting to TVM
TVM implies that an organization must look to the long-term implications of its actions. It means that its focus must be on sustainable growth, not short-term stock price pressures.

It means that it must allow strategic partners and employees to prosper. It means that customers must be provided a superior experience with each interaction and transaction. So how does this happen and how can it be tested?

Step 1: Strategies
Each strategy must be directed at improving the value for one or more stakeholder groups. Each strategy must also be structured so as not to diminish value to other stakeholders. And each strategy must be stated in operationally measurable terms that clearly identify the value gap between what is delivered to stakeholders now and what should be delivered.

Step 2: Improvement initiatives
The next step is to develop improvement initiatives that are tightly aligned with the strategies developed. This means that the improvement initiatives must contain measures and outcomes that link directly to the measures and outcomes stated in the strategy.

To do this, management must look inward to its knowledge workers for solutions. This requires that management communicate its strategies and objectives in a nuts-and-bolts fashion. It requires management to view the organization in terms of how its processes function and to pose challenges to cross-functional groups that represent those processes.

For example, a car manufacturer might have a strategy to improve customer satisfaction with its cars by building a car that gets 50 miles per gallon (not 30); seats six passengers comfortably (not four); can withstand a 20-mph crash (not 10) without damage to the cabin; that comes with a 10-year, full-service warranty (not three) for under $30,000 (not $45,000); at a margin of 15 percent (not 8 percent)—all within 5 years.

The management might organize a team of knowledge workers that represent the car design and manufacturing process. They could pose the challenge to that team and allow them to propose ways to achieve the goal. The team would comprise engineers, designers, assembly-line workers, etc. Collectively, they would explore how to reduce materials weight, streamline production, develop engines, etc., to achieve the goal.

Step 3: Feedback and metrics
Next, develop feedback systems and supporting metrics to measure the company’s effectiveness in achieving its strategies. Here, we look to the value gap defined in the strategies.

The current state of the value delivered to stakeholders becomes the baseline from which to improve. The future state of value that is desired to be delivered to stakeholders is the target of that improvement.

The feedback system needs to be as close to real time as possible. The metrics should be limited to only those things that measure progress (or lack of progress) toward the future state. Thus, performance is measured in terms of the progress made toward achieving the future states defined in the strategy and supported by the improvement initiatives developed by the cross-functional teams.

Much of this approach should seem familiar, and yet, it is not done well in practice. TVM is an idea that I believe is yet another refinement to the endless search to build and sustain organizations that deliver quality and value to its stakeholders.

This article was originally published on gantthead on May 14, 2001.

Michael R. Wood is the subject matter expert for the Process Improvement department on gantthead.com.


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