I'm interupting my usual academic ramble to blog about facebook, business model and system.
Don't get me wrong. Unlike the many social network bashers out there, I absolutely love facebook. I use twitter and linkedin for my professional life and facebook for my personal and social life.
Here's how I co-create value on facebook:
I update my status at least once a day, to a max of 3 times. I have 30+ family members over 4 continents and it's the means through which I keep in touch with their children, events and general life and they can keep in touch with my life. I have a further 200 friends all over the world and I am grateful that everyone bothers to update and keep in touch as well so we form a good community. We share photos, joys, pains, irritations from big events (such as graduation, births etc.) to menial stuff like what we ate for lunch. We share youtube links, photos and jokes from the downright ridiculous to those that get you on the floor laughing. My three girls (2 teen and 1 adult) are all on facebook as are my mom and dad and my aunts.
Our interactions keep us connected. Some of us just play farmville. Some are just stalkers. Some are too shy to say anything, some (like me) often say too much. Some post political links and opinions and others upload mobile photos from where they're travelling. When my husband created an 'eggs'-plosion because he forgot he was boiling eggs in the kitchen, the photo was online within minutes and family from various parts of the world commented on it. I have 500+ photos online and with my iPad, I pull them down to show photos of my house, kids, garden etc. when I visit family who don't have facebook accounts. The interactions can be many and menial, few and life-changing or a combination. All in all, it makes us all log in at least once a day. The combination of interactions surrounding the big and the menial happenings in our daily lives result in various emergent properties in a social network system - community, comfort and serve to generate further activities outside of the online world and make the world a lot smaller.
What of privacy? There is an old saying - we are only afraid of inventions that happen after we're born. hydrochlorofluorocarbons are in your fridge but we don't seem to cringe when we go to the kitchen. Radio was harmful when it was first introduced. I'm not trying to underplay privacy issues. Rather, I am saying that everything in the world is dangerous if you don't know how to manage it. A hammer, nails - all very dangerous. But we're not threatened by them. We know how to keep it out of reach of children and use it safely because we have the skill set to manage it. So facebooking is a 21st century living skill set that you need to acquire to co-create value in a social network. And if you acquire that skill set, you acquire resources (knowledge) to make wonderful things happen.
What is this skill set?
First, managing privacy.
I have 4 privacy levels - limited profile for people I don't know well; acquaintances for those I know but aren't close. normal for... well, normal friends; close and family friends for the 'inner circle'. With 53 photo albums, my friends have various access rights to view some albums but not others e.g. As an academic, I have public albums viewable by all and family albums viewable by inner circle only. I even have information that is available to 'everyone' and is 'google-able' (horrors!). I don't think everything should be private nor do I think everything should be out there. The skill is to know what information should be private or public depending on what benefit you can get from it. It may sound complicated but its as complicated as learning to programme a VCR back in the eighties and as a 21st century skill set, I believe I have it. Do you?
Second, managing time
How much time do I put into facebook? To many of my friends, they think I spend too much time. Actually, I don't. Usually I am on fb for my downtimes - at airports, waiting for the next appointment, in trains. It can be a distraction (so can my hubby but I'm not getting rid of him) but you just manage it because the benefits are there. Does it require some discipline? probably... i mean do we require discipline to not reach for that third/fourth/fifth glass of wine?
Third, managing effort
I upload photos, comment of friends statuses (statii?).. I have downtimes (when I'm on online once a day) and uptimes (on all day). More importantly, I cajole, persuade and badger other friends and family to come onto facebook because it is the community and interactions that matter - not the size of my network. So my effort is to keep my page active and to badger others to keep theirs active.
So the currency of facebook isn't money. I don't pay money for it. Yet I do ' pay' for it in effort, time and privacy so as to attain the joys, connectedness, company from my friends and love from my family. At the loneliest place in the world (i.e. airports), I am still connected. If you see a woman smiling at her iPhone in the middle of an airport, that would be me - seeing the latest photo of my nephew, or laughing at a link posted by my daughter.
Note that the three skill sets above are the (operant) 'resources' I put in to co-create value. There are revenue model implications here if fb wants to charge a subcription because they would then be making me add a fourth resource - my money; mmm....you can, but you need to think about how.
Which of course leads me to the facebook business model. Which is? capitalising on the size of the network which in turn generate the eyeballs and click throughs on ads. Are you feeling something is not right? of course...here's where the problem is.
Misalignment of value in the Business Model
Think about google. What is the value of google for a user? Ads and information that is tailored for my needs as precisely as possible when I use the search engine. How does google make money? through ads and information tailored more precisely for the customer's needs. See the match? The value I co-create with Google is the same value Google is deriving revenues for (even if paid by advertisers).
Facebook? the value I co-create above is obviously NOT the same value Facebook derives revenue for. Sure, if I get more people onto facebook I get a bigger network which is great for facebook - but getting people onto facebook is for me a means to an end. I don't really get a whole lot of value from just getting my friends on facebook. I get it when they interact with me. So obviously, there is a whole misalignment of the value I co-create and the value facebook derives revenue from.
This misalignment poses a huge challenge on the viability and sustainability of facebook as a system. At it's current state, it is barely viable, even though the network is growing. Long term sustainability becomes an issue. I have seen many companies who don't recognise that the customer value from their offering is not the value they derive revenues from. It usually ends tragically. An organisation core competence must come from its capability to effect core value transformations which are the same transformations that is co-created with customers and which are valued by the same customers. The alignment becomes valuable for revenues to the extent that customers may not even have to a penny for it. While there can be revenues from other sources (as it is for Google), primary revenue should come from that alignment. Until facebook achieves alignment of core value transformations, it's unsustainable, at least, from my point of view.
Emergent Properties
This value that I attain from facebook is an emergent property. It's community, it's perceived connectedness, it's company - all of which are emergent from interactions. If you've been reading my blog you would understand that you can't determine emergent properties - merely intervene where it could catalyse, faciliate and enable the system to achieve the properties. And how does facebook do that? asking you to click through more targeted ads. wow. really? actually, i would argue they are NOT interested in the emergent properties. they just want more eyeballs - a bigger network - more, more, more! someone should tell them about roman empire...which part of hearts and minds did they not get?
Also, emergent properties, systems and interactions are a new science. i guess i can just call them uneducated. but again, if they don't get their act together, big systems can fail. big time.
OK, so what should facebook do (aside from hiring me that is, but I'm too busy facebooking, sorry..)
Focus on transforming information - not just harness information - facebook spends too much time with the analytics guys and not enough with value guys. If they know how to assist facebookers in transforming their information better, they would have a much more robust revenue model.
Focus on enabling quality interactions - it's not the people ...s****d! it's their interactions! Quality interactions generate quality information and great emergent properties. Help your facebookers transform interactions and information and you're on the right road.
I decided to write this blog (and give fb some free advice) because this morning, something happened that p****d me off. My darling nephew, only 7 months old, had a facebook page. It was my sister who created it because she wanted to keep her identity separate from his. I visit this site often as my sister would update his activities, teething problems, crawling, smiling. Loads of photos and videos and i love it. 'Marcus is feeling cranky this morning'; 'Marcus misses his dad who is away for the weekend'.... it was a wonderful way to watch Marcus grow up. I show it on my iPad to family as well. All of us family around the world love the page.
Facebook closed it this morning because you need to be 13 and above to have a facebook page. I understand why. With the number of nasties stalking the internet, we need to protect the young and vulnerable. But shutting it down? could you not create a better mechanism design for this that protect privacy but allow for interactions? Well, fb would probably think - nah... we should just close him down coz he's not going to click on any ads and he's not going to generate more friends, and we can show we care about the vulnerable users.... as long as fb has this current business model, they will continue to struggle with privacy issues and business model sustainability...this is because misalignment of value transformations would result in decisions made that would change the dynamics of value in the system ..
From my read of facebook, these guys probably have a good idea how they became successful (analytics will tell you that) but are completely oblivious to why..... without understanding the core value transformations that made facebook what it is today they would need to be very careful what they tweak, because a system that spirals upward can easily spiral downwards (think myspace) if the interventions are wrong and if you focus on the wrong transformation. Facebook - listen and learn and for heaven's sake, give me my nephew's page back!
Saturday, 14 August 2010
Tuesday, 27 July 2010
How to innovate in value co-creation - part 1
I have just finished writing the paper for the Forum on Markets and Marketing - the meeting in Cambridge with Bob Lusch and Steve Vargo entitled 'Value Co-creation in Complex Engineering Service Systems: Conceptual Foundations'. Don't be put off by the word 'engineering' in the title. the paper is intended to integrate the engineering service research and the management service research streams. In the paper, I had 5 propositions and I thought I'll expand on each managerially in my blog because my blog would probably explain it better than a dry academic paper. (and it IS dry - starts with philosophy and ends with engineering design.... enough said). Also, I do think the 5 propositions set the stage for innovation that is value based.
So... on to proposition 1
Proposition 1: A perfect system for the co-creation of use-value makes endogenous all co-creators use-values.
Yikes...where do i start.
If you've been following my blog, you should have read all about co-creation and use value (http://value-basedservicesystem.blogspot.com/2010/02/value-in-use.html) and (http://value-basedservicesystem.blogspot.com/2010/01/value-co-creation-and-service-systems.html). You would need to read those to understand this post.
lets say, very simply, a firm is in the business of producing cups. so the CEO will say, what do customers want from cups? lets do market research. needs analysis. requirement analysis. focus groups. dance the salsa...la di da..
you come up with a spec list.
1. cups should have handles
2. it should hold x ml of fluid
when you brainstorm on the research you realise - wait, some people want hot beverages, some people drink a lot, some people drink very little, some people want it pretty, some people want lids/covers etc. etc. so you go to the marketing department and say - find me the segment of market i should target if I made cup type A, cup type B, cup type C and so on.... and tell me which should be my target market segment...so the clever marketing chaps do their rocket science and comes up with ta-da! cup type A would give you £A in revenues, cup type B gives you £B revenues and then you sit down and make a decision on which cup types you can make, how many types and how to make them as efficiently as possible. That was how the world worked.
Marketing folks like to match the type of person with what they buy. so you buy a pretty cup type B and they say - aha... woman age X of this type of behaviour and lifestyle would buy cup type B because they are concerned with selling to you. Actually, I would like many types of cups for many different uses and different contexts. So, mr marketing, my cup-using behavior is actually more important than my myers-briggs score (not that you use it)...also, my cup-using behavior is driven by whom i'm with, what time of the day etc. etc. so .....could you go design and make a multi-context cup please?
firms don't, and i'll try to explain why.
My training now tells me I have to use a mathematical word so forgive me. What that whole process above says is that value has been determined exogenously. This means it's OUTSIDE the use and co-creating system. it means the firm has decided to determine what the value is, make it and then deliver it. it means that when the cup is used by the customer, it can no longer be changed (its exogenous remember?).
but wait. how do i really value my cup? when i take my cup to the garden, i want a lid to keep the bugs away. when it holds water, i want more of it and when it holds expresso, i need less of it. so what I value about my cup is use-value i.e. a cup that understand my context of use which can change but if my use-value is not endogenous to the firm's, how would they even think of designing a cup for my ever changing context?
they don't. instead, it's easier to exogenously determine use-value for many contexts and construct their value propositions around them. so they produce many different cups. of course they go through the whole process of determining value. they call it a 'value-driven approach' (*irony*) and its step one in the lean handbook - 'first determine what the customer values'......(i will blog about about this in the next post)
its the world that has existed because we don't interrogate our assumptions. because its just easier to make different cups to fit different contexts. but by doing it that way, the determination of value will always be exogenous to the use of value and when use-value is co-created, which is contextual. firms are fixated on the idea that one has to come first. so value determination and specification is exogenous to use. So when I co-create value with a cup i.e. use it to drink stuff etc. etc. I am actually co-creating with a value proposition of a firm that have already decided and determined what I wanted from this cup and in what context and I, as user of cup, would then co-create value when I am in the context that has been predetermined... meaning, I make sure I, in my own world and own system 'fit' the cup context that has been predetermined. that is why i buy many cups. because i have many contexts of cup use. and dont even get me started on contextual emotional value-in-use.
but it doesn't have to be like that. especially if you're thinking of innovation. .
why dont firms look at use value as endogenous? because traditional marketing looks at exchange value and choice and once you choose, they aren't really very bothered with the different contexts on how you use the thing (because you paid for it already). So they push the problem (and risk) of contexts to you. Let you decide what your most common context is and let you choose which cup to buy.
but that's a little unfair. in return for my use-value of a cup, i give you, the firm, money. so you get money, i get cup. but my use-value of the cup is limited to the contexts you predetermined whilst your use-value of the money is... oh wait.. infinite in context (don't you just lurrve the acontextual use-value of money? ha ha..). So mr firm, i am actually probably quite happy to give you more money if you could give me greater degrees of contextual freedom of my cup. In fact, we could design a perfect system of co-creation where you give me different cup for every context i might want a cup and I could pay you a lot of money for it. let's just call it a multi-cup carrying butler.
a perfect system for value co-creation is when every co-creator's use value is endogenous in the system. the firm's use value (money, which has use-value across infinite contexts) and your multi-contextual use-value of the thing. It probably is too expensive but hey, a great starting point to think about innovation and its a great way to think about the role of technology. and it's starting to happen as well.
take a good look around you. there are some companies out there who no longer make value exogenous to use. simplest example is the phone. it used to be a phone. to talk, to communicate. today, its not a phone anymore. yes yes they call it a smartphone or somethingphone but it's become a platform onto which you can use it for whatever you need at the context you wish to have. so my iPhone can be a compass at the context where a compass suddenly became necessary. its not just technology driven. its a mindset change in understanding use-value and contextual co-creation in design and delivery - the understanding that value is always use-value within changing contexts and value propositions do not have to be exogenous in the co-creation process.
so where's my smart cup?
So... on to proposition 1
Proposition 1: A perfect system for the co-creation of use-value makes endogenous all co-creators use-values.
Yikes...where do i start.
If you've been following my blog, you should have read all about co-creation and use value (http://value-basedservicesystem.blogspot.com/2010/02/value-in-use.html) and (http://value-basedservicesystem.blogspot.com/2010/01/value-co-creation-and-service-systems.html). You would need to read those to understand this post.
lets say, very simply, a firm is in the business of producing cups. so the CEO will say, what do customers want from cups? lets do market research. needs analysis. requirement analysis. focus groups. dance the salsa...la di da..
you come up with a spec list.
1. cups should have handles
2. it should hold x ml of fluid
when you brainstorm on the research you realise - wait, some people want hot beverages, some people drink a lot, some people drink very little, some people want it pretty, some people want lids/covers etc. etc. so you go to the marketing department and say - find me the segment of market i should target if I made cup type A, cup type B, cup type C and so on.... and tell me which should be my target market segment...so the clever marketing chaps do their rocket science and comes up with ta-da! cup type A would give you £A in revenues, cup type B gives you £B revenues and then you sit down and make a decision on which cup types you can make, how many types and how to make them as efficiently as possible. That was how the world worked.
Marketing folks like to match the type of person with what they buy. so you buy a pretty cup type B and they say - aha... woman age X of this type of behaviour and lifestyle would buy cup type B because they are concerned with selling to you. Actually, I would like many types of cups for many different uses and different contexts. So, mr marketing, my cup-using behavior is actually more important than my myers-briggs score (not that you use it)...also, my cup-using behavior is driven by whom i'm with, what time of the day etc. etc. so .....could you go design and make a multi-context cup please?
firms don't, and i'll try to explain why.
My training now tells me I have to use a mathematical word so forgive me. What that whole process above says is that value has been determined exogenously. This means it's OUTSIDE the use and co-creating system. it means the firm has decided to determine what the value is, make it and then deliver it. it means that when the cup is used by the customer, it can no longer be changed (its exogenous remember?).
but wait. how do i really value my cup? when i take my cup to the garden, i want a lid to keep the bugs away. when it holds water, i want more of it and when it holds expresso, i need less of it. so what I value about my cup is use-value i.e. a cup that understand my context of use which can change but if my use-value is not endogenous to the firm's, how would they even think of designing a cup for my ever changing context?
they don't. instead, it's easier to exogenously determine use-value for many contexts and construct their value propositions around them. so they produce many different cups. of course they go through the whole process of determining value. they call it a 'value-driven approach' (*irony*) and its step one in the lean handbook - 'first determine what the customer values'......(i will blog about about this in the next post)
its the world that has existed because we don't interrogate our assumptions. because its just easier to make different cups to fit different contexts. but by doing it that way, the determination of value will always be exogenous to the use of value and when use-value is co-created, which is contextual. firms are fixated on the idea that one has to come first. so value determination and specification is exogenous to use. So when I co-create value with a cup i.e. use it to drink stuff etc. etc. I am actually co-creating with a value proposition of a firm that have already decided and determined what I wanted from this cup and in what context and I, as user of cup, would then co-create value when I am in the context that has been predetermined... meaning, I make sure I, in my own world and own system 'fit' the cup context that has been predetermined. that is why i buy many cups. because i have many contexts of cup use. and dont even get me started on contextual emotional value-in-use.
but it doesn't have to be like that. especially if you're thinking of innovation. .
why dont firms look at use value as endogenous? because traditional marketing looks at exchange value and choice and once you choose, they aren't really very bothered with the different contexts on how you use the thing (because you paid for it already). So they push the problem (and risk) of contexts to you. Let you decide what your most common context is and let you choose which cup to buy.
but that's a little unfair. in return for my use-value of a cup, i give you, the firm, money. so you get money, i get cup. but my use-value of the cup is limited to the contexts you predetermined whilst your use-value of the money is... oh wait.. infinite in context (don't you just lurrve the acontextual use-value of money? ha ha..). So mr firm, i am actually probably quite happy to give you more money if you could give me greater degrees of contextual freedom of my cup. In fact, we could design a perfect system of co-creation where you give me different cup for every context i might want a cup and I could pay you a lot of money for it. let's just call it a multi-cup carrying butler.
a perfect system for value co-creation is when every co-creator's use value is endogenous in the system. the firm's use value (money, which has use-value across infinite contexts) and your multi-contextual use-value of the thing. It probably is too expensive but hey, a great starting point to think about innovation and its a great way to think about the role of technology. and it's starting to happen as well.
take a good look around you. there are some companies out there who no longer make value exogenous to use. simplest example is the phone. it used to be a phone. to talk, to communicate. today, its not a phone anymore. yes yes they call it a smartphone or somethingphone but it's become a platform onto which you can use it for whatever you need at the context you wish to have. so my iPhone can be a compass at the context where a compass suddenly became necessary. its not just technology driven. its a mindset change in understanding use-value and contextual co-creation in design and delivery - the understanding that value is always use-value within changing contexts and value propositions do not have to be exogenous in the co-creation process.
so where's my smart cup?
Friday, 2 July 2010
Value-in-use and exchange value
I've been meaning to blog about this for some time now because I get asked this question a lot. What's the relationship between value-in-use and exchange value? Everyone is talking about value co-creation but what about price (exchange value)?
I think maybe because I've actually written an entire book on pricing of services that I seem to get asked about this. Rather than say 'well, I'm covering that in my second edition which is coming out next year', I thought I'll blog about it. Much of it I've already covered in the book although I don't explicitly use exchange value and value-in-use (I will in the next edition).
Service dominant logic and many of the gurus in management have been talking a lot about value co-creation right? that it's experiential, phenomenologically derived and co-created between the individual and the firm either directly through activities and interactions or indirectly through a good, or an item purchased from the firm. I give quite a number of examples of this on the lecture circuit, as well as the potential opportunities for innovation surrounding this concept. So value-in-use is the value in context, experienced by the customer. However, this often happens after purchase, or at least, after the contract to purchase. That means there is a separation of time between purchase and the experience. This happens whether you buy a phone, beer, TV, stay in a hotel or go to the gym. At the time of purchase, you haven't experienced it yet. You may not have any idea what that experience might be like,..... but you are asked to buy. at a certain price.
So..... at a certain price or exchange value, the firm is asking the customer to do a few things at the point of purchase.
First, the firm is asking the customer to imagine what the co-creation experience might be like. That's uncertainty no. 1 for the firm in pricing - I call this the uncertainty from a lack of imagination (economists call it bounded rationality see Herb Simon). Example: If you're trying to sell a concert ticket, your customer will not pay if he has no imagination for what it might be. £100 an hour is now worth... maybe £50 because of your customer's lack of imagination? ouch..
If this is his/her repeat purchase, it's a lot easier BUT the context of experience might still change. That means the context/state of the experience may still change even on repeat purchase. I call this the uncertainty of context. Example: your concert is perfectly well imagined BUT your customer doesn't think the weather is going to be good. A discount of £70 to persuade him/her? more ouch..
Also, the value from the experience is co-created - meaning it depends on the resources of the firm in its proposition, but also the resources accessible to the individual to co-create that value. This is the uncertainty of resources. Example: Your customer has a great imagination and the weather will be good BUT he thinks he may not have time on that day. £100 an hour is now worth £30 or less? even more ouch...
Finally, the fourth uncertainty - that of the uncertainty from cognitive discounting. Remember that exchange value (price) is at the point of purchase and value-in-use is at the point of experience? And that there is a separation of time? Well, finance people are well acquainted with the notion net present value and cognitive discount is principally the same. We discount the value of the future value in different ways. The gradient of the discount changes for different people - those who are more risk averse may discount more, the income effect (how expensive is it) may change that gradient as well. I actually mathematically modeled spot and advance prices in a paper last year where I investigated capacity effects of the firm as well and the role of refunds. (click here for it).
These four uncertainties contribute to a valuation risk at the point of purchase - meaning that the person's idea of value-in-context or value-in-use will not just be what is promised by the firm (through advertising and promotion) but contributed by all these four uncertainties i.e. exchange value carries the risk from these four uncertainties inherent in value-in-use.
Often, the firm only like to promise what they can deliver - which usually mitigates the uncertainty of firm's resources in co-creation for the customer. There are a few more uncertainties in there though - mostly from the customer side. And firms wonder why they can't get the price they want.
All that said, exchange value (price) bears very little resemblance to value-in-use after all that. In layman terms, from a value and value co-creation perspective, don't think your price is necessary a good reflection of your offering.
I think maybe because I've actually written an entire book on pricing of services that I seem to get asked about this. Rather than say 'well, I'm covering that in my second edition which is coming out next year', I thought I'll blog about it. Much of it I've already covered in the book although I don't explicitly use exchange value and value-in-use (I will in the next edition).
Service dominant logic and many of the gurus in management have been talking a lot about value co-creation right? that it's experiential, phenomenologically derived and co-created between the individual and the firm either directly through activities and interactions or indirectly through a good, or an item purchased from the firm. I give quite a number of examples of this on the lecture circuit, as well as the potential opportunities for innovation surrounding this concept. So value-in-use is the value in context, experienced by the customer. However, this often happens after purchase, or at least, after the contract to purchase. That means there is a separation of time between purchase and the experience. This happens whether you buy a phone, beer, TV, stay in a hotel or go to the gym. At the time of purchase, you haven't experienced it yet. You may not have any idea what that experience might be like,..... but you are asked to buy. at a certain price.
So..... at a certain price or exchange value, the firm is asking the customer to do a few things at the point of purchase.
First, the firm is asking the customer to imagine what the co-creation experience might be like. That's uncertainty no. 1 for the firm in pricing - I call this the uncertainty from a lack of imagination (economists call it bounded rationality see Herb Simon). Example: If you're trying to sell a concert ticket, your customer will not pay if he has no imagination for what it might be. £100 an hour is now worth... maybe £50 because of your customer's lack of imagination? ouch..
If this is his/her repeat purchase, it's a lot easier BUT the context of experience might still change. That means the context/state of the experience may still change even on repeat purchase. I call this the uncertainty of context. Example: your concert is perfectly well imagined BUT your customer doesn't think the weather is going to be good. A discount of £70 to persuade him/her? more ouch..
Also, the value from the experience is co-created - meaning it depends on the resources of the firm in its proposition, but also the resources accessible to the individual to co-create that value. This is the uncertainty of resources. Example: Your customer has a great imagination and the weather will be good BUT he thinks he may not have time on that day. £100 an hour is now worth £30 or less? even more ouch...
Finally, the fourth uncertainty - that of the uncertainty from cognitive discounting. Remember that exchange value (price) is at the point of purchase and value-in-use is at the point of experience? And that there is a separation of time? Well, finance people are well acquainted with the notion net present value and cognitive discount is principally the same. We discount the value of the future value in different ways. The gradient of the discount changes for different people - those who are more risk averse may discount more, the income effect (how expensive is it) may change that gradient as well. I actually mathematically modeled spot and advance prices in a paper last year where I investigated capacity effects of the firm as well and the role of refunds. (click here for it).
These four uncertainties contribute to a valuation risk at the point of purchase - meaning that the person's idea of value-in-context or value-in-use will not just be what is promised by the firm (through advertising and promotion) but contributed by all these four uncertainties i.e. exchange value carries the risk from these four uncertainties inherent in value-in-use.
Often, the firm only like to promise what they can deliver - which usually mitigates the uncertainty of firm's resources in co-creation for the customer. There are a few more uncertainties in there though - mostly from the customer side. And firms wonder why they can't get the price they want.
All that said, exchange value (price) bears very little resemblance to value-in-use after all that. In layman terms, from a value and value co-creation perspective, don't think your price is necessary a good reflection of your offering.
Saturday, 5 June 2010
Emergence and Customer Experience
You have to forgive me for this post as I'm moving into much more complex ideas and articulating it is a challenge.
In my last post, I discussed the notion of variety in a system and the fact that delivering contextual value means inviting a whole lot of customer variety of contextual use into the system. This may render the system to be non-viable as the firm isn't able to absorb it. Either that or the firm attenuates the customer variety of use contexts which may result in an unhappy customer.
In some of my work, I am beginning to see that customer experience is emergent (I posted this earlier but will expand on it here). What do I mean?
1. Emergent properties of a system are properties that exhibited at the system level, which does not exist at the component level. That is the very nature of customer experience. Customer experience does not sit with the firm, or the customer. It emerges from the interactions between the 2.
2. Emergent properties exist because of the interactions. This means that interactions themselves are an asset, a unit of analysis. In a system of A+B+C, the '+' between A and B and the '+' between B and C (could be different interactions) hold the key to the emergence. Customer experience is a result of interactions between the components. Thus customer experience is an emergent outcome, even while a system is tasked to deliver functional outputs.
3. Emergent properties is the reason why a system is greater than the sum of its parts. That is why even when functional value is delivered (or not), customer experience still exists. It is emergent from the system. It makes the system greater (or not).
4. Emergent properties can not be deterministically designed (its emergent... doh)
So back to my ATM example.
Case A. You walk up to an ATM and you want to withdraw £200 and you wish to have 20 £10 bills (value of the ATM in context). You know you cannot get an ATM to do that so you attentuate your own variety and live with the 10 $20 bills that came out. You get a functional output you're not that satisfied with but you live with it. Your customer experience is just so-so (come on, its an ATM machine!)
Case B. You decided to go the teller to withdraw £200 and asked for 2o £10 bills.
(a) The teller smiles very nicely at you and say 'sorry sir, but i just don't have that many £10 bills today. But if I did, i would certainly give it to you!' You leave the bank again with a functional output you're not that satisfied with, but you had a nice experience.
OR
(b) The teller gives you a surly look, pulls open a drawer, counts the bills and gives it to you and continues to chat with the teller next to her, ignoring you. You leave the bank with a functional output you're satisfied with, but didn't have a good experience at all.
There are two thoughts here (and this stems from some of my own research). First, functional value seem to be a different construct from customer experience. Secondly, both constructs are achieved differently. Functional value could be achieved through deterministically designing a service and delivering on outputs. Customer experience, however, can only be achieved through a system of interactions resulting in emergent outcomes. By implication, delivering to FV could result in satisfaction (or dissatisfaction) but its the interactions that result in CE. That means the system that delivers functional value is not the same system that delivers customer experience.
Some firms do think that if they deliver functional value accurately and all the time, they would have happy customers. They probably would. But they may not have designed the interactions to have good customer experiences. That means they probably have designed only half the system. Or they could have accidentally delivered good interactions. Or they think that designing to functional value and to customer experience is the same system. It's not. One is deterministic, the other is emergent.
A final note on variety, to tie it back to my first paragraph of this post. Customer contextual variety is not necessary a bad thing. In fact, I would say the variety existing in customer contextual value is an opportunity for the firm to improve customer experience, since it means having interactions. A customer whose contextual value has little variety (e.g. taking the same bus every day) probably doesn't have much to say about his/her experience. So the greater the variety of contextual value, the more a firm has to design for both functional value and interactions with human resources (since human resources can absorb variety best), and the greater the opportunity for a great customer experience. I might just write a paper about this some day.
So, the bottomline is that a system can only be greater than the sum of its parts if you factor in the interactions. So my current fascination is on interactions. My work now is building a taxonomy of interactions, developing the notion of interactions as assets (within a collaborative system). With a taxonomy of interactions, we can discover what interventions can impede or facilitate what type of interactions (since interactions drive emergence, and since emergence can't be deterministically achieved, we need to work on interventions). Some might call this the co-creation of value. But in this work, I avoid the co-creators or the value that is co-created. I am interested in the 'combustion process', the 'chemical reaction', the 'glue', the 'interstitials', the 'dark matter'. And yes, you can call me mad.
In my last post, I discussed the notion of variety in a system and the fact that delivering contextual value means inviting a whole lot of customer variety of contextual use into the system. This may render the system to be non-viable as the firm isn't able to absorb it. Either that or the firm attenuates the customer variety of use contexts which may result in an unhappy customer.
In some of my work, I am beginning to see that customer experience is emergent (I posted this earlier but will expand on it here). What do I mean?
1. Emergent properties of a system are properties that exhibited at the system level, which does not exist at the component level. That is the very nature of customer experience. Customer experience does not sit with the firm, or the customer. It emerges from the interactions between the 2.
2. Emergent properties exist because of the interactions. This means that interactions themselves are an asset, a unit of analysis. In a system of A+B+C, the '+' between A and B and the '+' between B and C (could be different interactions) hold the key to the emergence. Customer experience is a result of interactions between the components. Thus customer experience is an emergent outcome, even while a system is tasked to deliver functional outputs.
3. Emergent properties is the reason why a system is greater than the sum of its parts. That is why even when functional value is delivered (or not), customer experience still exists. It is emergent from the system. It makes the system greater (or not).
4. Emergent properties can not be deterministically designed (its emergent... doh)
So back to my ATM example.
Case A. You walk up to an ATM and you want to withdraw £200 and you wish to have 20 £10 bills (value of the ATM in context). You know you cannot get an ATM to do that so you attentuate your own variety and live with the 10 $20 bills that came out. You get a functional output you're not that satisfied with but you live with it. Your customer experience is just so-so (come on, its an ATM machine!)
Case B. You decided to go the teller to withdraw £200 and asked for 2o £10 bills.
(a) The teller smiles very nicely at you and say 'sorry sir, but i just don't have that many £10 bills today. But if I did, i would certainly give it to you!' You leave the bank again with a functional output you're not that satisfied with, but you had a nice experience.
OR
(b) The teller gives you a surly look, pulls open a drawer, counts the bills and gives it to you and continues to chat with the teller next to her, ignoring you. You leave the bank with a functional output you're satisfied with, but didn't have a good experience at all.
There are two thoughts here (and this stems from some of my own research). First, functional value seem to be a different construct from customer experience. Secondly, both constructs are achieved differently. Functional value could be achieved through deterministically designing a service and delivering on outputs. Customer experience, however, can only be achieved through a system of interactions resulting in emergent outcomes. By implication, delivering to FV could result in satisfaction (or dissatisfaction) but its the interactions that result in CE. That means the system that delivers functional value is not the same system that delivers customer experience.
Some firms do think that if they deliver functional value accurately and all the time, they would have happy customers. They probably would. But they may not have designed the interactions to have good customer experiences. That means they probably have designed only half the system. Or they could have accidentally delivered good interactions. Or they think that designing to functional value and to customer experience is the same system. It's not. One is deterministic, the other is emergent.
A final note on variety, to tie it back to my first paragraph of this post. Customer contextual variety is not necessary a bad thing. In fact, I would say the variety existing in customer contextual value is an opportunity for the firm to improve customer experience, since it means having interactions. A customer whose contextual value has little variety (e.g. taking the same bus every day) probably doesn't have much to say about his/her experience. So the greater the variety of contextual value, the more a firm has to design for both functional value and interactions with human resources (since human resources can absorb variety best), and the greater the opportunity for a great customer experience. I might just write a paper about this some day.
So, the bottomline is that a system can only be greater than the sum of its parts if you factor in the interactions. So my current fascination is on interactions. My work now is building a taxonomy of interactions, developing the notion of interactions as assets (within a collaborative system). With a taxonomy of interactions, we can discover what interventions can impede or facilitate what type of interactions (since interactions drive emergence, and since emergence can't be deterministically achieved, we need to work on interventions). Some might call this the co-creation of value. But in this work, I avoid the co-creators or the value that is co-created. I am interested in the 'combustion process', the 'chemical reaction', the 'glue', the 'interstitials', the 'dark matter'. And yes, you can call me mad.
Friday, 16 April 2010
Designing for value and outcomes - dealing with variety
I've been hearing this a lot nowadays... engineers, computer scientists, designers, organisation science... all telling the world we must design for value. So you then go in and check how they actually do it and in almost all cases, you hear them start with 'understand what the customer needs'. or 'find out what the customer wants'. In engineering, it's about specifying the customer requirements.
In a world where the product is a tangible one, it would probably be ok. But in the case where the 'product' is a combination of physical asset and intangible human activities, this has to be a major challenge. I'll give an example. Checking in at an airport. Our 'needs' in checking in may be quite consistent if we travel frequently. so there may be some pattern to this. Yet, if tomorrow i decide to travel with the family (perhaps with my baby nephew in tow), those 'needs' change. the value of the airport service is now perceived differently and experienced differently. The context has change and the value of some of the airport services to me has changed. Bear in mind this isn't the same as the market segmentation problem because market segmentation typically talks about buyer types and buyer profiles. in this case, its use-types and use-profiles which are usually not a description of an individual i.e. one individual could have several use profiles. In the extreme, an individual could have infinite use profiles.
So... when you design an airport or a complex system, how do you design for context variety? how should variety be designed in terms of processes and a system architecture to better 'serve the customer'. Which customer is this? the customer that has the baby or the same customer that is the frequent flyer?
In my previous post, I discussed endstates. When a firm wants to deliver endstates or outcomes, it immediately inherits customer variety. You have no choice. How can you claim to deliver me outcomes if you don't also immediately promised me these outcomes at any of my experiential state? How can you claim to deliver me value-in-use if you don't immediately inherit all the various contexts of my 'use'? Do you even know the various context of my use? I get annoyed when firms think 'outcome-based' contracts or performance is a marketing spiel. The reality is that designing and delivering outcomes is a lot more challenging than firms realise.
Traditionally, when designing goods or equipment, the context of use by the customer does not change the delivery system quite immediately e.g. how a customer uses a TV, a car or a cup does not immediately change the design and manufacture of the TV or car (although may serve as inputs and feedback for future design). In service activities, customer ‘use’ of an activity in a context has a direct impact on the design and delivery of the activity, which makes it a challenge for the firm to decide how much variety to tolerate in its initial design and resource inputs.
I'll give you an example. Say I want to withdraw £250 from an ATM machine. On that day, I would like to have 10 £10 notes (instead of 5). That's a contextual use variety that the machine cannot tolerate. I know that, so I attenuate my own variety (Ashby's law says only variety can absorb variety) by living with it. I don't get what I want but I know an ATM can’t deliver it anyway so I'm not necessarily unhappy. Let's say, on that same day I decide to withdraw the £250 from a bank teller and request for 10 £10 notes. Will I get it? Well, it depends on the design of the service isn't it? If the teller absorbs my variety, that's 3 minutes additional time to serve me. Efficient process designers don't really like that. In aggregate this would have an impact on resources. Alternatively, the teller can tell me politely that this is not possible so my variety is attenuated. Interestingly, I get the same outcome as the ATM machine but in this instance, I am not happy. You now get a feel of the depth of the problem.
So how much variety should a firm tolerate? how should a service be designed for variety?
(Phil Godsiff, our PhD student at the institute and who has decided to dedicate his research life to variety, has written a nice paper on variety in the latest issue of service science here)
Contextual value is therefore a moving goal post. it doesn't mean it can't be designed, it just means you can't design with the assumption that value is static. Because if you do, you are making a whole load of assumptions around the context that you probably didn't realise. what we need is intelligent design. that means a redefinition of 'service excellence' to mean the ability of an organization to deliver to moving contextual value goal posts. that's a tough one. see next post.
Actually, I believe the problem is more than merely variety because we need to understand where customer experience sits in all that. As a lead in to my next post (and a reminder to self), I will blog next about variety, emergence and customer experience in a system.
(Phil Godsiff, our PhD student at the institute and who has decided to dedicate his research life to variety, has written a nice paper on variety in the latest issue of service science here)
Contextual value is therefore a moving goal post. it doesn't mean it can't be designed, it just means you can't design with the assumption that value is static. Because if you do, you are making a whole load of assumptions around the context that you probably didn't realise. what we need is intelligent design. that means a redefinition of 'service excellence' to mean the ability of an organization to deliver to moving contextual value goal posts. that's a tough one. see next post.
Actually, I believe the problem is more than merely variety because we need to understand where customer experience sits in all that. As a lead in to my next post (and a reminder to self), I will blog next about variety, emergence and customer experience in a system.
Wednesday, 10 March 2010
outcomes, competitive advantage and sustainability
I thought I'll share some of my thoughts about the work I'm doing in outcome-based contracts.
Outcome-based contracting (OBC) is a contracting mechanism where the firm is tasked to deliver outcomes rather than merely assets or activities. This is the case for Rolls Royce “Power-by-the-hour®” contracting for their aerospace engines, where the continuous maintenance and servicing of the engine is not paid according to the spares, repairs or activities rendered to the customer, but by how many hours the customer gets power from the engine.
It's not really easy, if you think about it. Imagine buying a power drill but only paying for holes in walls. Imagine English lessons being paid by how many English words come out of the student's mouth. There is the determination challenge (which outcomes?). There are measurement challenges (how do I measure the outcomes?), there is the revenue challenge (how do I pay for these outcomes?), there are skill challenges (the teacher needs skills in psychology, or counselling to get the student to be motivated to learn, rather than just teach). But overall, it's a nice idea. I've written an exec briefing on it so you can check it out here.
They are many types of outcomes of course, and it really depends on how far up to endstates you want to go. But its important to start from the ultimate end state. Customers won't tell you of course, because they probably are not sensitized about their endstates. It took us half a day (using a particular method we developed) of triangulating information of various employees before the National Library Board (Singapore) endstate was finally revealed - Literacy of the Nation. It might sound so obvious now but believe me it isn't obvious when you start to think about contracting and procurement of books on the basis of achieving literacy. Remember, a system endstate comes from both customer and firm and when a customer contracts, they are often not sensitized to their roles and their resources to achieve the endstate. Did you ever realise, when you drink coffee at the cafe, that you have the resource of being able to smell and taste to realise the endstate of 'good coffee'? you probably just think the cafe's good right? Now you see the problem when you talk to customers about endstates.
Well, that's where we always have to start from - the ground zero of endstates. Probably not measurable but its the axis on which proxies and measurements further down the endstate ladder are developed and the axis is crucial because all proxies and measurements have to consider the incentives, alignments and mechanism design of the parties involved in achieving outcomes. But then I get too technical so lets move on.
To me, the pursuit of outcomes and the capability to derive the right outcomes and how to achieve them is the pursuit of capability for value co-creation. Can you guarantee the 99% of IT systems even if a user could stick a virus infected usb stick into his computer? can you guarantee a clean washing load even if the user abuses the machine? The challenge of value co-creation is the challenge of managing/changing behaviors and integrating resources of the customer. Not many companies are up to the task. In fact, most firms would usually say 'well, we cant help it if they killed the system/dont know how to use it/dont know when to use it/abuse it'? They draw a strong boundary of what is us and them. It then gets relegated to 'high risk'. end of story. Well, imagine if your competitor can.
Here's a picture for you. If a firm can't achieve end states, they are basically saying they dont have the capability to manage a crucial system resource - the customer. To achieve desired endstates (see pic), the resources to achieve them is less dependent on the firm's resources and more dependent on customer resource (size of arrow depicts the level of resource to achieve which stage). Solve that, and you'll be dancing to outcome-land. Solve that, and you'll become a better English teacher, a better organization.
If you can't, this means that you have failed to understand what resources are contributed by both customers and the firm in order to achieve the benefits realized within the customer experience. Only by understanding the resources contributed by both parties in value co-creation can we achieve the best outcomes for customers in the target market, at the lowest costs. The substitutability of resources contributed by the firm, by the customer, and by technology must therefore be evaluated not merely from the cost perspectives, but with the possibility that it could also lead to better outcomes, resulting in the firm being able to either increase price or demand for the service. How's that for competitive advantage.
Why are outcomes important? Remember the English teacher and the change in skill set so that she can be more effective for student learning rather than teaching? Outcomes changes the boundaries of the firm. It shifts the boundaries of what is service, as that rendered not only by people but also by assets (see service dominant logic). It shifts the skills sets and capability of the firm (and therefore increases risk) and to get the firm to focus on effects of what they make/do and the effects of what customers do in combination for achieving endstates. It redraws a system to focus on joint system capability of customer and firm – rather than drawing a boundary and sub-optimizing. It makes all parties think of a better re-configuration of resources and substitutability of resources. For a UK economy that has lost so many jobs in manufacturing, it refocuses us to think about the future capability and skill sets that sits in our companies, indeed all companies to achieve outcomes and endstates of society, whether its living longer in our homes, or effective washing loads.
Most importantly, it shifts the focus from manufacturing/production to complex service systems – human, processes, assets – to achieve outcomes/effects/endstates call it what you will. If engines to fly longer - even if every component would have changed after 10 years, we would stop the make-buy-consume-break-buyagain model of production. If washing machines could last forever even it could change colour, component etc. along the way because the revenue models support it, we would be on a road towards a more sustainable future. If we worked hard to get our firms to develop capabilities to achieve outcomes, we make them motivated to innovate and outperform each other to achieve better outcomes and higher endstates of customers. That's a future that is surely worth working for.
Outcome-based contracting (OBC) is a contracting mechanism where the firm is tasked to deliver outcomes rather than merely assets or activities. This is the case for Rolls Royce “Power-by-the-hour®” contracting for their aerospace engines, where the continuous maintenance and servicing of the engine is not paid according to the spares, repairs or activities rendered to the customer, but by how many hours the customer gets power from the engine.
It's not really easy, if you think about it. Imagine buying a power drill but only paying for holes in walls. Imagine English lessons being paid by how many English words come out of the student's mouth. There is the determination challenge (which outcomes?). There are measurement challenges (how do I measure the outcomes?), there is the revenue challenge (how do I pay for these outcomes?), there are skill challenges (the teacher needs skills in psychology, or counselling to get the student to be motivated to learn, rather than just teach). But overall, it's a nice idea. I've written an exec briefing on it so you can check it out here.
They are many types of outcomes of course, and it really depends on how far up to endstates you want to go. But its important to start from the ultimate end state. Customers won't tell you of course, because they probably are not sensitized about their endstates. It took us half a day (using a particular method we developed) of triangulating information of various employees before the National Library Board (Singapore) endstate was finally revealed - Literacy of the Nation. It might sound so obvious now but believe me it isn't obvious when you start to think about contracting and procurement of books on the basis of achieving literacy. Remember, a system endstate comes from both customer and firm and when a customer contracts, they are often not sensitized to their roles and their resources to achieve the endstate. Did you ever realise, when you drink coffee at the cafe, that you have the resource of being able to smell and taste to realise the endstate of 'good coffee'? you probably just think the cafe's good right? Now you see the problem when you talk to customers about endstates.
Well, that's where we always have to start from - the ground zero of endstates. Probably not measurable but its the axis on which proxies and measurements further down the endstate ladder are developed and the axis is crucial because all proxies and measurements have to consider the incentives, alignments and mechanism design of the parties involved in achieving outcomes. But then I get too technical so lets move on.
To me, the pursuit of outcomes and the capability to derive the right outcomes and how to achieve them is the pursuit of capability for value co-creation. Can you guarantee the 99% of IT systems even if a user could stick a virus infected usb stick into his computer? can you guarantee a clean washing load even if the user abuses the machine? The challenge of value co-creation is the challenge of managing/changing behaviors and integrating resources of the customer. Not many companies are up to the task. In fact, most firms would usually say 'well, we cant help it if they killed the system/dont know how to use it/dont know when to use it/abuse it'? They draw a strong boundary of what is us and them. It then gets relegated to 'high risk'. end of story. Well, imagine if your competitor can.
Here's a picture for you. If a firm can't achieve end states, they are basically saying they dont have the capability to manage a crucial system resource - the customer. To achieve desired endstates (see pic), the resources to achieve them is less dependent on the firm's resources and more dependent on customer resource (size of arrow depicts the level of resource to achieve which stage). Solve that, and you'll be dancing to outcome-land. Solve that, and you'll become a better English teacher, a better organization.
If you can't, this means that you have failed to understand what resources are contributed by both customers and the firm in order to achieve the benefits realized within the customer experience. Only by understanding the resources contributed by both parties in value co-creation can we achieve the best outcomes for customers in the target market, at the lowest costs. The substitutability of resources contributed by the firm, by the customer, and by technology must therefore be evaluated not merely from the cost perspectives, but with the possibility that it could also lead to better outcomes, resulting in the firm being able to either increase price or demand for the service. How's that for competitive advantage.
Why are outcomes important? Remember the English teacher and the change in skill set so that she can be more effective for student learning rather than teaching? Outcomes changes the boundaries of the firm. It shifts the boundaries of what is service, as that rendered not only by people but also by assets (see service dominant logic). It shifts the skills sets and capability of the firm (and therefore increases risk) and to get the firm to focus on effects of what they make/do and the effects of what customers do in combination for achieving endstates. It redraws a system to focus on joint system capability of customer and firm – rather than drawing a boundary and sub-optimizing. It makes all parties think of a better re-configuration of resources and substitutability of resources. For a UK economy that has lost so many jobs in manufacturing, it refocuses us to think about the future capability and skill sets that sits in our companies, indeed all companies to achieve outcomes and endstates of society, whether its living longer in our homes, or effective washing loads.
Most importantly, it shifts the focus from manufacturing/production to complex service systems – human, processes, assets – to achieve outcomes/effects/endstates call it what you will. If engines to fly longer - even if every component would have changed after 10 years, we would stop the make-buy-consume-break-buyagain model of production. If washing machines could last forever even it could change colour, component etc. along the way because the revenue models support it, we would be on a road towards a more sustainable future. If we worked hard to get our firms to develop capabilities to achieve outcomes, we make them motivated to innovate and outperform each other to achieve better outcomes and higher endstates of customers. That's a future that is surely worth working for.
Saturday, 20 February 2010
Value-in-use
I've recently returned from the New York, where I was visiting for a month. During the month, my iPhone was on wi-fi and I rarely used the data roaming. However, I did forget to turn my auto data-roaming off. So when I got slapped with a £560 bill I decided to use this as an example to illustrate value-in-use and how the concept is not as easy as it seems.
When we use the word 'use', we immediately think of physical use like using a car, a stove, a TV. Actually, the word 'use' is much broader. The better word is of course 'consumption' but even then, with consumption, we conjure images of using up something. Not necessary. As I have explained before, a ferrari sitting on your driveway gives you value-in-use even if you are not driving it. This is because you are still consuming the benefit of the ferrari on your driveway - the status and pride it gives you. So when it comes to emotional value, value-in-use is derived from the 'consumption' of the emotional attributes of the good or activity. A piece of art, an antique on your mantel - these give people great pleasure and such pleasures are still value-in-use because every day the piece of antique sits there, you are 'consuming' (or experiencing) it.
It gets a little more complicated and less obvious in certain offerings. In the case of my telco service, my iPhone did not 'use' the data service in New York (whether directly or indirectly through roaming). I was on the house wifi. Yet, one can argue that I did 'use' it, because the mere provision of availability of use by the telco is of value to me. In this case, one must differentiate between the actual use of the data and the use value of the availability of the data.
Let's try another example. I work with the defence industry and one of the most used words in maintenance and service contracts is availability e.g. delivering 85% availability of a missile, or some other equipment. If I were to promise you the availability of a piece of equipment, it doesn't matter if you use it or not - my job is to make sure that all the parts are in good condition and the equipment works.
'Use' would affect the availability of course, so if I 'use' it badly, the parts would fail often and this would make repair more frequent and threaten availability (and therefore the design and delivery of the service - one of my papers on value co-creation in outcome based contracts actually discusses this) but the point I'm trying to make is that as a customer, availability for use is of value, even if i don't actually use it (of course, i have no intention of educating my telco on this - I only asked for my money back since i did not use it :p).
Still not convinced? Think about the servicing and support of a nuclear weapon to achieve value-in-use for the customer. It is the availability-for-use of the weapon that is prized and paid for. We all hope it would never actually be used.
So pop quiz - what's the pricing, design and delivery of 'availability-for-use' as value and how is this different from 'actual-use' value? There are huge pricing implications in this (and for me personally, a £560 question). Think hard about this and you would really be pushing the boundaries of pricing, value, design and delivery....
When we use the word 'use', we immediately think of physical use like using a car, a stove, a TV. Actually, the word 'use' is much broader. The better word is of course 'consumption' but even then, with consumption, we conjure images of using up something. Not necessary. As I have explained before, a ferrari sitting on your driveway gives you value-in-use even if you are not driving it. This is because you are still consuming the benefit of the ferrari on your driveway - the status and pride it gives you. So when it comes to emotional value, value-in-use is derived from the 'consumption' of the emotional attributes of the good or activity. A piece of art, an antique on your mantel - these give people great pleasure and such pleasures are still value-in-use because every day the piece of antique sits there, you are 'consuming' (or experiencing) it.
It gets a little more complicated and less obvious in certain offerings. In the case of my telco service, my iPhone did not 'use' the data service in New York (whether directly or indirectly through roaming). I was on the house wifi. Yet, one can argue that I did 'use' it, because the mere provision of availability of use by the telco is of value to me. In this case, one must differentiate between the actual use of the data and the use value of the availability of the data.
Let's try another example. I work with the defence industry and one of the most used words in maintenance and service contracts is availability e.g. delivering 85% availability of a missile, or some other equipment. If I were to promise you the availability of a piece of equipment, it doesn't matter if you use it or not - my job is to make sure that all the parts are in good condition and the equipment works.
'Use' would affect the availability of course, so if I 'use' it badly, the parts would fail often and this would make repair more frequent and threaten availability (and therefore the design and delivery of the service - one of my papers on value co-creation in outcome based contracts actually discusses this) but the point I'm trying to make is that as a customer, availability for use is of value, even if i don't actually use it (of course, i have no intention of educating my telco on this - I only asked for my money back since i did not use it :p).
Still not convinced? Think about the servicing and support of a nuclear weapon to achieve value-in-use for the customer. It is the availability-for-use of the weapon that is prized and paid for. We all hope it would never actually be used.
So pop quiz - what's the pricing, design and delivery of 'availability-for-use' as value and how is this different from 'actual-use' value? There are huge pricing implications in this (and for me personally, a £560 question). Think hard about this and you would really be pushing the boundaries of pricing, value, design and delivery....
Subscribe to:
Posts (Atom)