ValueCreation Matrix

@joelfariss

00

Value creation is the function of every organization. While the definition of value, and who you are creating value for, varies across sectors and industries, it is an imperative that must be embraced for anyone who wants to remain relevant to stakeholders and shareholders alike.

The fundamental equation for value creation is “who, what, and how,” those these variables will change depending on the type of value being created.

ValueCreation Matrix

@joelfariss

01

The Lean Value Creation Matrix was adapted from the Lean Startup Matrix popularized by Eric Ries. This matrix allows organizations to think about the kind of value they are creating and for who they are creating value.

Improvement

Innovation

NewUsers

ExistingUsers

ValueCreation Matrix

@joelfariss

02

Modern management theory was born out of the bottom left quadrant during the early 20th century – post war managment theory continued to build on post-industrial process optimization, but has not changed significantlyin the recent shift to the knowledge economy.

In the last 30 years though, strategic management practice has grown to include new ways of creating value. The value of innovation and creativity has grown as these new practices become more relevant in an ever-changing market landscape.

Improvement

Innovation

NewUsers

ExistingUsers

NewWalletShare

OperationalEfficiencies

NewMarketShare

BrandExcellence

ValueCreation Matrix

DiversificationMarketDevelopment

MarketPenetration

Product Development

Improvement

Innovation

NewUsers

ExistingUsers

03

Ansoff’s Diagram shows how these value creation practices translate to growth strategies.

Market penetration is the least risky since it relies on optimizing the existing resources that the organization has.

Diversification is most risky since it requires both product and market development, and may be outside of the core competencies of the organization.

@joelfariss

ValueCreation Matrix

BottomLine

Improvement

Innovation

Top Line

NewUsers

ExistingUsers

04

While innovation is uncomfortable for organizations, the emprical research shows that the return on innovation far outperforms mere product and process optimization. A recent Boston Consulting Group study showed that innovative companies were six percent more profitable. In the last five years both MIT Sloan and IBM have conducted studies to prove the same maxim – innovative organizations always outperform the competition.

@joelfariss

ValueCreation Matrix Blue

OceanStrategy

Red Ocean

Strategy

Improvement

Innovation

NewUsers

ExistingUsers

05

When creating value for existing customers, users, or stakeholders, organizations will often be using the same best practices as the competition. When innovating for a new user, you will be freed to spend the most amount of energy of solving a problem.

@joelfariss

SOURCES / CREDITS

None of this thinking is my own, and is borrowed and adapted from the following thought leaders:

Eric Ries, Author of The Lean StartupMichael E. Porter, Harvard Business SchoolChan Kim, Author of Blue Ocean StrategyRenée Mauborgne, Author of Blue Ocean StrategyIgor Ansoff, father of strategic managementStrategyzer.com

Special thanks:Jay Chilcote, Enterprise Innovation Strategist

@joelfariss