Total Value Development

The following sections are included:

• PREFACE
• ACKNOWLEDGMENTS
• LIST OF ABBREVIATIONS
• LIST OF FIGURES
• LIST OF TABLES
• INTRODUCTION
• CONTENTS

This chapter provides a typology of four kinds of value development systems that vary in the extent to which goods and services are integrated in customer offerings from the outset of development. The thesis is that innovative business opportunities may be exploited by simultaneously integrating goods and services in the holistic development of customer offerings. A composite model of development operations is introduced as robustly capable of concurrently developing goods and/or service offerings because it melds the strength of multiple kinds of practice into an integrated system. To exploit the capabilities of the composite model, two divides need to be crossed. The first is between stakeholders at upstream vs. downstream ends of the value development continuum. The second is the integration of development by functional specialists in services and goods which are typically housed in separate administrative units. Crossing these two divides generates opportunities for devising innovative business models offering customers greater holistic value.

An effective operating system for developing customer offerings is a key asset business enterprises require for competitive differentiation. The hub of the Total Value Development (TVD) framework is a composite development system. The troika of elements of the composite model is explained in operational terms. Case examples illustrate the model and the deployment of key practices. Five axioms are profiled to depict the logical underpinning of the model which is based on concurrent methods of development. These axioms are common sense principles based on proven experiences which provide generic guidance for achieving TVD.

This chapter provides the reader with a vision of how high performance development systems operate in actual practice. This perspective of high performance development systems is built upon the axioms underlying the composite model and expands upon its core practices. Ten graphic images depict facets of concurrent systems in operation. Although holistic systems are difficult to depict, these images provide a suggestive collage, a pastiche of disparate perspectives of concurrent systems. Pictures are worth lotsⁱ of words and stimulate our imagination. The objective is to help envision concurrent product development as a “system” of interrelated practices. Readers are encouraged to apply the concept depicted in the image to their own enterprises. A list of ways of rethinking the development system of your enterprise is provided. This chapter is supplemented by a workbook enabling readers to benchmark development practices in their enterprise against Best-in-Class standards associated with each of the 10 images. These images of best practices may help in envisioning improved system capabilities for Total Value Development (TVD).

This chapter chronicles the evolution of high-performance systems for developing new kinds of customer offerings. An organic alternative to the rigidity of mechanistic bureaucracies emerged in the post World War II era along with the advent of electronics, which were too complex and dynamic to manage with rigid procedures and hierarchical controls. While organic development systems generated inventive features pleasing customers, costs were often high. Therefore, academic researchers and progressive managers sought to design development systems that could simultaneously deliver both cost and innovation. Concurrent engineering, which fosters collaboration among diverse functions from the outset of the development cycle, focused principles of quality management on integrating the development value stream by organizing people disciplined by processes and enabled by tools/technologies. The synergistic capabilities of a composite system of development evolved which is robust enough to generate holistic offerings integrating goods and services to optimize customer experiences.

Research evidence on the composite model is needed for assessing the extent to which its adoption may improve performance capabilities. To the extent the composite model is statistically correlated with development performance, readers may have added confidence in applying its principles and practices. Measures of development behaviors predict cost-effective innovation of two parallel samples, one of goods and one of services. Evidence from analyses of parallel surveys of enterprises in goods and services samples is described as well as research from other studies that buttress the results. The benefits of the composite model of value development are explored using quantitative data from a database of 70 services enterprises and compared to a database of 100 goods enterprises. Data from goods and services samples are juxtaposed which is helpful because much of the literature on development is segregated by sector. Comparative analyses of the two databases test the extent to which the building blocks of the model transcend sector differences in predicting performance. The robust capability of the model for developing both goods and/or services offers enterprises opportunities for enterprises for integrating tangible and intangible assets in holistic offerings.

The primary purpose of this chapter is to explain the importance Early Simultaneous Influence (ESI) and its effects on performance in both goods and services. ESI represents an operationally specific subset of organic teaming practices focused like a laser rifle on the integration key stakeholders in the value stream from concept to customer experiences. A defining characteristic of ESI is its inclusion of the outset of development of functions typically involved only at late phases of the value stream, such as manufacturing and service. Development operations in mechanistic bureaucracies is serial so that specialized functions performs prescribed roles at points as though working on an assembly-line. In concurrent development systems, all functions in the value creation stream are engaged in decision-making up-front where the bulk of costs are committed and opportunities for innovation are greatest. Engaging downstream functions, such as those in manufacturing and service only after key decisions have been made, means that their contribution are of marginal utility for realizing total value for customers. So much has already been determined at early phases of the development cycle that subsequent changes may be so expensive that innovative options at late stages are limited in both sectors, especially goods.

Organic organization is a horizontal vector fostering interfunctional relationships necessary for the transformation of mechanistic bureaucracies into concurrent development systems. Organic organizations relax hierarchical structures on communications and observance of strict procedures. Structuring teams with the mission of developing customer offerings frames and focused communications and work activities. Organic Team Structure (OTS) integrates the work of people along the development stream who are segregated from one another by hierarchical lines of authority. OTS is broad concept encompassing many practices, such as cross-functional teaming, collocation, and group rewards. Benefits of OTS include enhanced utilization of human capital though the creative opportunities are offered by cross-skilling and the exchange of ideas. OTS provides a collaborative platform for early simultaneous influence, an operationally specific version of teaming whereby downstream functions are engaged in development up-front. Parallel results from the goods and services data show that OTS is positively correlated with performance in both sectors.

This chapter profiles processes dealing with controls over the design of customer offerings during development operations. Process is a more dynamic and flexible form of control than inviolate standardized procedures for rigidly controlling behaviors. In-process Design Controls (IDC) refashions rigid mechanistic procedures into flexible and adaptive processes. “In-process” connotes dynamism in the mode of control so that stakeholders may adapt to emergent technical and market opportunities during their development journey. Process guides but does not dictate development activities. This flexibility enables cross-functional teams greater latitude in executing project plans to the extent they take partial ownership of adaptations of process guidelines and responsibility for outcomes. IDC enables development teams to exercise human judgment in executing projects instead of following standard procedures lockstep as so often occurs in mechanistic bureaucracies requiring rigid conformance with stage-gate procedures.

Practices exploiting Computer Information Technology (CIT) provide a means of accomplishing tasks that would otherwise be more difficult, if not impossible. The effects of CIT on performance are synergistic as well as direct. Electronic modes of communication help team members from diverse functions and locations exchange information. Processes may be electronically distributed and continually updated. However, CIT is a double-edged sword in that it can augment either mechanistic and/or organic forms of enterprise design. The key for harnessing the value of CIT for realizing a composite system lies in melding socio-technical factors in development operations.

A strategy of developing radical offerings is often a vital method for gaining competitive advantage. Innovation, however, is demanding of human capital. Fortunately, the services data provides a rich opportunity for exploring how influence by 10 functions affects innovative performance at three phases of the development cycle. The goal of this chapter is to provide guidance for deploying total simultaneous influence to optimize innovative development throughout the life cycle, from concepts to post-launch augmentation. Early Simultaneous Influence has positive impacts on performance at the concept phase that is even stronger under the contingency of radicalness in both the service and goods datasets. However, only in the services data does influence by some functions have a positive association with performance at the post-launch phase. The intangibility of some services provides opportunities for augmenting offerings in innovative ways. Therefore, performance is measured not only for differentiating features, but also delivery. Profiles of the role 10 functions play in developing and delivering service offerings note the extent to which each is affected by the contingency of radicalness. As detailed below the engagement by some functions enhances performance even more so under the condition of radicalness, and affects delivery as well as differentiation performance.

Knowledge is increasingly evolving as a key factor differentiating customer offerings. How knowledge is exploited in developing and delivering service offerings provides the basis for competitive differentiation. Ultimately the provider gains and retains customers by offering services with greater value than competitive alternatives. Differences for which customers are willing to pay are ultimately backed-up by some type of knowledge capability affecting the experience of customers. However, the value proposition of service offerings varies widely. One type of customer offering is valued because of explicit knowledge that is embedded externally in codified forms. An alternative type deals with tacit knowledge which is often internal to the personal skills and capabilities of people developing and delivering services. The extent to which the troika of practices in the composite model are contingent upon the type of knowledge for which customers are willing to pay is explored. Computer Information Technology (CIT) practices are postulated as best suited for exploiting explicit, codified knowledge. Conversely, human capital associated with Organic Team Structure (OTS) is presumed to be relatively more effective for offering customers value from tacit knowledge.

Investment in human capital is critical for enterprises in general and many services in particular. Because investing in the diverse functions to develop a new service may be expensive, enterprises often undermanage by skimping on human capital and/or failing to deploy functions appropriately for achieving their strategic objectives. Sometimes over managing occurs if functions are engaged when and where they do not add value. Therefore, results from four analyses are summarized to provide guidelines for orchestrating the configuration of human capital. The goal is to optimize investment in 10 kinds of functional expertise. First, which functions do high performers deploy more than low performers and at what phases? Second, which functions have relatively greater impact on performance for enterprises pursuing a strategy of developing radically new offerings? Third, which functions need to be more engaged to the extent enterprises exploit knowledge in their offerings? Fourth, which functions are relatively more important for developing competitive advantage in one or both by developing differentiating features or improving delivery processes. Finally, the role of each of the 10 functions in new service development (NSD) is profiled and contributions to performance detailed. A case example illustrates each role.

How does transformation take place from a mechanistic bureaucracy to a concurrent system of development for exploiting the capabilities of the composite model? Scenarios for transformation vary, but there are some events which are common to many journeys. Strategic responses to environmental dynamism drive a series of changes infusing horizontal integration into vertical hierarchies. A chart sketches a hypothetical path of events starting with environmental context and culminating with the emergence of the composite model of new service development (NSD). The competitive environment of services has become increasingly turbulent in recent years. Enterprises with superior capability for adapting to environmental changes are likely to enjoy competitive advantages because they more agilely adapt to changing threats and opportunities. The adoption of an innovation strategy has become increasingly critical for adaptation to environmental change. Opportunities for developing innovative customer offerings are typically greater under turbulent conditions. To develop superior customer offerings, a sea change needs to take place in the capability of new service development systems to generate differentiated customer offerings. A pivotal factor in response to environmental dynamism is the formation of a cross-functional group responsible for developing innovative offerings. Consolidating stakeholders responsible for NSD fosters the adoption of organic practices which stimulates innovation. The need and capability for innovation drives the adoption of practices that provides the platform for the emergence of the composite model.

This chapter provides leaders with actionable practices for transforming their value creation systems from mechanistic bureaucracies to concurrent systems. The need for a concurrent system based on the composite model is driven by demanding customers who seek multiple performance advantages simultaneously. Increased variety in customer demand is typically associated with changes in competitive environments. Transformational leaders help reconnoiter changes in the strategic environment and rally enterprise stakeholders to envision a more effective development system for creating and delivering value. They facilitate the co-creation of a common vision of an improved system state capable of delivering greater value to customers as well as increased profits. Enacting the role of transformation leader is challenging because it's typically an extra job so influence is exercised instead of command and control. A transformational assurance process (TAP), a proven method for leading change, is outlined in this chapter. A transformation workbook provides supplemental exercises for championing and guiding change.

This chapter invites you to participate in thought experiments about creating new kinds of value to differentiate offerings in radically new ways. Championing radical designs may require transforming your employing enterprise, establishing strategic partnerships or launching external ventures. Your target is the realization of an offering with a compelling value proposition for customers. Taking a customer-centric point of view helps map ways of adding value which may transcend the goods vs. services dichotomy. The key is envisioning a future development system capable of generating innovative new offerings satisfying customer needs in unique ways. This approach attempts to achieve more holistic solutions for customers based on the meaning they impute to their experiences. Methods for stimulating creativity are helpful for generating new ideas that exceed the boundaries of conventional paradigms. However, generating ideas for your value proposition is only the beginning of a lengthy process. Innovators of new business models may need to deploy a composite model to develop and deliver complex, dynamic new offerings. To realize radically new designs, assessment of capabilities of your existing development system for achieving objectives is a pre-condition. If the proponents of radically new designs are employed by an enterprise lacking in the capabilities for Total Value Development (TVD), internal or external venturing may be required. Development activities may be configured as a semiautonomous team or autonomous group depending on the extent to which the target offering lies within the core capabilities of the enterprise. To the extent the enterprise recognizes the need for developing radically new offerings, support may be garnered for piloting an internal venture. A successful new venture may help further transform development capabilities from mechanistic to a system more capable of TVD. In the face of entrenched bureaucratic resistance to transformation, however, proponents of radically new designs may need to consider entrepreneurial options for external ventures. Regardless of the choice, guidelines are provided to stimulate thinking about how to design radically new offerings as well as ways of configuring human capital and building operations to support development and delivery of holistic value.

The principal focus of this book is on new service development (NSD). The goal was to test the extent to which a composite model of proven effectiveness for development in goods industries also applied to NSD. The approach began with qualitative studies of service enterprises to explore how concepts commonly used in studies of development in goods might be translated into the language of services. The bulk of literature on development is based on goods industries despite the fact that most people are employed in services.

These workbooks provide the readers with guidance for envisioning a new service development (NSD) venture and delivering on its value proposition. Exercises start with benchmarking and envisioning development systems with greater capabilities for TVD. Readers may engage in thought experiments about championing enterprise transformation and designing new kinds of offerings to exploit the capabilities of the composite model. Developing and delivering a new offering is extraordinarily complex. The great majority of efforts fail. The food for analysis is these exercises is the meat sandwiched in the gap between your top slice of bread, the vision of your “should be” development system capability, and the bottom slice, your “as is” capabilities. The condiments enhancing your new offering are external resources needed to transform your concept into reality.

The following sections are included:

• Index