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In this meetup, we discussed the concept of "value". We introduced the "value equation" and explain universal methods for understanding and measuring value creation within business processes. We also applied these principles in order to discuss how to implement process data controls within the value chain to enable continuous process improvement.
What is Value? Understanding and measuring the value chain of a process (NYBPP Meetup)
What is Value? Understanding and
Measuring the Value Chain of a
Highlights and Q&A - NYBPP Meetup 5/16/18
HASSAN KHAN | CAVI CONSULTING
Hassan is the co-founder and process scientist for Cavi Consulting, a process science
consultancy helping businesses to remove obstacles to energy flow and more
effectively automate, scale and grow.
Hassan has consulted for small-to-enterprise level companies across a wide range of
sectors and verticals, including financial services, legal services, media and digital
Education and Certifications
Hassan graduated from the University of Nebraska with B.S. in Neuroscience and
Hassan is certified in Change Management (PROSCI) and Software Product
● What is Value? Understanding and Measuring the Value Chain of a Process
■ What is Value - the Value Equation
■ Exchanging Value
■ What is the Value Chain?
■ Defining and Measuring the Value Chain
■ What is a blue sky design?
■ How to explain value chain in one sentence? How to truly extract value from value chain?
■ How does discovery phase fit into the value chain? How do procedures such as meetings and reports
■ Should process transparency take place externally or internally? How does process transparency
speak for Everlane’s value?
What is Value - The Value Equation
Benefits are subjective and can change given
individual circumstances, unique needs,
natural or learned abilities, etc.
Cost is not subjective. Within the value
formula, cost is an objective measure
translated to currency. You might argue that
a cost can’t be placed on certain human or
intangible elements; this is not true.
Value = Benefits – Cost
Why are the subjective “benefits” included in the formula then, if the objective nature of cost is what defines
the value? It is because there are always two parties in value creation (assume “company” and “customer”),
each with subjective experiences of the benefit of a given process in comparison to their cost needed to
receive that benefit. This difference between customer benefits (goods or services received) and company
benefits (possible profit opportunities) creates a space that allows for value creation to exist.
What is the Value Chain?
Often, the customer only pays for the total value of all the value-adding steps in a process; however, because
there are multiple steps in the process which add incremental value, those steps are collectively referred to
as the “value chain”. In other words, if there is a process, there is value being exchanged, and if that process
has multiple steps, there is a value chain. Each step in the sequence can then be deconstructed for analysis.
Defining and Measuring the Value Chain
The goal of process analysis is to derive the value chain of the existing process and then design a new version of
the process which matches that value chain as close as possible (within given constraints).
Although our end goal is to derive the value chain of the process, it is easier to start by identifying all the waste
that exists around the value-adding elements. Once you can use your process “vision” to identify and label all the
waste, the value chain is simply whatever remains.
With the value chain derived from the process design, you can clearly see which steps add value and add
intuitive measures to them.
● Value is the difference between benefits and costs when remaining at the end of a process
● Value is created when two entities with different benefits and cost structures exchange
energy in their respective processes
● The value chain of a process identifies, filters, connects and describes only those activities
which directly contribute to the creation of value
● Understanding the value chain allows us to see within a process design the value adding
steps. From here, measuring and controlling value creation is as easy as putting appropriate
measures on those few steps within the overall process
Hassan Khan | CAVI CONSULTING
Answering questions from the meetup
What is a blue sky design?
A blue sky design is a theoretically ideal solution not
limited by any physical constraints. It is a productive
method to brainstorm creative ideas and urge the
outside-of-the-box thinking regardless of its feasibility.
However, such ideal design could hardly be enabled in
reality’s workflow considering physical limitations. Hence,
that’s why a salesperson is likely to sell customer a blue
sky product without fully grasping the implementation
capability from the customer’s end. The oversight on the
implementation tells that the salesperson is losing
perspective on how value is being exchanged between the
service offering company and the customer. A product,
regardless how great it is, remains a blue sky design if it
fails to implement feasibly with customer’s needs.
How to explain value chain in one sentence?
How to truly extract value from value chain?
Whenever there is a process, there’s a value being
produced and if such process occurs in multiple steps then
there’s a value chain. Extracting value essentially means to
remove wasteful steps. Wasteful steps come in two forms,
non-value adding steps(e.g. transportation of a good) and
non-value adding but business required steps(e.g.
auditing). When examining whether a value is being
created in a work step, one may realize some steps within
a process yield no value to the end result that customer is
buying. Hence the goal to extract the total value is to
eliminate non-value adding activities while minimize
waste that serves as a required business function for
regulatory or legal reason.
How does discovery phase fit into the value
How do procedures such as meetings and
reports affect value?
Just because the discovery phase can’t produce an
immediate process improvement deliverable implied by the
analysis phase, doesn’t mean it creates no value. In fact,
process capturing phase plays a critical role investigating
the as-is current state, which makes possible to further
derive the value chain. After all, how can you improve a
process without knowing where you are? Only when the
value creation core steps are accurately identified through
discovery understanding can a deeper analysis phase be
On the other hand, one might argue meetings and reports
are non-value adding activities since these steps don’t yield
apparent validation on how the value is being translated or
exchanged. However, as long as meetings or reportings
meet the objective of understanding or changing a process,
they essentially exemplify value adding characteristics and
sum up to the overall value.
Should process transparency take place
externally or internally?
How does process transparency speak for
Although some companies may want to maintain a certain
level of confidentiality in protecting their secret sauce,
cultivating transparency both externally and internally has
become a health indicator for an organization. Because
establishing transparency within a process ultimately
creates comprehensive visibility for the personnel
involved. Consequently, energy can flow more cohesively
through the process and boost productivity.
Take Everlane’s success story as an example. The brand
exercises radical transparency philosophy by revealing to
its customers how and where the clothing was made, what
it really cost and how much of a markup Everlane is
charging that makes their ethos truly promising compared
to the aggressive markup that is evident in traditional
designer brand. In addition, Everlane’s waitlist approach
that aims to create a more transparent communication
with its customers concurrently works to the brand’s favor
as it enables the pull strategy that allows an item-driven
business to form and drive its demand. As a result, their
radical transparency strategy upholds Everlane’s value as a
sustainable and ethical retail business and enables it to
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