Value: Defined
Lots of people are talking about value these days – especially in light of Lean culture.
The Merriam-Webster dictionary provides eight definitions for “value.” The definitions relate to market price, luminosity, and denomination. From a business perspective, value is related to market price and the customer’s perception of a fair return on an exchange.
From a Lean perspective, value is anything that the customer is willing to pay for – as long as it meets these three criteria:
The customer cares about it.
The product or service must be physically transformed or the step toward transformation must be an essential prerequisite for another step.
The product or service is delivered “right the first time.”
“Non-Lean” organizations sometimes have a tough time determining what it is that their customers’ value. But determining value is actually not that difficult. It comes down to ensuring that the above three criteria are met – all the time. Look at it this way:
An organization with efficient processes is able to keep its costs down. This results in a greater ability to attract more customers and translates to value for the customer.
An organization with inefficient processes incurs higher production costs. These costs get transferred to the customer. The customer does not see this as value.
Inefficiency can be a business killer. This is where Lean organizations have an edge over non-Lean organizations.
Lean cultures enable waste reduction in business processes that directly contribute to value for the customer. Lean cultures help businesses thrive.
If your customer values your product or services, they will pay your asking price. If your offering does not meet your customers’ criteria for value, the customer may still pay for it, but will definitely be shopping around next time they want the same thing.
Next time you complete a transaction with your customer, ask them to rate the value that they just received from you. Their response will tell you how well you are actually doing compared to how well you think you're doing. Consider it a reality check.
Value is the key to organizational survival. If an organization consistently delivers poor value to its customers, it goes out of business. It's that simple.
