Value Analysis Methodology?

[James Davis]

Colleagues,

I'm hoping one of you will be able to provide me with some guidance.

I have been retained by a client to conduct a value analysis project. Specifically the organisation in question (a service business) wishes to identify and quantify the value one division provides to another (ie. the output of one division creates a customer for another division where the customer might not have existed before). The outputs I am looking to identify are:

1. The financial value per customer added to the group by the division (income - expenditure per customer).

2. The reputational (intangible) value added to the group by the division (estimated).

3. The 'raw input' value added by the division to another division (in terms of number of customers that would not have existed without the value added by the first division.

Does anyone know of a robust methodology/set of methodologies to undertake this kind of analysis within? Any advice much appreciated.

Regards

James

[Arik Johnson]

Hi James - I wish I did! Sounds like a great project - unfortunately, I'm not sure where to start with something like this. I'll be on the lookout though and happy to share whatever I find.

- Arik

[James Davis]

Thanks Arik. Someone has suggested a VNA (Value Network Analysis) approach. Does anyone have any experience of this?

Cheers

James

[Vivek Raghuvanshi]

James,

Identify Macro processes

Under each macro process, identify multiple Micro processes

Now undertake Value Chain Analysis

See whether certain processes that exist are really required or can be done away with.

[monica nixon]

James,

Well, first I think referring to this as a "value analysis project" or surmising that the Value Analysis methodology is appropriate for this kind of question set isn't accurate. VA and it's counterpart, FAST, tend to be frameworks for NPD relative to improving product design / lowering costs. I may be wrong, but I'll bet your scenario involves the contribution a services and/or consulting business adds to a predominately HW focused unit?

That said and if this is the case, I may be able to assist you as I've had to conduct precisely this type of analysis prior on a competitor with a largely HW driven business, but that also happened to have a "vertically focused services arm" with depth in industry specific work-flows/applications. Point is, it was generally surmised that this separate "services arm" generated a lot of purely services dollars with high profits, helped the mainline HW focused business units ultimately sell more HW, as well as "pull" SW as the result of the value added consulting from the services arm. Okay so that was my challenge, and if yours is similar maybe this will help:

1) Starting here- what was happening in the 2 HW specific business units? Publicly available syndicated market research indicated unit sales were still in decline, as were average selling prices per unit and from a top level, and they weren't gaining share versus other competitors nor were the business unit revenues or profits growing. They were all down.

2) What was happening in the illustrious Services unit? They were also shrinking in terms of revenue and profit, and well because they didn't look so good standing on their own anymore --they got rolled into the HW division revenues to generally obscure this fact.

3) Now for the deeper dive since we know what is happening from a top level..what was the mix in some of their actual deals to start teasing things out? This took getting some proposals, knowing which they won and which they lost, what the pieces and parts of the deal were etc. What became apparent was that they were rolling in the SW and consulting services, and it was comprising a part of most deals. However, additional HUM-INT indicated in a great many cases they were almost giving the "g category" SW away and were not getting paid on the "g category" consulting services! Oops! When they did get paid for the consulting piece this happened only for the "p" category, and the margin in only some instances was higher than for the "p" HW with basic S/S. This was verified by getting hands on a copy of their pricing model for certain "p" services and already knowing what the HW margins were. When they could sell "p" SW, it was highly profitable but not enough to offset "p category" HW unit and basic S/S declines. So, whew I think we have now refuted many of the top level assumptions...

4) So with a lot of the financial assumptions solidly refuted, does the SW and consulting services REALLY help pull the HW? This was also a HUMINT gathering exercise. For both categories the answer was YES, but for the g category they couldn't get paid for the consulting and only rarely did they sell the SW- giving it away more often- but they would have lost deals without both pieces. For "p" the consulting was absolutely necessary and led to the win, and they did get paid for it but it wasn't always a heck of a lot more profitable than the base HW and basic S/S. The SW was far more profitable and did indeed pull the HW.

5) If you go get the aforementioned data and do a similar analysis, you should be able to answer your Q1, Q3. Q2 will likely require some VoC data which your client may or may not have but that can be attained by direct customer inquiry.

Monica Nixon
Intellective Solutions,LLC