Innovation, value and pricing are inseparable. They are part of a dynamic system to create long term sustainable value for firms. As such, they have to be treated with equal attention, with the required sweat equity from top executives and with the necessary levels of investments. That might not be the case yet. Firms invest billions in R&D and innovation processes. They deploy very elaborated new product development and product life-cycle processes in the hope of achieving greater innovation rate.
Most firms, however, fall short of defining crisp value propositions, of measuring the differential economic value of their innovation versus their competitors and, of capturing the true value through pricing. There are many root causes for this fact and I have studied them in my Ph.D. studies over the past four years. One of these causes relates to the lack of conceptualization of what value means.
So, what does value management mean? My conceptualization of value management takes a holistic approach to business strategy and include a strong link between the three critical dimensions of value management: value creation, value assessment and value capture. I conjecture that these three dimensions form a dynamic unbreakable chain that can generate greater profit levels for organizations. Many firms I talked to struggle in the area of value creation and therefore have a pricing problem to capture something that does not exist. I challenge them to look at the level of differentiation created through their innovation process. So the transformation process towards sustainable value excellence starts with significant investments in innovation to generate differentiation and create value. Once value is created, it is critical to measure it and then capture it through value-based pricing. To make the wheel turn in a sustainable fashion, it is then imperative to have strong re-investments in R&D and innovation.
That is what the best-in-class innovative companies do. A fixed portion of net profit are re-invested in the firm’s innovation process to maximize long term value. It takes money to make money!
Be bold. Join the value revolution!
image credit: stephanliozu.com
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Stephan Liozu is the Founder of Value Innoruption Advisors and specializes in disruptive approaches in innovation and value management. He is also a PhD candidate in Management at Case Western Reserve University and can be reached at firstname.lastname@example.org