A Family of Different Value-Creation Methods

If you are like me, you are likely confused by all the different forms of Agile, Lean, SCRUM, Lean Startup, I-Corps, Waterfall, Six Sigma, and Funnel.  Then, after you figure that out, the next questions are to understand what method to use in a given situation?  Here are some thoughts on those questions.

I gave an online speech this week, Innovation for Impact, at the World Agile Conference out of Lisbon, Portugal. It is a very valuable conference because the most prominent advocates are there, like my friend Steve Denning, and because it demonstrates the use of Agile and other models in many diverse contexts.  Numerous speakers mentioned different methodologies, including Agile, Lean, Waterfall, and SCRUM.  Because of all of its applications, the Agile movement is, as Denning points out, at its core, a mindset. 

I asked speakers what they felt that mindset encompasses. I got various answers, as is expected from such a heterogeneous group attacking every imaginable aspect of business.  I concluded that there are three common principles.  Most speakers mentioned several, but I did not hear anyone mention all three, although undoubtedly some think this way:

  1. A focus on the customer
  2. Rapid learning
  3. Estimable human values

Denning mentions three principles:

  1. Customer focus: the purpose of a company is to deliver value to customers
  2. Small teams: break apart projects into manageable parts to empower people
  3. The network: ever-changing as appropriate, as opposed to a fixed hierarchy.

Denning’s three principles fit within the three I listed earlier.  They are specific best practices.

The first three principles I listed are the basis for our methodology, Innovation for Impact (i4i). But at SRI where I was CEO for 16 years we required methods that would make the results we required “inevitable.” 

We believe that value creation – the process of creating innovations – is a learning, creating, and improving process conducted in a complex environment. Because value creation is a complex activity, the results are emergent; they come out of the process. Contrast emergence with simple tasks, where the customer’s need and solution are mostly apparent.  An extreme example is grilling a hot dog.  There is a “recipe” and, if followed, the chief will produce a reasonably good meal. 

Most tasks that professionals work on are complicated.  The end state is clear, and there is a solution, but there are many elements, and detailed calculations and tests are often required to determine an acceptable solution.  Building a skyscraper is an example. 

Innovation is primarily a complex activity because the different elements involved (e.g., customer needs, competition, partners, and technology) are usually ill defined and often interact in complicated, nonlinear ways.  That puts strong constraints on the value creation methods used.  As one example, complicated value creation systems are ineffective because the interactions between elements create a computational nightmare. 

The question is, what is the best way for people to learn in such complex settings?  That answer comes from the learning sciences and is called “active learning.”  Here is my Harvard Business Review article describing in detail the connection between active learning and value creation.

We emphasize three practices to bring the three principles listed above to life.  They are:

  1. Focus on important customer and market needs — necessary to make an impact
  2. Have shared language for customer value (the most important being the value proposition) – necessary to facilitate collaboration and assure a focus on the customer
  3. Hold recurring “value-creation forums” where teams give short value propositions for their initiatives and then receive feedback — necessary to gain needed perspectives, improve fast, and support the positive values that drive motivation.

Our definition of a value proposition is a classic example of active learning in a complex environment.  It is the most concise starting definition possible for any initiative of any type.  It has only four main elements: the customer’s Need, the Approach for the offering and business model, the Benefits/costs (i.e., customer value), and the Competition and alternatives – NABC. 

At the start, all four interact and usually end up changing almost entirely before the innovation enters the marketplace. The solution emerges from the value creation process.  You cannot eliminate any of these four elements at the beginning, although many other questions will be addressed before the innovation is completed.  In that process, other value creation tools will be used, like those discussed at the Agile conference. 

These four questions apply to all value creation efforts, from the simple, to the complicated, and to the complex.  They apply for incremental and transformational innovations.  Consider again grilling a hot dog: Need (the family is hungry at supper time and the five kids are each bringing a friend), Approach (keep grilling hot dogs until the kids go home), Benefits/cost (fast, cheap, the kids will be happy, dad can cook them, the grill makes them taste better), and Competition/alternatives (steaks, but they are a lot more expensive and dad burned them the last time). 

As innovations evolve, the value proposition is fleshed out.  The end state might be a new venture, a license, or an addition to an established product line.  The endpoints in pharma, manufacturing, IT, energy, and the environment are very different, with different methods applied before completion.  For example, suppose part of the initiative involves software development. In that case, SCRUM might be appropriate, if supply logistics, then versions people have developed based on Agile, and to assure manufacturing quality, Design for Six Sigma might be effective. 

Each of these methods is a variation of the same learning themes but for different parts of the value creation journey.  At SRI we worked in most major business areas and mixed and matched the methods used to the specific market and customer. 

Nevertheless, we have found that by starting with our three principles (important needs, shared language including NABC value propositions, and value creations forums), enormous improvements in innovative performance are possible.  Typically, in our two-day workshops, only a quarter of the staff’s initiatives have any value for their enterprise.  We don’t decide that.  We just give them a framework for them to decide.  Our rule is, if you cannot reasonably answer the four NABC questions you still don’t know what you are doing.  

At SRI these principles and practices turned around an enterprise that had been failing for over twenty years and turned it into a model of innovative excellence.  It grew 3.5 times and created HDTV (with two Emmy Awards), Intuitive Surgical ($80B), and Siri now on the iPhone.  Siri was the world’s first computer personal assistant and added $50B to Apple’s market capitalization. 

What have I missed?