In our vernacular, the concept of value generally has to do with worth – how much money, time, or energy you might assign to a person, product, or service. Value is something we are all aware of, and we constantly have to assess if something is worth the wait, the time, the effort, the cost. In business, we strive to eliminate things that don’t contribute to the usefulness of our end product or service. Light bulbs are an inspiring example of an item that has all the necessary components and nothing superfluous. We understand electricity to such a degree that we have been able to improve this product – and continue to do so with new technologies. Continuous improvement is the passionate pursuit of perfection even though we know it doesn’t exist.
As a customer, you assess value add all day, everyday. The work of a consumer is to determine if she is willing to pay the cost associated with a meal, a dance class, an article of clothing, a new car. How does she know? Smart consumers do their research and understand exactly what they are getting for their money in terms of longevity, experience, learning, or effectiveness.
In business, we have a similar conversation but from a different vantage point. We must ask if the resources and activity associated with the production of our product or service are actually bringing that product or service closer to being something our customer will pay for. This then allows us to understand if these are also bringing value to the business itself. We can eliminate waste by assessing if something is Value Add – if it isn’t, it may be waste that can be gotten rid of. How do you determine if a process or aspect of your business is Value Add?
In the Lean world, Value Add can be summed up with three critical questions:
- Does the action change the form/function of the product/service?
- This is important because often activities are performed that don’t actually further the production of the thing you’re making to sell to the customer. This means that that activity wastes time and energy rather than getting your product or service closer to the point that it’s actually making you money.
- Is the customer willing to pay for it?
- You have no business without someone who finds value in what you offer. If the customer is not willing to pay for the activity, you need to reevaluate the value it provides.
- Is the activity performed once?
- This is a great litmus test for the efficacy of your actions. If an activity happens multiple times for no reason or for the reason of “checking,” you may have an opportunity to eliminate waste.
If the answer to these three questions is yes, the thing in question can be determined Value Add. If not, it falls into one of two categories: Non-value Add or Business Non-value Add. Non-value add items can be addressed and often eliminated or reduced (an example might be sending an employee to look for an item in a disorganized storage space. Is the customer willing to pay for those 25 minutes spent searching? Probably not. The Lean answer is to 5S the space and make that trip for supplies either non-existent by always having the supplies at the ready or to cut down the time required to get the supplies). Business Non-value Add refers to aspects of the business that the customer may not be willing to pay for but that the business needs to function. An example might be the QA department in a food manufacturing plant or the finance department. Does the customer care if you invoice properly? Probably not, but your business can’t exist without getting paid.
When you are able to understand how your business generates value for your customer, you have a platform to cut down waste and eventually eliminate it. Why does this matter for you? Hopefully it’s pretty obvious – when you’re looking at the bottom line of your business profitability, who wants to write Intentional Waste as a line item?
Activity: Choose one of your business processes that supports the transformation of your product or service into the thing the customer buys. Ask the three questions above. Is this process value add? What might you change to increase the value it adds to your business?