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Value based management system

Value Management & Potential Analysis

10 January 2018

German article

How far can Value Management support the decision-making processes in the company and save valuable resources? Where are the challenges and gaps in value management and what are the proven approaches for meaningful additions and optimization? MARKTGUT informs you about the concept, the development, challenges and new approaches.

Why do companies benefit from Value Management?

In many industries, digitization and globalization are leading to ever shorter product cycles. Both technological and process innovations are driving the wheel of competition ever faster. Companies that want to sustainably assert themselves in the market even with increasing competition have to look for new ways. Value Management is an established management approach that is suitable for promoting innovations and synergies in a company and therefore maximizing output under the premise of minimum resource consumption.

In the competition for innovations, decisive advantages result from value management, as a large part of the effort falls into the early project phases, such as market research, product conception and product design, and then declines continuously. In the classical approach, on the other hand, the effort is increasing from the trial phase to serial production. As a result, VM has the potential to shorten individual project phases and make it easier to meet planned market entry deadlines.

Creation of value management

The management style of value management, which is based on the value and function approach, has its roots in value analysis, which was originally used in companies to identify and eliminate avoidable costs. And so it was the American engineer Lawrence D. Miles who, in 1947, paved the way for modern value management by looking for a way to reduce the cost of purchasing mass-produced parts. Together with his co-worker M. D. Barrows, Miles developed in the following years, among other things, the typical schedule of Value Management with its characteristic process phases, which made the VM a structured method.

Value Management reached its first milestones in the 1950s, when the US Navy (1953) and, in 1959, the entire US military finally focused on value analysis and value management approaches. The successful application of the management concept led to it being able to gain a foothold in the D-A-CH region from 1961 onwards, with organisations from the electrical and automotive industries in particular making use of the approach developed by Miles. In the following decades, the concept was extended to include various German and European standards until 1995, when modern value management finally matured into what has been known as the European Standard since 2000.

Principles and Mindset

In practice, value management is based on three principles. The focus is on the constant awareness of what value means to the company in question. In order not to lose focus on this point, key figures such as estimates and nominal sizes are used, which are also used to monitor and control processes. The second VM-principle includes cross-departmental functional thinking with the aim of pushing innovative and practicable results. The focus in value management is therefore on the impact that has been realized and not on previous processes. The VM concept is rounded off by concentrating on the desired goals before the search for a solution begins.

Holistic thinking with numerous application areas

Since value management is qualified for the redesign and optimization of processes, organizational structures as well as products and services with regard to innovation, it is suitable as a cross-sector approach. It is therefore hardly surprising that value management is used successfully by manufacturing companies as well as service providers, banks, insurance companies and even public authorities. It is not least thanks to industry and application neutrality that the VM cannot only be used at product and service level. Furthermore, it is also suitable for minimizing lead times, designing information flows, optimizing transport problems and workflows.

Challenges and new approaches

However, the challenge of existing value management is that the one-dimensional cost focus does not correspond to the real needs of management. Structured decision-making, especially for investments, project and budget decisions, requires a future-oriented perspective. There is often a general aversion to forward-looking potential calculations using assumptions and estimates, but estimates and ratios are also used in the established value management approach. Conventional ROI and payback considerations also only help to a limited extent in assessing the impact, effects and potential of projects or roadmaps. In case of doubt, this fact of the lack of calculability of effects from digitization projects is one reason why many companies lag behind progress and fear digital roadmaps.

So why are there no standardized, future-oriented and holistic evaluation methods to make decisions more tangible and to prioritize them?

MARKTGUT has developed a methodology in a large number of cross-sector customer projects in order to be able to make future-oriented decisions in a multidimensional and structured manner. This methodology is suitable for prioritizing demands in budgeting processes as well as for creative workshops for brainstorming and validation of individual projects (…).  In addition, we have developed a holistic approach that enables life time controlling for effective control. Together with our customers, we have developed an integrated framework under the mindset of value management in order to be able to make even more targeted decisions in the future.

Feel free to contact us for comments and discussions.

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