Wednesday, 26 November 2008

Value Triangle - Business example

   One of the examples of the value triangle I used at Kennedy, and which also supports my other posts on management innovation recently, is the introduction and developments of supermarket (grocery store) loyalty cards.  This is an example I've used quite often for quite some time, but is also discussed in Gartner's book on the hype cycle which I reviewed on my other blog recently:

"Advances in large-scale database technologies had made it economically possibly by the late 1980s to store the full transaction histories of customers.  The early successes of airline frequent-flier programs and credit card reward schemes in the United States had begun spilling over to Europe... In the United Kingdom, the clock was ticking.  A company called Airmiles was already forging relationships with the retail sector to extend the redemption of mileage beyond free flights and into goods and services... 'Loyalty has emerged as one of the main weapons in the food retailers' endless battle to outdo their rivals', declared the London Times in 1995."

The book describes how it was that although second-place Tesco had launched its card first, it was third-placed Safeway with its ABC card that initially gained the advantage:

"Safeway's advantage lay not in the card itself, but in Safeway's technological ability to analyse the data.  Though smaller than Tesco and Sainsbury's, Safeway was widely known as the most advanced, innovative, and aggressive of all chains in its data processing and analytic capabilities.

In the years after launch, Safeway's marketing strategy of focusing on high-spending your families began to yield the changes it had hoped for.  Supported by card data, Safeway's efforts to attract this lucrative segment were producing an increase in average transaction size... But, unfortunately, the financial benefits resulting from these changes weren't appearing fast enough."

What had been an opportunity to create value soon became one to add value - something that would support existing business but could no longer different one organisation from another - and then simply to improve value for money - if that!

Safeway abandoned its card which it now called a "backpack of stones" and a "flashy, worthless piece of plastic".  More recently, it has been taken over by absorbed into Morrisons which had been a much smaller rival.  And Sainsbury's, which had been the market leader, has joined up with Groupe Aeroplan's Nectar reward scheme.

This is a business (vs HR) / business process (vs management process) example of the value triangle, but I think it demonstrates quite nicely how value deteriorates over time - what's creating value today becomes adding value tomorrow, and what's adding value becomes value for money next month.  And the same does apply in HR.  So if you're only aiming at the bottom of the triangle you've got problems, and don't be surprised when you're outsourced!

And if you're aiming at the top of the triangle, don't think that one creating value idea is going to be enough - you need to continually seek out more value, and find different ways of doing things before your competitors catch up.

And you need to find the right way for your organisation, and at the right time.  Gartner's book describes how Tesco's rather different approach to its own Clubcard catapulted the chain into a market leadership position and still creates value for them today.

"What set the Clubcard apart most significantly was that every quarter Tesco mailed vouchers and discount coupons to its customers... The mailings created what the company called 'emotional loyalty'.  Though expensive, every quarterly mailing generated a sales uptick... that paid for the mailing."

The key difference in Tesco's approach was their realisation that "card data would be worthless unless a company was willing to change the way it did business on the basis of what the data was saying".

This is a key sign of creating value - it's about fundamental change, not tinkering around the edges.

Of course, the key question at the moment is does creating value still matter now?  Should we still be thinking about creating value or is value for money king?  I'd suggest that creating value is even more important than ever, both in business and in HR.  What do you think?



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