Three Value-Adding Strategies

Value drives business success. The most successful companies are those that provide distinctive value. And the more value delivered to the customer, the more value is typically returned to the provider in the form of revenues, profits, loyalty, etc. The management mandate seems clear: Find ways to create more customer value than your competition.

Yet value creation as a strategic objective is rarely mentioned in the A/E industry. We prefer concepts like quality, expertise, and experience. Unfortunately, these assets typically don't differentiate us; rather they are expected. Added value, by contrast, differentiates. Could our lack of attention to value creation be a root cause of our inability to measure up to other professions? (See these earlier posts: "What's Wrong With This Picture?" and "Diagnosing the Gap")

So what do we mean by value? A good working definition is: Value is the perceived benefit received minus the associated cost. Added value, then, is when one receives more benefit for the cost than was expected.

There are a couple of important points to take from these definitions:

• Value is a personal and subjective concept that exists in the customer's mind (if you need proof, consider the crazy things that sell for a premium on Ebay!). Value cannot be accurately quantified monetarily (although purchase price is one measure). Nor can we presume what our client values; we must uncover it.

• Since value exists in the mind, it is delivered in both tangible and intangible forms. But ultimately it is always experienced in the mind. This is a hard concept for many technical professionals to grasp. We often consider technical excellence our most valuable "product." Yet just as excellent food in a restaurant with poor service equals low value, so it is with a solid project delivered with seeming indifference by the A/E provider.

With these concepts in mind, let's consider what my research suggests are the three most common value-adding strategies. These are not specific to our industry, but they are certainly all relevant to us.

Satisfy unmet or emerging needs. This is the classic sweet spot in the product/service life cycle. When you are among few firms that can meet a client's need, the solution you deliver is of high value. Yet supply and demand are only part of the value equation. One study of professional firms found that the less the client understands the problem, the more valuable the solution. Getting involved early in helping clients solve emerging, unfamiliar problems is a clear opportunity to provide higher value (hence reap higher profits and greater loyalty).

Among the three value-adding strategies, this is easily the one most commonly pursued by A/E firms. No doubt your firm has periodically added new services to address emerging markets less populated by your competitors. Unfortunately, this strategy is typically short-lived. As the need becomes better known, more firms move to meet it. With more choices of providers, the perceived value (and profit) declines. A/E firms are also routinely slow to respond to emerging opportunities. By the time most invest in new services, their competitors usually already know about it and are doing the same.

Meet clients' strategic needs. Strategic needs are those that affect the overall success of the client's organization. They commonly relate to financial, competitive, political, or operational factors. Given the critical nature of strategic needs, clients are usually willing to pay a premium for good solutions. That's one reason, I'm convinced, why other professional firms demand higher multipliers than we do--they meet strategic needs.

A/E firms once played a much larger role in this arena, but we have forfeited many of the high value, strategic services to other professionals like management consulting and accounting firms (even banks in some cases!). The role of "trusted advisor" is at the heart of meeting strategic needs. Many A/E firms find themselves merely filling orders for design services rather than helping clients define their needs and choose the optimum course of action. We are often focused to a fault on doing what we do best, unable to connect our work to the strategic needs that drive our projects

Provide distinct, valued customer experiences. This is the fundamental asset at the core of what is commonly called the Experience Economy. Businesses that command the highest profits these days usually have tapped into the Experience Economy. Consider the entertainment industry (including spectator sports), theme parks, adventure travel. Consider how the "Starbucks Experience" multiplied the value of a commodity like coffee. A five-star restaurant, as I mentioned earlier, is defined as much by its ambiance and service as by its food.

Among the three value-adding strategies, in my opinion, this one holds the greatest promise for our industry. While A/E firms routinely claim to provide "great service" (i.e., a great client experience), rare is the firm that has embraced this strategy as a management priority. In subsequent posts, I will outline why there is so much potential for adding value through superior service and what is required to ascend to the ranks of the truly differentiated.