Pocket change is what I call an organization's strategy when it focuses only on cutting costs in times of slow or negative growth. Time and time again we hear of companies slashing their workforces to improve the bottom line of the organizations.
This strategy often results in short term gains. I am not saying that an organization should not be cost efficient. However, when an organization significantly reduces its workforce then it means it has either not been cost efficient for a long time or it has not been focused on developing new products and services to increase the revenue stream.
In the end, the cost savings will equate to "pocket change" in comparison to the revenue the organization could have developed through new products and services. Pocket change also symbolizes the size of the change the organization is undertaking when compared to generating new products and services.
In this first article I will introduce the Value Driven – PEER Reviewed model. In future articles I will discuss in more detail each stage of this model to develop an effective strategy for an organization.
At the Value Driven stage, the organization must examine the centres of value. To assist this process the following questions should be asked:
- Who must receive value to make the organization successful? (Centres of Value)
- What is the value to be created for the recipients (Descriptive Value Statement)
- How are the descriptive values connected to measurable objectives? (Conversion Metrics)
- What are the objectives of the organization? (Objective Value Statement)
Let's take an example of a retail chain that wishes to adopt the Value Driven – PEER Reviewed model. The retail chain may identify the following centres of value, conversion metrics, and value objectives.
|Centres of Value||Descriptive Value Statement||Conversion Metrics||Objective Value Statement|
|Customers||Provide the highest quality of services to clients||Customer surveys||Customer satisfaction score of 9 or greater|
|Shareholders||Pay above average industry returns to shareholders||Return on Investment||10% ROI|
|Employees||Establish work environment that recognizes hard work and commitment to the organization||Performance bonus||Equal to 10% of salaries if retail chain meets or exceeds customer satisfaction objective and shareholder objective.|
In this example the retail chain will survey its customers. The objective is to have an average customer satisfaction score equal to or above 9 on a 10 point scale. The retail chain objective is for its shareholders to have a 10% rate of return on investment.
Since employees play an integral role in the success of the organization, a performance plan based upon the organization meeting its objectives means the shareholders and customers will receive increased value if the employees provide exceptional service to the customers.
This is a very simple example. Organizations often have more value recipients and more conversion metrics to convert the descriptive value statements to objective value statements.
The next article in this series will focus on the PEER Reviewed aspect of the model.