Value creation

Business modeling

Plan-do-act cycle

The challenge

In a nutshell

A value-based business model requires a coherent and substantiated intervention logic, namely how the venture can address enough factors involved in a social problem to successfully solve this for the end user. A clear perspective on those activities or processes integrated by the venture to create a certain impact, is therefore relevant to creating value for your customer.

This phase of the process defines the fundamental business unit that will generate growth. A business unit is quite literally what the customer pays for and what has an impact on the end user. At the same time, the key measures that will ultimately lead your business to success need to be carefully considered, along with the impact you hope to generate.

Defining the business unit and identifying the drivers of success are what constitute the value creation model. The value creation model illustrates how the company aims to create added value for end users in terms of economic, social and other values. To translate the value creation model into a tool for customers, employees and investors, it is reformulated as a “unique value proposition” (UVP). Your Unique Value Proposition is a clear statement that describes the benefit of your product or service, and indicates how you will go about addressing your customer's needs along with what distinguishes you from the competition.

The image below is an example of this.

long term value creation model

Before getting started with the methodology, we would like to highlight four separate and fundamental properties in the integrated business model’s value creation process:

Working partnerships: the new unit of competitive advantage

Value creation and competitive advantage for the company are what enable companies to capture value in the market. A competitive advantage exists when a company delivers the same benefits competitors do, but at a lower cost (cost advantage) or delivers benefits that transcend those of competing products (differentiation advantage). A competitive advantage allows the company to create superior value on behalf of its customers, while simultaneously generating profit within the company.

The driver has to be a good team player

The main driver of competitive advantage in integrated business models is the company’s ability to work with other partners alongside the usual business driver of quality and cost. A prerequisite to a company’s ability to deliver a wide range of services and/or products that positively impact health outcomes is its capacity for teamwork. A vital game changer is cross-sectoral, transnational coordination and facilitation of service and product integration into bundled healthcare solutions. This means that while company competition to provide products at the lowest cost remains a significant issue, it is not what characterises the integrated model as unique. Instead, competition to form teams and partnerships become the central area of focus. At its core, the integrated model is inherently social. For integrated business models in the health sector, the challenge is not only to cooperate with companies, but it is to work across the sectoral divide. In practice this means partnerships between social enterprises, public institutions and companies.

Co-creation and open innovation

Important fields of operation when partnering on the delivery of value in value-based models, are co-creation and open innovation.

  • Co-creation: Co-creation is a management initiative, or form of economic strategy, that brings different parties together (for instance, a company and a group of customers), to jointly produce a mutually valued outcome. This process intelligently identifies and attracts actors interested in partnering to develop a holistic and ecosystem perspective on how a social need can be solved and create value. The output of this exercise is often a collaborative solution where each actor is responsible (or co-responsible) for a specific duty.
  • Open innovation: The open innovation paradigm equates to systematic encouragement and exploration of a wide range of internal and external sources to:
    - identify innovative opportunities
    - integrate this exploration with company capacities and resources
    - exploit these opportunities

Safeguarding intellectual property

Open innovation is a contribution of assets by different actors to develop innovative service solutions. Since open innovation is all about sharing know-how, practice and unique products with third parties, organisations should manage intellectual property (IP) issues at a very early stage of the innovation process. Participants should start out by identifying and assigning the unique IP associated with each actor. Where closed innovation is involved, with company innovation relying solely on internal resources, the IP issue is something that must be solved to safeguard the company’s launch of their solution on the market. Open innovation defines the rules of engagement within a collaborative process.

Co-consumption of services

A second characteristic of value creation in value-based business models is that services tend to be co-consumed as opposed to mono-consumed. Most organisations understand that the purpose of any business is to create value for end users, employees, and investors, and that the interests of these three groups are inextricably linked. For that reason, sustainable value is only created for one group by creating this value for all (i.e., the result is co-consumption). Given the customer-centric approach, the first group to be addressed in creating value is the customers.

End users vs customers

What’s unique about integrated business models is that value created for the end user is defined before we define the value proposition of the customer. Moreover, by providing services for and creating an impact on end users, the parties involved in integrated business models gain the ability to identify multiple actors who could potentially benefit from the created value, and who are also willing to pay for a service or product. Identification of value streams present in the broader network of actors around the end user allows for development of more robust income models, and also boosts the collaborative value of the partners using the integrated business model.

Reintermediation, disintermediation and value creation

Reintermediation is a valuable tool used by integrated business models to create value.

Value creation has traditionally been a linear process. Integrated business models, however, buck this trend by recognising the complexity of the multiple processes involved.

Bundling services and products and putting these as an integrated solution on the market is what creates value. To this end, integrated business solutions reduce the transaction cost by reducing the number of intermediaries between consumers and producers (i.e., disintermediation). In substitute of what might be considered a complicated and rather messy web of relationships, the model streamlines these relationships through its creation of a novel intermediation platform that puts an integrated solution on the market.

Disruptive players = less social responsibility

There are important lessons to be learnt from disruptive platform players in other markets that have mastered the art of reintermediation: Uber, Airbnb, etc. They provide a good case in point for why this approach is the least socially responsible vis-à-vis end users.

Measurement leads to value creation

Peter Drucker taught us: “If you can't measure it, you can't improve it.” Take a minute to consider his words… The only logical conclusion is that it’s nothing less than the truth. If something is impossible to measure, if the results aren’t quantifiable, then it’s also impossible to improve. For example, it’s nearly impossible to lose weight without stepping on a scale now and again to measure your results — if you don't, you have no idea whether you’re on the road to success or not. Integrated business models seek to create economic and social return. That means merely tracking economic performance isn’t fully relevant until the impact can be measured as well.

In addition, if something isn’t measurable it also isn’t transactional. Once impact is measured it can:

  • convince your company’s investors that you are delivering the promised impact
  • improve the effectiveness of your services
  • prove to partners and key stakeholders that you can deliver on the promised impact
  • convince your customers to pay for your services

convince third-parties to pay for your services solely based on the impact you generate in society in terms of improved health outcomes, care efficiency, patient satisfaction, social inclusion, etc.

What this all boils down to is that if you don’t measure your impact in integrated business models your impact doesn’t exist. In the end, you miss out on the levers that could lead to value creation.

The process
The process
Introduction

A coherent, well-substantiated intervention logic determines how the venture approaches and handles the correct amount of factors that influence a social problem. The ideal result is the successful resolution of this problem on behalf of the end user. In short, this is the preferred method employed by integrated business models to develop a value-based system that prioritises the end user’s health outcomes and service costing. It requires entrepreneurs to step out of their comfort zones and move beyond their core competences to take a broader, more holistic view of the issue, including factors such as:

  • healthcare
  • well-being
  • the social
  • culture
  • economic
  • emotions & other psychological factors

Often the outcome of an analysis based on the intervention logic reveals that the board requires a certain degree of complementary expertise, i.e., the analysis points out where the board lacks certain skills or fields of expertise. The rationale behind intervention logic is its ability to define the value proposition by honing in on which activities or processes the venture needs to integrate to achieve a specific impact. The intervention logic’s development should not occur in a closed circle, but ought to source-in the different viewpoints of various actors to co-create this. That will add to both its sustainability in the model along with the necessary buy-in.

logic flow

This exercise also identifies the key activities that need to be included in the end-user journey map. The end-user journey is the complete sum of experiences and activities that customers go through when interacting with your company. Instead of looking solely at a part of a transaction or experience, the end-user journey documents the end user’s complete journey. In sum, it takes an end user-based perspective to define the key activities put on the market by the venture.

The image below is an example of this.

customer journey

Based on the end-user perspective, the criteria that products ought to include to deliver outcome relevant to customer needs can be determined. Running a benchmark study determines how product requirements can be matched to existing products and creates a broader awareness of potential product options and product-service bundles. A gap analysis, in contrast, assists in identifying the product-service innovation challenge or which products are not yet readily available and need to be developed during an innovation process at a later stage.

Based on the product-service solution and the customer journey, the unique value proposition (UVP) statement for the end user can be developed. The UVP forms the basis for creating a comprehensive picture of the direct and indirect value-creation streams relating to the stakeholders in the network. Other important considerations to take stock of are how value streams can be measured effectively and where value capture is possible in relation to the development of a robust revenue model.

Solid intervention logic

Solid intervention logic is the foundation of an integrated business model

Intervention logic explains why a venture’s activities lead to the desired social outcomes. Simply put, it is a roadmap for how an intervention leads to change or the intended results. The primary role of intervention logic is to facilitate coming up with how and why, based on your plan, activities (interventions) will lead to planned short-term results and long-term effects (long-term outcome). Specific action plans are based on a “hypothesis” of how an intervention will lead to change and result in a specific social impact.

intervention logic

Integrated business models require intervention logic to elucidate how the organisation believes its activities will achieve the planned outcome. Solid intervention logic prevents the development of business activities that are independent of the company’s purpose and mission. In this phase, it is the ecosystem perspective that shapes how the intervention logic is developed. Again, using the ecosystem perspective as a launch pad facilitates a broad, holistic understanding of the issues at play in generating the desired impact. The next step moves on to identify the company’s strategic focus within the overall intervention logic.

Intervention logic is also known as the problem/solution fit. The identification of a problem without the proposal of a solution cannot lead to a business opportunity. Likewise, a solution without a market to sell it in will not yield any business opportunities.

A robust means of developing an intervention logic is to view this through a holistic lens, which necessarily involves incorporating a wide range of approaches and perspectives. An opportune place to carry this out is a co-creation workshop. This will determine the level of support for the intervention logic and the stakeholders’ underlying assumptions. At the same time, it establishes a clear picture of how to reinforce value creation (and as a consequence thereof, value capture) along with to what extent this is possible. Don’t neglect involving end users and other primary and secondary stakeholders; without the commitment of key stakeholders a robust intervention logic cannot be developed. A useful method for running co-creation workshops (or a series of workshops if needed) has been listed below. In order to arrive at a well-balanced, objective result, it’s important to have a coach to facilitate this co-creation workshop. An alternative approach is the development of a fully-fledged theory of change. While representing a good deal more work, it does provide a more layered, comprehensive and richer approach than what we propose here.

Method:

Step 1: Define the overall objective and impact

The starting point is the overall social outcome targeted by the company. The overall social outcome is derived from the company statements addressed in the value definition stage. Be sure to define the social outcome in tangible and measurable objectives – be as specific possible when defining the target group and the level of improvement to be achieved by the impact.

Step 2: Determine key outcomes required to produce the impact

Determine the key outcomes essential to accomplishing the overall objective.

Work with the co-creation team to identify any issues that have a decisive role in fulfilling the overall objective: ensure that these have been sufficiently dealt with so that the impact remains achievable. Take as holistic and integrated an approach possible by including a wide variety of factors (health, social, economic, cultural, technological, education factors, etc.). Cluster the issues into independent key outcomes. At this point there should be consensus on the feasibility of achieving the targeted impact once the outcomes have been achieved.

Step 3: Define solution sets for each key outcome

Define the solution sets required to achieve the different outcomes. Solutions sets consist of key activities required to obtain the desired outcome. If the key outcomes are still too abstract to define solution sets, a level can be added to the hierarchical tree that includes different sub-outcomes that contribute to each key outcome. Where possible, define the sub-activities linked to each key activity.

Step 4: Determine output indicators needed for solution sets

Think about different indicators to measure the activities , the quality and the delivery process vis –a – vis (regarding) the impact.

The end result is a hierarchical tree with the company’s overall social objective at the very top. The level directly below displays the outcome and different solution sets required to achieve the impact, with a series of output indicators measuring and monitoring the delivery process at the lowest level. It’s important to note here that the intervention logic doesn’t (yet) differentiate which solution sets and outcomes are within the company’s reach and what parts will need to be resolved within the ecosystem (the result being that the company has no control over these aspects).

Impact strategy

Reintermediation and scoping of the impact strategy

In the as-is situation, the different solution sets identified in the intervention logic are always provided by one or more (partial) solution providers (companies, social organisations, health organisations, local government, etc.). Each of these (partial) solution providers has, in nearly all cases, its own unique relationship and intermediation with the end user. By bundling products and services, integrated business models disrupt the ecosystem and reduce the number of services by creating a new intermediary that offers a one-stop solution. This process is called reintermediation. By creating these novel intermediary platforms, integrated business models capture a unique broker role between end users, customers and (now third party) service providers. By creating a unique bridge between customers and service providers, positional value is created, and ultimately captured. Positional value is (rent-seeking) value created by the company’s position within the ecosystem without leading to any added value. Positional value is an important business model in digital platform companies (build upon reintermediation), for example Uber, LinkedIn, Airbnb, etc.

Extracting a business and impact strategy from the end user perspective, a competitive perspective and from the own companies perspective requires assessing solution sets that can be bundled and as a result be re-intermediated into a single comprehensive solution from the end user, competitive and own company perspectives. The outcomes subset identified along with the underlying solution sets and indicators are the building blocks for developing the integrated business model and its underlying impact value chain. The key outcomes subset not selected represents a significant liability when it comes to the company’s future. Establishing a clear and common understanding of who is responsible for successfully addressing the other key outcomes in the ecosystem will make it possible to create strategic market alliances that reinforce each other.

Method:

Step 1: Identify the appropriate scope of reintermediation from an end-user perspective.

Taking the end-user perspective as your starting point, determine which of the intervention logic’s outcomes and solution sets make sense to bundle. Involve the end-user working group in this process.

Step 2: Understand the competitive forces at play in the reintermediation process.

Map-out the different market and social forces that accelerate or impede reintermediation. The tools below are useful in this regard:

  • SWOT analysis: SWOT evaluates a future business venture’s strengths, weaknesses, opportunities, and threats.

swot
  • PEST analysis: The factors considered in PEST are Political, Economic, Social and Technological. This is a precision analysis that highlights how each factor impacts a venture.

PEST analysis
  • STEEP analysis: The STEEP analysis adds an extra step to the PEST analysis by adding environmental factors.

STEEP analysis
  • PESTLE analysis: this type of analysis maps the following trends: political, economic, social, technological, legal and environmental. The advantage of this method is that it allows users to see the environment as a whole while honing in from different angles. This makes it simpler to monitor and assess the relevant factors in the development phase of a specific idea or plan.

Step 3: Pinpoint which strategies best match the company statements
With the company statements as your starting point, assess which strategies are the best for bundling different outcomes into a total solution.

Step 4: Select your reintermediation options
Select one or two viable strategies for clustering outcomes and solution sets to consolidate these, making it possible to address them as a whole.

The end result is the Impact Value Chain. The Impact Value Chain illustrates how the venture’s activities will lead to the planned, final outcome and impact. The Impact Value Chain is a visual representation of the intervention logic and articulates the relationship between the venture’s activities, outputs, outcomes, and impact.

impact value chain
Develop a client journey

The purpose of customer journey mapping is to illustrate how a customer/end user interacts with an organisation during the purchase and the customer journey. It’s called mapping because the journey is visualised as traveling from contact point to contact point through the various channels. This journey starts from the time at which the new end user joins the organisation up to and including the time at which the end user becomes one of the organisation’s ambassadors, or, alternatively the time at which he or she leaves. Customer journey maps used in integrated business models often integrate an end-to-end perspective of the end user’s full value chain.

Mapping the customer’s journey helps businesses step into their customer’s shoes and see their business from the customer's perspective. It helps businesses gain insight into common customer challenges, how they can improve the customer experience, and define what customers, and prospective customers need in order to complete a purchase.

The benefits of a customer journey map include:

  • the ability to pinpoint where end users interact with your business
  • end user needs becoming focal points at different stages of the marketing and sales funnels
  • identification of whether the end user’s journey is logically ordered
  • an outside perspective on your acquisition and delivery process
  • revealing gaps between the actual and desired end-user experience
  • highlighting development priorities
  • allowing you to concentrate efforts and expenditure on what matters most to maximise effectiveness

Method:

Step 1: Always start with the end user

Be as specific or as personal as possible when creating an end-user journey. A good option is to start with the intelligence accumulated in the different personas (see value definition stage). However you choose to start, keep in mind the different social, economic, cultural and health constraints, along with the desires and aspirations of the user. Validating your end-user profile by consulting your end-user workgroup will help reinforce the model.

Step 2: Create an end-user perspective customer journey

The first action to be taken is to chart the intervention logic from the end user’s perspective. This means assessing the various phases or interim steps for which different key outcomes have been planned, and which will ultimately result in the long-term impact. At each step of the journey, be sure to define the end-user related objective, the activities required to achieve that objective and what the deliverable/outcome should be. The best way of going about this is to visualise this journey as a path of different steps that starts with raising awareness about the product or service and ends with the target impact.

Step 3: Describe and identify the challenges you wish to address and the added value you seek to produce for each interim step.

Be as specific as possible in describing what added value will be created for the end user:

  • What are the specific, positive effects that you offer?
  • What are the challenges or obstacles you will address or remove?

In this step, it’s important to ensure that your approach is sufficiently comprehensive so that the identified needs can be dealt with resolutely. Validate the approach with your end-user workgroup, or, where possible, an even better option is to co-create these definitions.

Step 4: Determine touchpoints for interaction with the end user

At this point it’s necessary to identify how many and when touchpoints will be scheduled between the end user and your service. What decisions are you asking the end user to make? What are the actions they are being asked to take? It’s important to consider what the most appropriate channel of communication is to schedule these touchpoints (face-to-face meeting, website, phone call, post, e-mail, etc.)

Step 5: Capture the customer's emotion at every touchpoint

Describe the end user’s experience/journey and how each touchpoint should be experienced. An important issue to take into consideration at this stage is behavioural and social roadblocks that may interfere with the experience/ journey (such as stigma, effects on reputation, procrastination, cultural barriers, etc.). Describe the potential roadblocks at each stage of the journey. Use every ounce of creativity you have to tackle these barriers. Think outside the box!

This exercise results in an ordered list of activities and events the company can use to recruit users and deliver its service from an end-user perspective. This user-centric approach also defines the deliverables and the requirements associated with each stage in the journey. This key information allows us in the next stage to match these requirements with different
product/services options.

Product options analysis

The end-user journey identified the different steps to be followed to attain the desired outcome. This stage aims to identify which products, services and processes drive the customer journey. To settle on the right match between end user requirements and products/services, running a benchmarking exercise is recommended. Benchmarking facilitates the identification of best practices and makes it possible to identify certain product and service characteristics that lead to success. Benchmarking means comparing the products and processes of either the competition, best-in-class companies or care organisations, or a combination of the three. The purpose of benchmarking is to identify examples of superior performance and discover which processes and practices drive that performance. Benchmarking highlights best practices that could potentially be incorporated in the venture’s operations either due to sourcing and/or innovating. The result is a comprehensive overview of product, service and process options that enables the company to make the projected experience journey of the end user a reality.

Method:

Step 1: Identify the different product/service options and process sets
The objective of this step is to identify each individual key deliverable intended for the end user. This information should be readily available in the client journey map.

Step 2: Identify key performance metrics
Every key deliverable should have a key performance indicator associated with it and will serve as the basis on which best practices are selected and evaluated. Key indicators that should be benchmarked can be derived from the customer journey map.

Step 3: Select organisations to benchmark
Draft a list of actors active in product, service and process delivery that generate solutions for the venture’s targeted deliverables. The list being drafted should leave sufficient room for product, service and process set diversity. In this step, branching out beyond the health sector and the North Sea Region is recommended. Explore solutions used in other sectors and places to see what lessons can be learned.

Step 4: Collect data on performance and practice
Properly research the organisations selected, along with their products, services and processes. Capture industry standards and other properties of the option sets.

Step 5: Analyse the data and identify opportunities for improvement
Assess the different products, technologies and processes using the key performance metrics and take stock of what can be learnt from each product.

Step 6: Adapt the best practices and set reasonable goals
Once the different products, processes and services have been listed and ranked, the optimal set can be selected. Describe the product features and how it should be adapted to fulfil the customer’s needs. For each option, describe what the requirements are:

  • in the integrated model for enabling third parties to source these services easily into the solution bundle
  • for developing these services into unique products.

The result is a product, service and process set of how value will be delivered to the customer. The product and service option are what facilitate the development of an initial, unique value proposition for the company.

Develop the unique value proposition

A unique value proposition (UVP) is the narrative that explains what differentiates a product from its competitors, such as the lowest cost, provision of a total solution, the highest quality, or the first-ever product of its kind. The value proposition is a final verification. If this turns out to be correct, then it also becomes a summary of what the initiators seek to put on the market or what the business unit is.

Method:

The Value Proposition Canvas is supported by two building blocks – the customer profile and a company’s value proposition.

value proposition canvas

Step 1: Identify the customer profile
The end-user journey makes it possible to do the following:

  • Identify the gains: gains are the benefits the customer expects and needs, what could really please the customers and what might increase the likelihood of a value proposition being adopted.
  • Identify the pains – the negative experiences, emotions and risks the customer experiences in the process of getting the job done.
  • Identify customer jobs – the functional, social and emotional tasks customers are trying to perform, problems they are trying to solve and needs they wish to satisfy.

There must be a customer profile for each customer segment: each segment has distinct gains, pains and jobs.

Step 2: Value Map
From the end-user journey and the product option analysis we can summarise the following:

  • Gain creators – how the product or service creates customer gains and how it offers added value to the customer.
  • Pain relievers – a description of exactly how the product or service alleviates customer pains.
  • Products and services – the products and services which create gain and relieve pain, and which underpin the creation of value for the customer.

Step 3: Achieving a fit between the value proposition and customer profile
After listing gain creators, pain relievers and products and services, each point identified can be ranked from ‘could be nice’ to ‘essential’ in terms of value to the customer. A fit is achieved when the products and services offered as part of the value proposition address the most significant pains and gains in the customer profile. However, identifying the value proposition on paper is only the first stage. A necessary follow-up to this is confirming what is important to customers and acquiring their feedback on the value proposition. These insights can be used repeatedly to continually refine the proposition.

Develop the value net

Method:

Step 1: Identify different roles in the network
Cluster actors in the ecosystem who carry out distinct functions and provide distinct contributions. (e.g., caregivers, local authorities, etc…).

Step 2: Value unit identification
Identify the actual “thing” being transacted. A deliverable can be tangible (e.g., a document) or non-tangible (e.g. a verbal message, or a specific type of knowledge, a lead, impact, information, or advice, etc.).

Step 3: Identify the nature of the flow
Determine whether the transaction is a flow of tangible or intangible assets.

Step 4: Substantiate the flows
Verify how intangible transactions can be articulated

  • as tangible by measuring and capturing the outcome and impact
  • by transforming flows of information into transactionable value items

Step 5: Develop the measurement method

Determine the appropriate method for measuring flow in terms of social impact, added value and other wealth.

Deliverables

The value creation phase will help to identify the activities or processes the venture will integrate to come to a certain impact and provides insights on the architecture and design of the business.

In this part we have identified the full value potential, its positive spill overs and its different nature that we aim to create in the integrated business model. Also, this exercise produced vast information on the architecture and design of the business. At the same time, we must be careful not to lose track of assumptions and different operational requirements of the business model. It is in that perspective, we propose to deploy the discovery planning method. Discovery-driven planning offers a systematic way to uncover the dangerous implicit assumptions that would otherwise slip unnoticed and thus unchallenged into the plan.

The process imposes a strict discipline that is captured in three related work documents:

  • a reverse outcome statement, which models the basic economics of the business and the impact value chain;
  • pro forma operations specs, which lay out the operations needed to run the business (see outcome of product option analysis); those activities comprise the venture’s allowable costs. At first, the operations specs can be modelled on a simple spreadsheet without investing in more than a few telephone calls or on-line searches to get basic data. If an idea holds together, it is possible to identify and test underlying assumptions, constantly fleshing out and correcting the model considering new information. When a company uses this cumulative approach, major flaws in the business concept soon become obvious, and poor concepts can be abandoned long before significant investments are made.
  • The key assumptions checklist, which is used to ensure that assumptions are checked. Compile an assumption checklist to ensure that each assumption is flagged, discussed, and checked as the venture unfolds.

In practice, it is wise to designate a keeper—someone whose formal task is to ensure that assumptions are checked and updated as each milestone is reached and that the revised assumptions are incorporated into successive iterations of the four discovery-driven planning documents. Without a specific person dedicated to following up, it is highly unlikely that individuals, up to their armpits in project pressures, will be able to coordinate the updating independently. In the value delivery stage, you can use the following document:– the milestone planning chart, which specifies the assumptions to be tested at each project milestone. As the venture unfolds and new data are uncovered, each of the documents is updated.