The University of Utah David Eccles School of Business is a leader in entrepreneurship in education.
In this blog that first appeared on gotentrepreneurs.com, Dr. Barclay Burns profiles five types of value. We appreciate the focus on value creation because it links entrepreneurship skills with a purpose. Value is important for educators because the focus on value creation embodies an emphasis on impact.
Dr. Barclay Burns
Value is a really interesting thing to get your head around. There’s a lot of ways to think about value, and as I’ve thought about value and the creation of value, over time through my readings, and my work, the things I did at Learning.com and my consulting work, these five types of values emerged:
- Value in Use
- Value in Exchange
- Value in Distribution
- Value in Finance
- Value in Fitness
Value in Use
Value in Use at its essence is about a customer “freaking out” about the experience of whatever it is they are using or buying from you. So, people just get really excited about a really great Dunford donut. It just tastes good. Its Value in Use is exquisite. There is a sensibility around Value in Use when you buy a pair of really nice Nikes. Those kinds of things that have the sense that “Oh wow, I want to have that. I want to use it!” It’s “How do I use it?”, “How does it make me feel when I use it?”, “How do others around me feel when I use that service?”
Google has a nice Value in Use because it gets me information really fast. The part of Google that I use the most is scholar.google.com and it really has added a great deal of effectiveness and efficiency to me in terms of my research and my writing. And I’m able to really go and get a hold of the information in the world and see how it comes together. That’s Value in Use.
Value in Exchange
I’ll use a counter-example to give you a sense of Value in Exchange. About three years ago my daughter was bucked off of a horse. And, the wind was knocked out of her. I was concerned, so we got her up, put her in the car and rushed her to the emergency room. We get there. They take her. They say, “We want to do a cat scan. We want to do these things.” So we’re there for two, maybe three hours. They have a cat scan. They say, “You broke a rib. It’s a floating rib. There’s nothing we can do about it, but you’re going to be ok and that explains the pain.” So, two, three, four weeks later I get this bill. And I’d had a similar type of injury where I was motorcross riding and got thrown from the bike, hit my kidney and had to go in. And that cost around $3000. So, that was pretty pricey in my mind but it didn’t seem completely upsurd in terms of the Value in Exchange. But with my daughter, so, same cat scan, almost exactly the same hospital treatment just a different state, it was $11,000. Now that is not Value in Exchange. There is no way that the Value in Use of her going into that hospital, having a cat scan and being told that her floating rib was broken was even close to being worth $11,000. So, it’s those kinds of things.
But things that I feel really good about in terms of Value in Exchange is I don’t really mind paying $199 for an iPhone. I get enough use out of it that I value and is meaningful to me that the price is not more than the value I receive. And for the company, they are able to produce it at a cost that allows them to derive financial value from it. So, the Value in Exchange has to go both ways. It’s both for the customer and for the provider or the creator or the company.
Value in Distribution, I’m going to use the example of education. Let’s say that we have the top class that you can take in the world on computer programming. So the Value in Use is just crazy good. If you take this class you’re going to be able to go and do some extraordinary programming. But the problem is that there is only space for one person every four years, so even though the Value in Use is great and it’s actually not too expensive because there is an underlying financial mechanism, only one every four years can do it.
Whereas, if you think about say, a McDonalds, whether or not you find Value in Use in their products or not it’s another story but let’s assume that you do. It’s quite a remarkable thing that you can find a McDonalds almost anywhere, from India to China to Russia. I just think of the ones I’ve been to off the top of my head. And you just start going “Wow, that China one, that was nice. It was convenience that I could eat.” That might be in France, that might be in Chicago, that might be in Salt Lake City. Their Value in Distribution is remarkable. The Value in Use is consistent. So, the distribution of it doesn’t mean I get a really good one in Salt Lake but a really bad one in Bangkok. So, the distribution has to include the Value in Use being reasonably valuable wherever it’s distributed and the Value in Exchange being reasonable wherever you go.
Value in Finance
Value in Finance I think about it in really two ways. One is the nature of revenue, so are you able to get revenue and are you able to get revenue in such a way that there is profit left over to continue the growth and development of the company. So, Value in Finance I look at as a revenue sense and how that revenue is generated and is it done with costs that are lower than the revenue in a way that generates profit. And even if you’re a non-profit you still need excess cash flow to fund operations and to invest in new opportunities and in new Value in Use creation. So, it doesn’t matter if you’re for-profit or not-for-profit, you want to have – another way of thinking about it is – a positive cash flow. More cash coming back in than you’re putting out. That helps you really continue the development of your Value in Use. And Value in Use is dynamic. It’s not static. So something that was maybe really useful five years ago, like the first iPhone, really loses its Value in Use very quickly. Not only because the product has a sense of being obsolete but because competitors are going to come after you and if you’re not continually ramping up your Value in Use then your Value in Finance is going to have a problem because it is not going to grow. So, you have to reinvest those profits back into them.
Value in Fitness
Value in Fitness at its essence is really about the ability to stay alive. Right? It’s an evolutionary term. Do I get the opportunity to live another day and to do cool stuff another day? Can I be a professor another day? Can I sell cars another day? Can I create new software another day? And that is based upon the ability of you to create value and then value to come back into the person or the enterprise so that they continue to stay alive and grow and thrive. And Lego is a really wonderful example. It’s been around for probably 100 years. And it’s had ups and downs but Lego’s figured out a way to maintain its viability and Value in Use so that new generations of kids keep coming. So they have great fitness. They are still able to create value and derive value from the environment and continue the flow of resources to perpetuate what they’re trying do and the value to the company and the owners and the people who are involved in the company and the employees. So fitness is a really important notion and the fact that you have fitness now doesn’t mean that you’ll have fitness later. Microsoft is a prime example of that. There’s a point in Microsoft’s history where it was the most valuable company and its fitness was really quite extraordinary. They were able to derive a great deal of resources from the environment. But that is changing and their Value in Use is stagnating. And so other companies are able to come along and do things that they use to do but with better use and better exchange – so with greater value for less money – and greater distribution, because you can do it on the web and you’re not locked to your computer. Google Docs is an example of that. And that’s where the notion of disruption comes, where something comes along and does something in an easier way, less money, broader distribution, the cost structures are different, and things can go away. So Microsoft really needs to continually innovate around the Five Types of Value and not just Value in Finance where they’re capturing profit. Because over time if that doesn’t go back into creating new Value in Use, Value in Exchange and Value in Distribution then you slowly, slowly die. Or you can die really fast. There are organizations that are strong one day and you go back and they’re gone. Kodak is one of those examples.
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Dr. Barclay Burns is a Professor of Entrepreneurship and Strategy at The University of Utah David Eccles School of Business. Follow Barclay on Twitter, @.