1 - D. Nightingale - ? 2002 Massachusetts Institute of Technology Value and Enterprise Stakeholders Prof. Deborah Nightingale September 16, 2002 2 - D. Nightingale - ? 2002 Massachusetts Institute of Technology Learning Objectives ? Value creation framework ? Enterprise stakeholders ? Stakeholder value metrics 3 - D. Nightingale - ? 2002 Massachusetts Institute of Technology Creating Value Value Proposition Find Stakeholder Value Develop and Agree to the Approach Execute on the Promise Dynamic and Iterative Value Identification Value Delivery * Source: Murman et al., Lean Enterprise Value, Palgrave 2002 “How various stakeholders find particular worth, utility, benefit, or reward in exchange for their respective contributions to the enterprise.”* 4 - D. Nightingale - ? 2002 Massachusetts Institute of Technology Find stakeholder value Identifying Value ? Identify stakeholders ? What part of the program or process adds value for each stakeholder? ? Determine each stakeholder value ? What kinds of exchanges are required to provide this value? ? Establish stakeholder expectations and contributions 5 - D. Nightingale - ? 2002 Massachusetts Institute of Technology Creating a Value Proposition Develop and agree to the approach ? Align stakeholders around the program value stream ? Structure the enterprise value stream ? Each stakeholder will contribute their efforts or resources to the value stream in those ways from which they can derive value ? Establish clear communication of balanced expectations with all stakeholders 6 - D. Nightingale - ? 2002 Massachusetts Institute of Technology Deliver Value to All Stakeholders ? Add value at each step along the value steam in accordance with the value proposition ? Execute the value stream using lean principles ? Gather information and data to continue to improve enterprise processes Execute on the promise 7 - D. Nightingale - ? 2002 Massachusetts Institute of Technology Value Creation is Dynamic and Iterative ? Real world is not static ? Changes in stakeholder values ? Changes in who are the stakeholders 8 - D. Nightingale - ? 2002 Massachusetts Institute of Technology A Value Creation Framework Value Identification Value Proposition Value Delivery Value Phases Program Corporate Government National International Enterprises Most lean principles and practices have been focused here Opportunities 9 - D. Nightingale - ? 2002 Massachusetts Institute of Technology Corporate Leadership Employees Multi- Program Enterprise Business Unit Customers/ End Users Shareholders UnionsSociety Partners Suppliers Enterprise Stakeholders 10 - D. Nightingale - ? 2002 Massachusetts Institute of Technology Customer View ? Value as we define it is delivered in a timely fashion, even in anticipation of our needs ? Our satisfaction appears to be the focus of all our supplier’s activities ? We are invited to get involved early in the design process ? Our supplier understands our need for low life-cycle cost and superb quality OUTCOMES: ?More customers ?Greater market share 11 - D. Nightingale - ? 2002 Massachusetts Institute of Technology Workforce View ? I am proud to be an employee and feel my skills are valued as a resource for the company ? I enjoy coming to work everyday and understand how my work adds value for customers ? Continuous and cross-functional training helps empower me to make decisions and create a leaner enterprise ? I can get the necessary information for decision making when I need it and how I need it ? I am rewarded both as an individual and as a team member for my contributions OUTCOMES: ?Better worker retention ?Fewer sick/absent days ?More innovation ?Greater productivity 12 - D. Nightingale - ? 2002 Massachusetts Institute of Technology Senior Leadership View ? Balance needs of all stakeholders and encourage value creation throughout the enterprise ? Create a shared vision of the enterprise with value defined for all stakeholders ? Establish a process-based enterprise using integrated teams that are aligned with customer value streams ? Strategic goals and enterprise metrics are created and understood by all levels of the organization ? Organizational learning is encouraged and best- practice/lessons learned information disseminated OUTCOMES: ?Long-term corporate leadership ?Better executive compensation 13 - D. Nightingale - ? 2002 Massachusetts Institute of Technology Union View ? Feel like full strategic partners in the enterprise ? Understand market forces can cause “tough” decisions, but want to be in on the decisions in shaping the future ? Positive contributor to the enterprise by enabling work, NOT by withholding labor ? Feel a sense of pride in the work they help do and the products they help provide ? Work for long-run success of the enterprise, not simply short-term job quotas OUTCOMES: ?Better salaries for employees ?Long-term job stability ?Fewer union conflicts ?HR duties shared with union 14 - D. Nightingale - ? 2002 Massachusetts Institute of Technology Corporate / Stockholder View ? Delighted with increased profitability from enhanced operating margins and sales ? Understand that the delivery of value to the customer is the core business objective ? Enterprise integration enables globalization and market growth ? Financial community values the increased operating efficiencies and the company shares these financial gains with the other stakeholders ? Resources freed up in the lean transformation are tasked with innovating and creating growth opportunities OUTCOMES: ?Higher ROI ?Long term growth 15 - D. Nightingale - ? 2002 Massachusetts Institute of Technology Supplier / Partner View ? Fully integrated in design, development, and production of the product ? Productions schedules are aligned and open to all in the value chain ? Supplier is assisted by his customer to achieve Lean and is appraised of potential business opportunities ? Delivers products just in time to point of use ? Openly share ideas on product and process improvement that will benefit the entire enterprise ? Equitable sharing of profits throughout the enterprise OUTCOMES: ?Greater sales ?Less overhead and stock ?Reduced demand amplification 16 - D. Nightingale - ? 2002 Massachusetts Institute of Technology Societal View ? Pleased to have this organization in their community ? The organization provides jobs and participates in the improvement of the community ? The environment is considered important to the organization ? The local society is willing to provide infrastructure support to sustain the organization ? Partnership between organization and society makes the community a desirable place to live OUTCOMES: ?Long term partnership ?Improves local economy ?Increased local societal well-being 17 - D. Nightingale - ? 2002 Massachusetts Institute of Technology Lean Enterprise Satisfied Stakeholders Strategic outcomes Lean Enterprise Value For All Stakeholders Delivers Results 18 - D. Nightingale - ? 2002 Massachusetts Institute of Technology Stakeholder Values/Contributions Corporation Sustainability of Growth in Growth in Expansion into Innovation in the Enterprise Market Share Profits New Markets Products Shareholders Share Price in Growth in Financial Management of Information on Goodwill of the Market Profits Ratios Corporation Corporate Affairs Corporation Employees Sustainability of Share in Job Sec- Quality of Work Information Good the Enterprise Profits urity Environment Sharing Management Customers Responsiveness Quality in Value in Innovation in Quality in Overall On-Time to Concerns Products Products Products Service/Support Deliveries Suppliers Sustainability of Growth in Fair Pri- On-Time Accts. Early Design Information the Enterprise Market Share cing Receivable Involvement Sharing Society/Commu- Expansion in Em- Job Security Tax Pay- Quality of Work Externalities Corporate nity/Government ployment Opport. ments Environment Citizenship STAKE HOLDERS' INTERESTS IN AN ENTERPRISE 19 - D. Nightingale - ? 2002 Massachusetts Institute of Technology Stakeholder Values/Contributions Corporation Capital/ Direction Legal Management Inter-Functional Facilities and Strategy Entity Expertise Integration Shareholders Financial Fore- Capital Feedback casting/Analysis on Value Employees Labour/Service/ Ideas/ Corporate Expertise Innovations Culture Customers Money Drive and Feedback Design Competition Specifications Suppliers Products (Parts/ Design Ideas/ Brand Recogni- Raw Materials) Input Innovat. tion Society/Commu- Manpower Quality of Services Policies nity/Government Life STAKE HOLDERS' CONTRIBUTIONS TO AN ENTERPRISE 20 - D. Nightingale - ? 2002 Massachusetts Institute of Technology Customer Value CUSTOMER** SATISFACTION Product / Service Quality Relationship with Corporation Cost of Ownership Cycle Time Function to Requirements Reliability Availability Product Performance Defects Failure Rate, MTBF Responsiveness Early Involvement Quality of Support Open Communications Trust Risk Sharing Benefit Sharing Viability of Enterprise Product Development Cost Acquisition Cost Operating Cost Support Cost Retirement Cost Retention of Resale Value Order Lead Time Product Development Time Maintenance/Repair/Overhaul Time On-Time Delivery Just in Time Capability ** Includes Acquisition Community, End User, and System Beneficiary 21 - D. Nightingale - ? 2002 Massachusetts Institute of Technology Shareholder Value Earnings/Share Financial Ratios Corporate Profit Return Share Price Bond Interest Rate Corporate Debt Corporate Equity Risk Bond Rating Share Rating Barriers to Entry Market Share Market Competitors Position Substitutes Branding R&D Investment Growth SHAREHOLDER New Product Successes Potential SATISFACTION Track Record Vision Expression Executive Respect (internal and external) Leadership Perception of Ability to Perform Information Availability Goodwill External Reputation Relations Regulatory Compliance 22 - D. Nightingale - ? 2002 Massachusetts Institute of Technology Supplier Value Training/Assistance with Process Improvement Market Information Supplier Certification Relationship Demand Information Early Involvement (design, development, production) with Design Information Information Sharing Corporation Production Information Technology Sharing Product/Process Improvement Viability of Enterprise Long Term Relationship Corporation's Market Reputation SUPPLIER SATISFACTION Fair Pricing Risk Sharing Equitable Benefit Sharing Financial On-Time Accounts Receivable Growth in Market Share 23 - D. Nightingale - ? 2002 Massachusetts Institute of Technology Employee Value Salary Benefits Compensation Individual Bonus Team Skills are valued Lost Time Incident Rate Safety Environment/OSHA Work Ergonomics Environment Employee Empowerment Good Management Relations Timely Communications Two-way Communications "Cool" place to work EMPLOYEE Job Security SATISFACTION Training Career Potential for Career Advancement Employability Community Relations External Company Reputation/Personal Pride Factors Quality of Life 24 - D. Nightingale - ? 2002 Massachusetts Institute of Technology Societal Value Corporate Tax on Profits Property Tax Income Tax of Employees Tax Revenue Financial Local Sales Tax Charitable Contributions Suppliers Supporting Commerce Secondary and Tertiary Industry Economic Job Potential Attractiveness SOCIETAL Job Security of Industry SATISFACTION Reduction of Emissions Voluntary Efforts Waste Reduction Environmentally Friendly Practices Corporate Quality of Work Environment Citizenship Adherence to Regulations Universities Affiliated Professional Societies Organizations Industry Associations 25 - D. Nightingale - ? 2002 Massachusetts Institute of Technology Union Value Headcount Protection Position Protection Job Security Compensation Benefits Safety Employment Job Classifications Seniority Rights Sharing in Decision Making Contribution to Long-term Corporate Success UNION Instill Sense of Pride in Workforce Influence SATISFACTION Strike Threat Capability Encourage Involvement in Innovation Union Teaming with Corporate Leadership Political Action Committees 26 - D. Nightingale - ? 2002 Massachusetts Institute of Technology Corporate Value Revenue Expenses Profits Growth in profits Other financial ratios Financial Cash flow Stock rating Ability to raise capital Bond rating Market Share Barriers to Entry Competition Market Position Substitutes Branding New Product Development Growth Potential Sustainability New Market Development Continuous Improvement Knowledge Management Contribution to Innovation Productivity Turnover Cost (Salaries & Benefits) Employees CORPORATE Safety SATISFACTION Sick/Absent days Loyalty Customer satisfaction Loyalty Customers Sales Timely Accounts Receivable High Quality Stakeholder Low Cost Suppliers Timely Delivery Fewer Conflicts Unions Infrastructure Support Society Long Term Partnership Political/Public 27 - D. Nightingale - ? 2002 Massachusetts Institute of Technology High Current Performance Low Low High Relative Importance Stakeholder: ____________ 28 - D. Nightingale - ? 2002 Massachusetts Institute of Technology High Current Performance Low Low High Relative Importance Stakeholder: Customer Major Factors Contributing to Customer Value: ?Product/Service Quality ?Relationship with Corporation ?Cost of Ownership ?Cycle Time 29 - D. Nightingale - ? 2002 Massachusetts Institute of Technology High Current Performance Low Low High Relative Importance Cost Of Ownership Product /Service Quality Relationship with Corp. Cycle Time Stakeholder: Customer Major Factors Contributing to Customer Value: ?Product/Service Quality ?Relationship with Corporation ?Cost of Ownership ?Cycle Time 30 - D. Nightingale - ? 2002 Massachusetts Institute of Technology High Current Performance Low Low High Relative Importance Stakeholder: Shareholder Major Factors Contributing to Shareholder Value: ?Return ?Risk ?Market Position ?Growth Potential ?Executive Leadership ?External Relations 31 - D. Nightingale - ? 2002 Massachusetts Institute of Technology High Current Performance Low Low High Relative Importance External Relations Risk Executive Leadership Market Position Stakeholder: Shareholder Major Factors Contributing to Shareholder Value: ?Return ?Risk ?Market Position ?Growth Potential ?Executive Leadership ?External Relations Return Growth Potential 32 - D. Nightingale - ? 2002 Massachusetts Institute of Technology High Current Performance Low Low High Relative Importance Stakeholder: Supplier Major Factors Contributing to Supplier Value: ?Relationship with Corporation ?Financial 33 - D. Nightingale - ? 2002 Massachusetts Institute of Technology High Current Performance Low Low High Relative Importance Relationship with Corp. Financial Stakeholder: Supplier Major Factors Contributing to Supplier Value: ?Relationship with Corporation ?Financial 34 - D. Nightingale - ? 2002 Massachusetts Institute of Technology High Current Performance Low Low High Relative Importance Stakeholder: Union Major Factors Contributing to Union Value: ?Employment ?Power 35 - D. Nightingale - ? 2002 Massachusetts Institute of Technology High Current Performance Low Low High Relative Importance Employment Power Stakeholder: Union Major Factors Contributing to Union Value: ?Employment ?Power