In the Enterprise Business Motivation Model, I require a business to define their value proposition independent of other facets of their business model.

Some folks resist.  After all, they insist that they know what their value proposition is.  Why write it down? They sell valuable stuff!  It’s valuable, damnit!  That’s why they exist.  10,000 customers can’t be wrong.  For customers.  For the owners.  To make money… yada, yada, yada.  It’s all a confusing jumble of words.

Describing your value proposition is necessary.  It is critical.  If you don’t understand, and agree upon, your clear value proposition, you cannot get agreement on strategy.  Lack of common agreement becomes an insurmountable obstacle.  Often the best way to demonstrate the need for this consistency is to ask each of the top managers of the company what the value proposition in, then present the differences to the CEO.  Go ahead.  Shock him (or her).  It’s a good exercise.

What’s in a value proposition?

I often find, when working with clients, that discussing the value proposition is tough.  There are nearly always different value propositions, depending on the viewpoint of the stakeholder.  A value proposition answers the question: “What value do you provide to me?”  Clearly, the answer can depend on “who is asking the question?”  In addition, each stakeholder may need to hear more than one answer.

Stakeholders come in all forms.  There are owners / investors, customers, partners, employees, and public / government.  Each wants something different from you.  There can be a pretty wide gap in these different perspectives.  The gap between the value proposition from one viewpoint to another creates an issue in how a company aligns.

For my example, I use an analysis I did on a National Airline from a few years back.  Let’s call it “Elbonia Airlines” for the sake of this discussion.  The company was set up as a publicly traded commercial business and had taken on a good bit of debt.  The national government rescued it after the economy collapsed, refinanced its debt, and put in a new CEO.  All very public and quite messy.

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[/fusion_text][/one_full][fusion_text][fusion_text]Typically, the biggest problem for a commercial organization is the difference in requirements between the investors and the customers.  For some companies, there can be a huge difference, with the investors driving for revenues that cause the customer satisfaction to fall dramatically (such as checking account fees at your local bank).  For an airline, “fuel surcharge fees” are similarly problematic as they are usually seen as an attempt by the airline to make the ticket prices look lower than they are.

The biggest challenge to this particular business model, however, is the difference in value proposition between the perspectives of the two chief types of investors: the government investor and the commercial investor.  The value of a national airline to it’s country government is very different from the value of the stock to a commercial investor.

It is the delicate balancing act between these two kinds of investors that got the government airline in trouble in the first place.  The airline had taken on debt because they had expanded service to a number of smaller destinations that are primarily appealing to foreign tourists.  Those services were created to provide subsidies for unprofitable routes that the government demanded, and to keep ticket prices low on the unprofitable routes.  However, the recession had caused the new tourist routes to become unprofitable.

The airline simply owned too many aircraft for the profitable routes they had, had no flexibility to drop unprofitable routes, and competition from other commercial airlines was keeping down ticket prices.

How did they solve the problem?  By changing the relationship with the government.  The government became a partner, not just an investor, in particular routes.  That allowed the government to subsidize those routes and get out of the business of caring about the overall airline.  The main commercial routes were expected to be competitive and profitable while the “required” routes were subsidized so that they wouldn’t lose money.

All this was visible by examining the value proposition as an independent element of the business model.  Simply doing a “SWOT” analysis wouldn’t have focused leadership on this kind of problem, or this kind of solution.