Value World Spring 2010

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value worldVolume 33Number 1Spring 2010Published by SAVE International

INSIDE THIS ISSUE:

Optimizing

Business Strategy

and Performance


2/29V A L U EW O R L DVolume 33, Number 1, Spring 20102

could make a significant improvement.Furthermore, Lori Braase, AVS, Alison Conner, CVS

Margie Jeffs, AVS, Jodi Grgich, and Darcie MartinsonAVS outline the use of value engineering (VE) and Bal-anced Scorecard Approach to develop business strategy maps. When using the VE methodology to developstrategy maps and scorecards, they argue that the func-tion analysis and, specifically, Functional Analysis System

Technique (FAST) are essential elements for the strategicplanning approach. Both methods were applied to develop a strategy map for the Nuclear Science and Technology Directorate at the Idaho National Laboratory.

The third paper, written by Mahesh Natarajan, AVSand Ragavendra Prabhakar provides an explanationof Open Innovation, which is described further intocombining internal and external ideas as well as internaand external paths to market, in the effort to advancethe development of new technologies. The extent andtype of innovation should be determined by current busi

ness performance and future expectations and by theorganizations tolerance for risk. They argue that thefruits of innovation remain the propelling force behindthe churning out of new products and the solutions tokeep the core business running which eventually resultin improved value for a product, for example a recentlylaunched Tata Nano, the worlds cheapest car.

The last paper in this edition is written by AbdulazizS. Al-Yousefi, CVS-Life, FSAVE discussing the critical factors on the process of decision-making by employingQuality Based Decision-making (QBD) method. TheQBD is consisted of various tools, namely Management

Decision Matrix (MDM), Quality Satisfaction Model (QSM)and Quality Priority Model (QPM), which are used to differentiate between needs and desires by defining fourlevels of priorities. He further explains how QBD can beused to improve decision-making that leads to optimaexpenditure of owners funds while meeting requiredfunction, quality, and performance.

hope this edition of Value World conveys some newinsights in the way we conduct our value methodologystudies. I can be contacted at maberawi eng.ui.ac.id

Business strategies are selected based on the existingcapabilities and strengths and they become the meansto achieve a particular goal or set of goals or objectives.A business strategy may be improved through businessinternal processes, product development procedures,organizational and market segment arrangements. Com-petitive market has led to corporate evolution to aligntheir business strategies and performances on various

dynamic opportunities for innovation and competition.Identification of key factors to improve company perfor-mance from the standpoints of organization, technol-ogy, and capability, is considered as the most importantthing in optimizing business strategy.

n this role, the theme of the spring issue of ValueWorld discussion will be Optimizing Business Strategyand Performance using value engineering method as astrategy to provide competitive advantages for the or-ganization. Generally, the current business performanceand future expectations involve challenges common to

all business, i.e. how to produce the best product and/orproject, how to value technologies and resources, andhow to determine the cost, quality, and schedule impli-cations of a particular product/project in the market.

Opt m z ng Bus ness StrategyThis issue of Value World presents four selected pa-

pers to stimulate debate and to explore the applicationof value engineering in optimizing business strategy andperformance on various contexts.

The first paper, written by Hiroshi Tsuchiya, CVS,FSAVE, emphasizes on the new product development

based on life research. In this term, Life research is usedto grasp the real needs of products or services, to findthe seeds of development or improvement, and to cre-ate a new concept based on the peoples current liv-ing conditions and life experiences. He argues that theneeds of the customer or user are generated from theiractual lives, and companies must produce and providetheir costumer with high value products or services. Byidentifying these needs, the potential for creativity willincrease, and consequently, both users and companies

ptimizing Business Strategy and Performanceeditorial


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Volume 33, Number 1, Spring 2010 3V A L U EW O R L D

and I would be pleased to accept and respond to anycomment and enquiry you may have on the direction andcontent of Value World. Your valuable contribution andfeedback are important to the success of our journal as itwill guide its future development.

With warmest regards from editorial desk,

Dr. M. A. BerawiFaculty of Engineering

niversity of Indonesi16424 Jakarta

Indonesia

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Network with leading valuepractitioners from around the world.

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Build skills at pre-conferenceworkshops.

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ew Product Development Based on Life ResearchHiros i Tsuc iya, CVS, FSAVE

A stractLife Research is to grasp the real needs of products

or services, find the seeds of development or improve-ment, and create a new concept based on the peoplescurrent living conditions and life experiences. It has beenapplied in Japanese companies ever since around 1985and effects have been demonstrated. The speaker is oneof the pioneers of the research and practical instructionin VE. He will address the necessity of life research, scopeof its application, practical methods, and other details.

W at s L e Researc ?

As symbolized by globalization or mega-competi-tion, the environment surrounding corporate entities isin the era of revolutionary change. No matter how timeschange, companies must always contribute to the soci-ety. From this standpoint, they will be sure about howthey should think and act in the future. Because of sucha background, VE is seemed to be focused on. Also, LifeResearch is one of the methods which may be helpful inthe current business situation.

Life research is to grasp the real needs of products orservices, find the seeds of development or improvement,and create a new concept based on the peoples currentliving conditions and life experiences.

Everyone wishes to live an affl uent life. Affl uentmeans living in great comfort or in other words, satisfiedwith own life. In respect to the products or services gen-erated by companies, it should be understood as to sat-isfy the needs of the people who use those products orservices. We call this satisfaction in VE terms: Value.

No matter how times change, companies must gen-erate and provide with their clients and users with high

value products or services. This is the mission of compa-nies and without achieving it; they are not allowed to sur-vive. Now, we can be sure that understanding the needsof the customers and users correctly is the origin of thecorporate Mono-Tsukuri (manufacturing).

There are five fundamental principles in pursuit ofvalue. The first principle is user-centered, which meansto think from the viewpoint of the users. In this principle,there is an intended meaning for the producers to be theusers as well and overwhelmingly pursue what the users

needs are or what they want the companies to do. Therefore, in thoroughly following this principle, eventuallythere will be another challenge to grasp the actual situation regarding the life scenes of the users. The needsand wants of the users are usually generated from theiractual life scenes.

Of course understanding the users needs is part ofthe research work in the marketing field, so we do greatly expect from their research outcomes. However, sinceVE is an extremely practical activity, it is not possible tospend much time on the researches and collection of theoutcomes. It is expected to draw a conclusion in a short

period of time.Because of these factors, the life research was de

veloped as one of the easily applicable methods and ithas been applied since 1985 in various companies withsuccessful results.

The term life research was originally used in thefield of home economics from long time ago. However,the life research which we refer to has a different con-tent. It is an easily accessible and practical activity to discover the needs and seeds of improvement of the products or services provided by the producers who simulate

being the users.

W y L e Researc s necessary?

1) Reflecting to technical and economic changesThe type of the current environmental changes has

shifted from the changes occurred as an extension ofthe past and traditional way of thinking to those whichcompletely deny the conventional methods. In reviewingfrom a technical standpoint, a multiple of cutting-edgetechnologies have appeared and accelerates the innovation. The rapid progress of nanotechnology, biotechnol

ogy, electronics and IT technology are some factors forspeeding up the innovation pace.

Technology innovation is evolved by applying newcombination of accumulated technical informationTherefore, the more useful information we have, themore possibility for new technology innovation will oc-cur. Consequently, many new products and services aredeveloped and introduced to the market one after another. However, this situation stimulates the diversificationof values among the people, who are becoming more


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diverse and unique than in the past. Changes in peoplesvalues may restrict the market size, thus the companieseventually must be involved in even more competitiveworld. How do we cope with those challenges? We mustdevelop even more innovative and advanced productsand services which satisfy the needs of the customers

and users and introduce them to the market earlier thanour competitors. There is no other option.The development of engineering technique has led

the innovation any time in the history. This will furtherbe accelerated in the future. Since the amount of tech-nology information is pretty much accumulated, mostof the new techniques are highly feasible, if only we cancorrectly understand what we should produce. In sucha backdrop, we can see how important it is to accuratelyunderstand the needs of our customers and users. Theneeds of the customers and users are the main sourceto generate high value products or services which over-

whelm other competitors. Life research is a way of com-plying with such a demand.

Another issue is the globalization; a competitive mar-ket without borders is expanding rapidly. Globalizationleads to the fact that not only the value judgment of us-ers regarding the products or services being launchedinto the market becomes diversified, but also it will makemore diffi cult to provide the users with high level of sat-isfaction. In order to overcome such diffi culties, we needto address the issues in the same way as we do with thechanging of the technology environment.

2) Using easily accessible and trustworthyinformation

There is a professional discipline to research andgrasp the needs of the customers and users. However,there are more easily accessible and trustworthy sourceof information within the companies. They are the com-pany employees and their immediate community offamilies and friends. People who belong to a companyare producers and ordinary citizens at the same time. So,they have something in common with the customers andusers regarding the needs of the products or services.

Also, company employees always think seriously aboutdeveloping and improving their products or services tobe more high value and overwhelm their competitors.Not only the employees but their families, relatives, closefriends etc. are the potential sources of information.These people are able to think about the needs of thecustomers as it is his/her own business, and are highlyinterested in the issue. We need to gather these valuableawareness and capabilities and utilize them as companyenergy. Traditionally, people used to think that the re-

search of the customer or users needs, seeds of development or improvement should have been conductedby professional experts and was not reachable by otherpeople. However, this is not correct.

Most of the products or services provided by companies are generated and produced in-house. There are

quite many products whose concepts were originatedfrom the ideas generated by the employees, their closefamilies and friends who are not experts in a certain fieldAs it can be attested to by this fact, an organizationacontribution by the company employees and their relat-ed people will be more expected than ever before.

3. Areas o L e Researc

n the life research, products or services generatedby companies are divided into four areas; Home, Offi ceFactory and Shop depending on what kind of life scene

they are addressed and used. In each of the areas, thecompany employees and their related people who pretend to be the customers or users will figure out theneeds, desire, expectation, complaints (inconveniencedissatisfaction, and disappointment) etc. of the productsor services through their actual life scenes. Then, theywill discover the seeds of development or improvementfrom their findings. (See Figure 1, above.)

This area addresses the life research for domestic lifeand includes the following subjects:

) HALS (Home Appliance Livelihood Study)

Figure 1. Areas of Life Research



(Housing) Residence, hoard, stor-age, security, interior, exterior,gardening, furnishings, DIY

(Electric appliances) Audio-elec-tric, information devices, cookingappliance

(Healthcare) Healthcare equip-ment, laundry, house cleaning,medical supply, sports ware, lei-sure

(Foods) Kitchen instrument, kitch-en ware, ingredients, cooking

(Clothing) Clothes, costume, cos-metics

(Learning) Books, stationery,learning, enrichment courses

(Child care) Child rearing goods,toys

(Events) Overseas travel, domes-tic travel, theater, sports meet, ex-cursion, hiking

(Others) Transportation, pet care,family affair, savings, shopping, so-cial affair

2) OALS (Offi ce ApplianceLivelihood Study)

This area addresses the life re-search for offi ce environment andclerical works pursuing comfort of of-fice appliances and tools. Includes thefollowing subjects:

Offi ce space, interior, informationdevices, offi ce machinery, offi ce equip-ment, stationery, air-conditioning, lighting, informationsystem

3) FALS (Factory Appliance Livelihood Study)This area addresses the life research in factory, work

environment in manufacturing floor, processing facil-ity, tools, production methods, etc. anything except theproducts or services. Includes the following subjects:

Factory equipment, processing facility, processingmachinery, processing tool, delivery tool, work space,lighting, day lighting, safety, storage, inventory, informa-tion system, production system

4) SALS (Shop Appliance Livelihood Study)This area addresses the life research in retail shops

Applicaon

Method

Target Subject

Descripon of the MethodClear

Not

Clear

Ulizaon

AnalysisX

he use of the target subject is divided into several

rocesses and we try to understand the needs,

expectaon, and point of improvement for

each process. (For detailed research, Life BehaviorChronological Analysis will be conducted.)

Similar

Product

Analysis

X

Observing the similar product which has a great

it in the market, we try to extract the popular

actors. (It is mor elikely to apply cause analysis,

cluster analysis, and regression analysis sing

aesthec adjecves.)

0 Things

in Daily Life

Analysis

X

he daily life acvity is divided into ten areas

and we try to understand the works for a

specific area, the needs, expectaon, and

point of improvement for the equipment or

ool to be used. (We think of the means from

he relaonship between teh Objecve andFuncon for using the work, equipment, and

ool.)

Life Style

AnalysisX X

e sort out the users life style and try to

understand the needs, expectaon, and point

of improvement for each type of life style. (We

aim to develop the needs by each type of life style

and use them as seeds of improvement as well

as review the differences among each of them to

improve the accuracy of the research outcomes.)

Trend in Life

Style Change

Analysis

X X

e prospect how the needs and expectaon

change or have changed according to the

changes in the economic society, peoples

sense of values, and their living circumstances,

adn try to incorporate their elements into the

development of the products/services or the seed

of improvement.

Table 1. Major methods of life research.

which sell products and services to users. The shops wilpursue how they can comply with their customers needsand expectations from the standpoint of the customerswho come to buy goods at the shops. Includes the fol-lowing subjects:

Shop appearance, in-shop environment, guiding ofcustomer, care for customer, selection of goods, displayequipment, display tool, layout of goods, display, storage, stock

Met o s o con uct ng L e Researc

1) Patterns of Life ResearchLife research is conducted in three basic patterns: by

team, by individual and by a combination of team and in


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Volume 33, Number 1, Spring 2010V A L U EW O R L D

dividual. The type to be selected depends on the area ornature of the subject. In order to find seeds of develop-ment through daily life without a limitation on the sub-ject, usually company employees or their related peopleconduct the research individually. The research findingswill be collected and put together as life proposal infor-mation. Usually a project team is formed to evaluate theresearch findings and develop a specific concept. Also,the project team will conduct a study when the area orthe specific product or service has already been deter-mined as the subject of life research. (See Table 1, bot-tom, previous page.)

2) Major approachesThere are two major approaches. One is used if you

have the target product or service clearly determined,and the other is applied if you do not have a specific tar-get yet and will try to discover seeds of development

The Workers Psychology Desire for Work

Cue to Work It is not an enjoyable work, but it cannot bee pe .

I want my ami y to e neat an c ean.I want a comfortable finish.I want to nis it quic y.

I want an iron to be enjoyable to use while I do thewor .I want a we -presse iron.I want an iron which finishes quickly.I want to now ow to o we .

Preparaon It is annoying to co ect a t e too s an c ot estoget er.I cannot use it imme iate y a ter ta ing it romt e storage space.Sma space, ut easy to e messe up.It ta es time to eat up.It is annoying to pour water.I cannot tell if it has attained a suitable tempera-ture to use.

I want a tool to help the stuff to be stored collective-y.

I want a too to e a e to use quic y, even in a smaspace.I want a compacta e too to use.I want an iron to eat up quic y.I want an iron into w ic I can pour water easi y.I want an iron which automatically tells the suitabletemperature.

Main Work

Process

Finishing varies between workers and there is atric to ironing.I cannot o we wit nis ing an it is annoy-ing.I want to nis it quic y.I want to re uce time an e ort.T e wor is oring.

I want tips and know-how to work on well-finishedc o t es.I want an iron w ic gives me we - nis e c ot es.I want to smoot t e wrin es easi y.I want an iron w ic nis es quic y.I want an enjoya e iron to use.

Preparaon

for Storage

I worry a out a re cause y orgetting to turnt e power o .I worry about clogged steam port.I worry a out storing it w i e it is sti ot.It ta es muc time to coo own.

I want an iron wit an easi y an e cor .I want an iron w ic is sa e even w en t e power isleft on.I want an iron wit out a c ogge steam port.I want an easy-care iron.I want an iron w ic coo s own quic y.I want an iron t at can e store w i e it is sti ot.

Storage

ork

I cannot store a t e stu co ective y.It is space-consuming.

I ave pro ems storing it.

I want a too to e p t e stu to e store toget erin one place.

I want a space-saving too .I want a too to e visua y esira e i it is e t out.

a e . syc o ogy an expectat ons or ron ng.

thorough peoples daily life. Depending on which subject is under consideration, the approach to be taken wilbe different. As various methods are applied for life re-search, the author will describe the most major ones andtheir outlines in Table 1 (prevous page).

These methods are relatively simplified ones to understand and confirm the customer or users need, whichis the starting point of a VE study, because they are sup-posed to be applied to develop and improve high valueproducts or services under a severe time constraintHowever, you will need a considerable time and effortin order to ensure all these tasks are accomplished properly. Therefore, you may want to choose appropriateones as necessary depending on the nature of the targetproduct or service.

n the case of a VE study, the target product or service is determined most of the time. Therefore, among



Figure 2. Problems of ironing work and their countermeasures.

the methods shown in Table 1, Utilization Analysis andSimilar Product (hit product) Analysis are effectiveones which are routinely applied. In this paper, the author will describe the outline of utilization analysis alongwith a simple example.

[Utilization Analysis]

The target product or service is what you produceand provide in the market. Therefore, you should have adeep understanding on the purpose of its use, functioncomposition, etc. However, you may not necessarily befamiliar with what kind of expectations do the users haveabout the product/service or how they are actually usingit. In some cases, you have never used it on your own.

Here, you as a producer will simulate being a userand actually use the product/service. Through your feel-ing about the usability and experience, you will graspthe users needs, desire, expectation, complaints (inconvenience, dissatisfaction and disappointment), etc. and

correctly understand how do the users want the product/service to be, and consider the countermeasuresfor increasing user satisfaction. Traditional steps for thisaction are as shown below:

Clarify the reasons and how they come up with usingthe product/service.

Clarify the scenes and environments where to usethe product/service.

Clarify the use procedure and time schedule.

1)

2)

3)

gure . e researc ep oyment system.


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dentify the users expectation and mind regardingeach of the above items (1) (4). Regarding the item(3), identify by each step of the use process.

Generate expectation, desire and ideas if possible re-garding the item (4).

Consider the complaints, expectations, and desire by

each of the use process.

Organize what should be done and how and de-velop countermeasures for solving the problems.

Above is an example using the above steps. (See Ta-ble 2, page 7, and Figure 2, previous page.)

Summary

There is a multiple of applicable methods for life re-search, and the procedure of utilization analysis which isthe most universally used method was described includ-

ing a simple example.After all, the needs of the customer or user are gener-

ated from their actual lives, and the people who have thehighest interest in the issue are the company employees.By identifying the needs, the potential for the creativitywill be increased, and consequently, both the users andcompanies could make a significant improvement. (SeeFigure 3, next page.)

A out t e Aut or

Hiroshi Tsuchiya is CVS, fellow of SAVE International andcertified management consultant by All-Japan Federationof Management Organizations. He was general managerof General Research Institute and chief of Value Manage-ment Research Institute at the SANNO Institute of Manage-ment and executive director of Society of Japanese ValueEngineering (SJVE). Currently, he is emeritus professor ofthe SANNO Institute of Management and presidential advi-sor of SJVE. As a pioneer expert in VE field in Japan, he hasbeen engaged in the instruction, education and training formany company employees as well as university and collegestudents for many years and has provided consultation ser-vice to several hundred companies in electric, machinery,automotive, etc. He is one of the three main editors of thelatest SJVEs publication Value Engineering Handbook.He has written a number of papers and books on VE.

4)

5)

6)

7)



sing VE to Strategically Plan Our Futureori Braase, AVS, Alison Conner, CVS, Margie Jeffs, AVS, Jodi Grgich & Darcie Martinson, AVS

A stractThe Value Engineering (VE) Methodology is an ef-

fective tool for business or strategic planning. In con-junction with the Balanced Scorecard Approach (Drs.Robert Kaplan, Ph.D., and David Norton, Ph.D., from theBalanced Scorecard Collaborative/Palladium Group),function analysis can be used to develop strategy mapsand scorecards. The Functional Analysis System Tech-nique (FAST) diagram provides an integrated approachto strategy map development by formulating a causeand effect relationship and establishing the how and

why behind the strategy map. By utilizing the VE JobPlan, one is able to move from strategic thinking all theway through to execution of the strategy.

Introduction

The Balanced Scorecard concept evolved from aone-year multi-company measurement research projectbegun in 1990 by Drs. Robert Kaplan and David Norton.Since then, Kaplan and Norton have written a number ofbooks and offered extensive training on this topic. As aresult, several hundred companies have implemented

the Balanced Scorecard approach with a high degree ofsuccess. In their books, Kaplan and Norton site multiplecase studies where the concept has been used to dras-tically improve performance of organizations throughidentification, alignment, integration, and execution oftheir strategies.

After receiving training in and applying the BalancedScorecard approach, authors of this paper sought asystematic approach for developing and implementingstrategy maps and scorecards. Being certified in the val-ue management discipline, they recognized the value inemploying Value Engineering (VE) and Functional Analy-sis System Technique (FAST) diagramming as a means tothis end. As described below, the authors propose howVE can be used to aid in the development and implemen-tation of strategy maps and scorecards.

Strategy Maps an Ba ance Scorecar s

Overview

Many, if not most, organizations and institutions en-gage in some form of strategic planning. Multiple strate-

gic planning definitions and approaches exist for identifying an organizations vision, understanding its missionconducting a situation analysis, determining goals, andidentifying strategies and tactics. Definitions for each ofthese terms can be found at the end of this documentHowever, research has shown that execution of strate-gies, not development, is where companies fail.

n 1990, Kaplan (the Baker Foundation Professor atHarvard University) and Norton (President of the Balanced Scorecard Collaborative/Palladium) began a research project on measurement which eventually ledthem to development of a balanced strategy mapping

and measurement system. The term to describe the management tool that evolved is a balanced scorecard.The balanced scorecard consists of a strategy mapdescribing an organizations strategy and a scorecard formeasuring and managing that strategy.

n Kaplan and Nortons book, Strategy Maps1 thepremise is that Successful execution of a strategy requires three components:

(Breakthrough results) = (Describe the strategy) +(Measure the strategy) + (Manage the strategy)

The philosophy of these three components is simple:

You cant manage (third component) what you cantmeasure (second component)

You cant measure what you cant describe (firstcomponent).

To describe, measure, and manage the strategy, Kaplan and Norton developed what have been termed asstrategy maps and balanced scorecards. At the highestconceptual level, maps and scorecards provide a frame

work that helps organizations translate strategy into op-erational objectives that drive both behavior and performance. This framework enables a balance between:

Financial and non-financial factors

Tangible and non-tangible asset

Long-term and short-term priorities

Strategic and operational decision-making

Top-down articulation and bottom-up executio


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Staff/sponsors interests

Lead and lag indicators of performance.2

A strategy map is a pictorial model (or visual repre-sentation) used to holistically describe an organizations

strategy. A generic strategy map template is shown in

Figure 1 (right) and an example of a completed map is

found in Figure 2 (below right). The model shows the

cause and effect relationship of the strategic objectives

hypothesized to create value for the customer. In orderto remain balanced, strategy maps take into account

different perspectives, including:

Financial performance (note: public and non-profit

organizations usually have a primary focus on mis-

sion versus financial performance)

Customer objectives which define the customers

value propositio

nternal processes needed to create and deliver the

value propositio

Learning and growth objectives describing the orga-

2015 Vision: ______________________________________________

Theme____________________Theme____________________Theme____________________

CustomerServiceExcellence

StrategicActions(InternalProcess)

Resources &Infrastructure(Learning &Growth)

Mission: ____________________________

Place mission and vision statements here.

Strategic Objective

Strategic ObjectiveStrategic Objective

Strategic ObjectiveStrategic Objective

Strategic Objective

Use the bubbles to addobjectives at each level.

Duplicate, rearrange, and resizethe bubbles to meet your needs.

Briefly describe your valuepropositions or themes.

Move the dotted lines to markobjectives in the different

perspectives.

Use connectors from theAutoShapes menu to show the

cause-and-effect relationshipbetween strategic objectives.

gure . ener c strategy map.

nizations intangible assets and their role in strategyntangible assets include human capital, information

capital and organization capital.

As a guideline, each strategic objective should be:3

A short (3-8 word) statement that describes a strategy, something that an organization wants to be ableto do well

An action statement that clarifies what strategy wilbe implemented

A linked set of priorities that deliver the overall strat

egyEnduring, and relevant for 3-5 years.

Each strategic objective should also have one or twoperformance measures.

A scorecard is built around strategic objectives andcontains measures, targets, and initiatives surmised todrive the organization towards accomplishing its strategic objectives and in turn, its mission and vision. The information contained in the scorecard can and should be



cascaded to individual performance goals to assure eachand every person in an organization is working toward

accomplishment of the strategy.n addition to the scorecard elements suggested by

Kaplan and Norton, the generic score-card shown in Figure 3 (right) containsa column for consideration of risks inachieving the strategic objectives.

VE Methodology Overview

The Value Engineering (VE) pro-cess uses a six-step job plan, whichis part of a decision process that has

been optimized over the last 50 yearsby many people and application expe-riences. The use of a function and logicapproach inspires people to ask keyquestions, which reduce the potentialthat a need or issue is missed. It is im-portant to understand the functionsthat the customer values and then usefunction analysis to provide the inputsto their strategic direction. The use of a

value-based decision-making approach helps ensure thatresources (e.g. time, money, and expertise) are directed

toward the solutions that have the highest potential formeeting the customer needs.

Scorecard

Objecves Risks Measures Targets Iniaves

gure . xamp e o gener c corecar .

Figure 2. Example of strategy map.


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The VE Job Plan applied at the Idaho National Labora-tory (INL) includes the following phases:

Phase 0: Preparation / PlanningPhase 1: Information GatheringPhase 2: Function AnalysisPhase 3: Creativity

Phase 4: EvaluatioPhase 5: DevelopmentPhase 6: Presentation/Implementation.

The unique aspects of VE can greatly enhance theoutcome of a strategic planning effort. These aspects in-clude:

Utilizing facilitators trained/certified in the VE pro-cess

Generating formal documentation of the results andteam recommendations

Engaging an interdisciplinary team of those involvedor affected by the recommendations

Performing function analysis that introduces a differ-ent perspective of the project or organizatio

Following a formal job plan.

This paper will demonstrate the considerable benefitthat can be realized in utilizing VE to plan the future of anorganization with strategies that can be planned throughexecution and visually represented on strategy maps andscorecards. This proposed approach is described below.

Using the VE Job Plan to Do Strategic

Thinking

Phase O: Preparat on Plann ngDuring the Preparation/Planning Phase, the person-

nel that will devise the strategy are identified. The com-position of the team varies according to the organizationor program under study. Staff personnel and manage-ment are the primary team members of a strategic plan-ning team. Subject matter experts for potentially related

technologies and integrated disciplines, customers, sup-porting organizations, and key stakeholder are recruitedor called upon to participate in the Value Engineering(VE) study to answer questions, identify customer needsand expectations, and fill in information gaps as needed.

Once the VE team is assembled, they can begin towork together to collect the data necessary to build andformulate a more solid mission, vision, and end state.

Potential outcomes of the Preparation / PlanningPhase are the identification of the Members of the Strat-

egy Planning Team, Names of Potential Experts thatcould be called upon as needed, and an understanding ofthe Issues the team needs to address.

Phase 1: Informat on Gather ngDuring the Information Gathering Phase of the Job

Plan, pertinent facts and information are gathered to be

gin to bring all team members up to same level of understanding of the organization or program.

When using VE to develop a strategy map and balanced scorecard, the information gathering phase can beutilized to collect the pertinent data which will help to:

nderstand and describe an organizations currentsituatio

nderstand customer needs and expectations

dentify strengths and weaknesses

Acquire knowledge of current technology states(i.e., experimental, developmental, demonstrateddeployable, fully operational, etc.)

Define where it wants to be in the future

Determine how to fill the gap between where it is today and where it aspires to be.

A couple of techniques that can be used in gather-ing this type of information include interviews of key customers and stakeholders, and SWOT (Strengths, Weaknesses, Opportunities, and Threats) Analysis.5

Interviewing. As part of the information gathering

phase, team members can be assigned to interview managers/staff as well as stakeholders/customers of the organization. If interviews are conducted, a standard setof questions should be designed in advance to gatherinformation on customer needs, mission, and visionstrengths, weaknesses, opportunities and threats; keystrategic issues, and the end state (what the organization will look like if the vision is achieved). This data canthen be compiled prior to the VE workshop into a draftvision, mission, and desired end state as a place to startthe strategic thinking.

SWOT Analysis. A SWOT Analysis is used to understand the strengths, weaknesses, opportunities, andthreats related to the organization or program understudy. The analysis can begin to define the current situation of the organization or program, which in turn wilbegin to into the organizational strategy.

Securing as much of the information as possible canbe one of the most diffi cult efforts to accomplish but onethat may provide the greatest value to the strategic planning study if completed thoroughly. The team will begin



to grow into a cohesive working team through a sharedunderstanding of the customer expectations and pos-sible future of the organization or program.

Potential outcomes of the Information GatheringPhase are Draft Vision and Mission Statements DesiredEnd State, Customer Needs and Expectations, and Situ-ation Analysis.

Phase 2: Function AnalysisThe Function Analysis Phase of the Job Plan sets the

Value Engineering Systematic Approach apart from allother systematic approaches. Within the Function Analy-sis Phase, the functions of the organization or programare defined in two words, one action verb and one mea-surable noun, and the relationships of these functionsare evaluated. Through this evaluation, basic, secondary,and dependent or when functions are identified.

Many techniques are used to identify the function-al relationships: Functional Flow Block Diagramming(FFBD), Functional Analysis System Technique (FAST),etc. This paper will demonstrate the application of FASTin the development of a strategic map and score card.

Figure 4 (below) illustrates the critical path functionsidentified by the team for the deactivation of a building.The functions on the critical path have been numberedfor tracking purposes. At this point, the team could takeeach function on the critical path and break it down fur-ther or definesupporting functions, as needed.

Functions to Strategy. Through the illustration above,you can begin to see the outline of a strategy map. The

Basic Function, or the primary reason for existence, (1.0Deactivate Building), can now be developed into themission statement of the organization or program. Thehigher order function, or future outcome on the FAST

Diagram (Close Building), can be built upon to define theVision Statement. The critical path functions are similarin definition and logic to strategic objective on a strategymap, and the supporting functions or when functionsmay equate to the learning and growth objectives thatneed to be developed in order to accomplish the strate

gic objectives.Functions and FAST are the crux of developing astrategy map and balanced scorecard. The FAST diagramcan be used to validate the mission of the organizationand further develop the how and why logic necessary todefine the strategic objectives.

To demonstrate the application of FAST to the development of a strategy map, the FAST diagram in Figure 5was built to define the functions and test the How Why logic of the Nuclear Science and Technology Di-rectorate at the Idaho National Laboratory.6

Mission and Vision. From this FAST, the vision and

mission statements can be crafted from the higher orderand basic functions, respectively. The vision statementon the strategy map was created from a combination ofthe higher order function and the visionary statementEnsure future clean energy for our children. Using thehigher order function alone may not create the emotional aspect of a vision statement. The vision should createexcitement and provide a future picture of what is different as a result of the mission. It may be productive to develop draft mission and vision statements prior to the VEStudy and enhance them utilizing information gleanedduring development of the FAST diagram and strategymap.

Perspectives and Strategic Objectives. The VE teamcan begin to identify the strategic objectives from thecustomer perspective, using the functions on the critica

HOW? WHY?

SCOPELINE

SCOPELINE

Close

Building

1.0

DeactivateBuilding

2.0

Regulate

Compliance

3.0

Control

Work

4.0

Perform

Work

5.0

Complete

Design

Locate

Specifications

BASIC

FUNCTION CRITICAL PATH FUNCTIONS

HIGHER

ORDER

FUNCTION

INPUT

FUNCTION

gure . xamp e o a agram on t e eact vat on o a u ng.


15/29


path. For each function, ask For whom? Why? And whatdo they need? This will produce an initial list of custom-ers that can be prioritized for the strategy map. Strategicobjectives from an internal organization perspective aretypically the critical path functions. The strategic objec-tives from a learning and growth perspectives come fromthe When functions and/or by asking, What resources(high level) are needed to accomplish the function? Theresulting list can be categorized and then formulated

into representative learning and growth objectives.The following illustrates the thought process used tocreate the customer perspectives:

Conduct world class nuclear energy research for whomand why or what do they need?

The US Citizen needs the Idaho National Laboratory(INL) to do innovative nuclear energy research de-velopment & demonstration (RD&D) for the nationsbenefit (energy security, clean environment, etc.)

Nuclear industry and utilities need the INL to providesolutions to complex nuclear industry problems (fu-

els and materials issues).

DOE, Nuclear Programs, and International Partnersneed the INL to lead and coordinate nuclear RD&Defforts.

The world needs the INL to analyze and promoteeconomic and stable nuclear energy solutions.

Figure 6 (above, next page) illustrates how the teamcan go from a FAST diagram to a strategy map to beginformally defining the future end state and vision for the

Save Planet

AbundantClean Energy

For Our

Children

Save Lives

BecomeaLeading

CleanEnergyRD&D

Laboratory

Advance NuclearEnergy as an

Economical, Safe,

and Sustainable

Energy Choice

BecomeaMajor

CenterforNational

andHomeland

SecurityTechnology

RD&D

Identify World

Nuclear Energy

Needs

HOW? WHY?

Develop World

Wide Nuclear

Energy Solutions

Conduct World

Class Nuclear

Energy Research

Build WorldClass

Nuclear Energy

Capability

Identify Nuclear

RD&D Needs

Integrate

International

Expertise

Identify

Collaboration

Opportunities

DevelopRD&D

Programs

HIGHER ORDER

FUNCTION

INPUT

FUNCTIONBASIC FUNCTION CRITICAL PATH FUNCTIONS

Visionary

Statements

Lead

Collaboration

Coordinate

Communication

Mission Objectives

CreateModern

Research&User

Facilities

UtilizeStateof

theArt

Equipment

DevelopUnique,

WorldRenown

Expertise

Attract/Retain

WorldRenown

Expertise

Transform

Business

Processes

DevelopPublic

Trustand

Confidence

VE 4/30/09

organization or program.The FAST provides an effective way to promote team

involvement and understanding about the strategic di-rection of an organization or company. It provides amethod to ensure the necessary functions were consid-ered systematically and are not unintentionally omittedfrom the strategic thinking through the validation of thecause and effect relationship.

As illustrated here, the FAST diagram is a means to

develop the strategy map but not necessarily the enditprovides a way to understand the cause and effect rela-tionship and may not be an identical match to the strategy map.

The outcomes of the Functional Analysis Phase wilbe a FAST Diagram and a Strategy Map describing theorganizations high level strategy.

Phase 3: Creat v tyDuring the Creativity Phase, the team should brain-

storm ways of accomplishing the strategic objectives(stated as functions) of the organization. Brainstorm

ing how to accomplish each of the functions will lead topotential initiatives for each of the strategic objectivesIn addition, the team should brainstorm potential measures for each of the strategic objectives/functions. Inthe evaluation phase, these measures will then be downselected to a smaller number of metrics (1 or 2 per strategic objective/function).

When brainstorming measures, the team should consider two types of strategic measures: lead and lagmeasures. While lag measures assess performance re



sults at the end of a time period or activity, lead measuresassess intermediate processes, activities and behaviors.For example, if a strategic objective is to grow customerconfidence, hours spent with customers would be alead measure while customer retention would be a lagmeasure3. Both types of measures are important. Lagmeasures provide outcome information and lead mea-sures can drive desired behavior and activities.

The outcomes of the Creativity Phase will be brain-stormed lists of potential Strategic Initiatives and Mea-sures.

Phase 4: Evaluat onThe Evaluation Phase is the time when the lists of

strategic initiatives are evaluated to determine their val-ue and potential impact for meeting the strategic objec-tives. Using typical VE evaluation tools and techniques,the strategic initiatives are defined down to a manage-

able set and then measures necessary to monitor andgauge the performance of those objectives are evalu-ated. A good strategic initiative should have:3

An Owner accountability at the Leadership Teamlevel

Clearly defined start and stop dates and progressmilestones

Clearly defined deliverables

A budget and committed resource allocation.

When evaluating measures, the following guidanceshould be considered:

Each strategic objective should have one to two measures

Both lead and lag measures should be used, as ap-propriate

Le

arning&Growth

Internal

Customer

PERSPE

CTIVES

Figure 6. Exmaple of a Strategy Map for the INL NS&T Directorate.


17/29


Lead measures are usually assigned to the Internaland Learning and Growth perspectives; occasionallyto the Customer perspective

Each strategic objective should have at least one lagmeasure.

The outcomes of the Evaluation Phase will be a Pre-ferred Set of Initiatives and Measures for each StrategicObjective.

Phase 5: DevelopmentKey milestones or tactics that support the accom-

plishment of the strategic objectives are defined in theDevelopment Phase. During the Development Phase, thebalanced scorecard will be defined and populated withthe tactics and targets. An example of a balanced score-card that could support the INL Nuclear Science & Tech-nology (NS&T) Directorate is shown in Figure 7 (below).

The outcome of the Development Phase will be a Bal-anced Scorecard.

Phase 6: Presentat on Implementat onThe Presentation Phase is utilized to ensure the new

strategy is presented to senior management by the VE

Team to obtain their immediate (although verbal) feedback and approval. In addition, follow-on activities couldinclude development of pictures/posters to use to communicate to staff and management the newly definedstrategy and balanced scorecard. These items are necessary to maintain communication and reinforce the shared

vision for the organization or program.The Implementation Phase is typically long-term withlittle VE Study Team direct responsibility. Potential outcomes could include a Project Execution Plan (PEP), aresource loaded schedule, individual performance goalswork packages, etc. This is a crucial phase for the successof the organization. If the Strategic Plan and Scorecardare integrated, communicated, and used as the basis forplanning, the goals and strategies of the organizationmay not be completed. Also, members of the VE StudyTeam may be less interested in participating in futurestrategic development activities if their efforts do not

appear valued.Kaplan and Norton suggest that the most successfu

strategic implementation occurs when the senior management team uses a new system to manage strategywith the following dimensions:

Strategy at a Glance

Strategy Map INL Specific Balanced Scorecard Action Plan

Perspective Objectives Risks Measurement Target InitiativeBudget($000)

Customer

Industry wont

collaborate. DOE wont fund.

# of contracts FY-09: 1

FY-10: 3FY-11: 5

Identify testing and analysis

needs. Submit proposals.

$ 200

# of meetingswith Industryparticipation

FY-09: 4FY-10: 6FY-11: 10

Organize collaborationmeetings.

Invite Industry to RD&DPlanning meetings.

$500

Internal

Congress changesthe mission of thelab.

Funding for facilityupgrades, newequipment, or newfacilities is notavailable.

# of newequipmentprocured

FY-09: 2FY-10: 3FY-11: 5

Develop PEP to identifytesting equipment andfacility upgrades.

Identify funding. Initiate procurement. Design facility upgrades.

$600

# of newequipment

installed

FY-09: 1FY-10: 2

FY-11: 3

Develop installation plan. Identify funding.

Install equipment.

$1,200

Learning andGrowth

Training is notavailable.

Expertise is limited. Programs have

limited funding.

# of post-graduate newhires

FY-09: 5FY-10: 10FY-11: 20

Work with HR to interviewrecent university graduates.

Arrange on-site universityvisits.

$100

# of currentemployeestrained on newcapability

FY-09: 2FY-10: 3FY-11: 5

Assess training needs. Provide on-site training. Arrange off-site training.

$500

$3,100.00

Figure 7. Example of a Balanced Scorecard for the INL NS&T Directorate.



Strategy should be the central organizational agen-

da. The balanced scorecard allows organizations to

describe and communicate their strategy in a way

that could be understood and acted on.

Create incredible focus; every resource and activity

in the organization was aligned to the strategy.

The organization structure should mobilize all em-

ployees to act in fundamentally different ways. The

balance scorecard provides the logic and architec-

ture to establish new organization linkages across

business lines and employees.

When a new strategy is being launched, all employ-

ees must understand the strategy so they can find new

ways to conduct their daily activities. Organizations need

top-down communication, not top-down direction. One

study showed that 67% of employees in well-performing

organizations have a good understanding of overall or-

ganizational goals and 26% of the senior managers are

highly effective communicators. Compare this with 33%

of employees in poor performing organizations and 0%

of senior managers.7

The outcome of the Presentation/Implementation

Phase will be a fully Functioning and Executable Strat-

egy.

Conclusion

The Value Engineering (VE) Methodology is an effec-

tive strategic planning tool for organizations, projects,

companies, etc. After half a century, function analysis

remains a key piece of design; whether it is a building, a

computer system, a car or a plane. This simple concept,

to focus on what needs to be done, remains the ba-

sis for requirements development, problem solving, gap

analysis, etc. When using the VE methodology to develop

strategy maps and scorecards, function analysis and spe-

cifically Functional Analysis System Technique (FAST), are

essential elements of this strategic planning approach.Strategy without action does not lead to success. The

critical, and maybe the most diffi cult part, is implement-

ing the plans developed during the process. Obviously,

management commitment is paramount. Leading the

organization toward the vision and mission creates ex-

citement and interest for employees and customers. Em-

ployees align their personal goals to the organizations

goals and the cohesiveness increases as the strategy is

implemented.

1)

2)

3)

Definitions

Strategic Planning: A long-term, future-oriented processof assessment, goal setting, and decision-makingthat maps an explicit path between the present anda vision of the future; that relies on careful consid-eration of an organizations capabilities and environment; and that leads to priority-based resource allocation and other decisions.

Vision: An inspiring picture of a preferred future. A vision is not bound by time, but represents global andcontinuing purposes, and serves as a foundation fora system of strategic planning. A vision is a shortsimple statement of an ideal and unique image of thefuture of an organization. Vision statements providethe vital spark, energy, power, and passion necessaryto achieve goals.

Mission: The reason for an organizations existence. Itsuccinctly identifies what the org does, why, and for

hom. A mission statement reminds everyone ofthe unique purposes promoted and served by theorganization. An organizations mission statementconcisely states the basic purpose for the organizations existence. The mission provides the essentiafoundation for strategic planning. It should be brief(25 words or less) and understandable so the mainpoints are clear to all members of the organizationThe mission statement provides answers to the following questions: What do we do? For whom? Why?

How do we do it?Goals: The general ends toward which the organization

directs its efforts. Goals address the primary issuesfacing the organization within broad groupings of interrelated concerns. They are founded on the visionand may involve coordination among several organizations with similar functions.

Objectives: Clear targets for specific action. They mark interim steps toward achieving an organizations longrange mission and goals. Linked directly to goals, objectives are measurable, time-based statements of

intent. They emphasize the results of actions at theend of a specific time.

Strategies: Methods to achieve goals and objectivesFormulated from goals and objectives, a strategy isthe means for transforming inputs into outputs andultimately, outcomes, with the best use of resourcesA strategy reflects budgetary and other resources.

Actions or implementation plans: Detailed methods ofspecifying how a strategy is implemented. Ask speci


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fication includes staff assignments, material resourceallocations, and schedules for completion. Actionplans separate strategies into manageable partsfor coordinated implementation of goals and objec-tives.

References1. Kaplan, Robert S. and David P. Norton, 2004,

Strategy Maps Harvard Business School PublishingCorporation, Boston, MA

2. Durn, Paul, INL Strategy Map Workshop, 12/16/06,Balanced Scorecard Collaborative

3. Durn, Paul and Ryan Englund, PerformanceManagement and the Balanced Scorecard at INL,1/25/07, Balanced Scorecard Collaborative

4. Value Methodology Pocket Guide 2008, GOAL/QPC,Salem, NH

5. Thompson, Arthur A. and A. J. Strickland III, 1999,Strategic Management Concepts and Cases Irwin/McGraw-Hill

6. INL Strategic Plan 2008, Idaho National Laboratory,NL/EXT-08-13048

7. Kaplan, Robert S. and David P. Norton, 2001, TheStrategy Focused Organization, Harvard BusinessSchool Publishing Corporation, Boston, MA

About the Authors

Lori Braase, AVS: Lori Braase is the Lead for the Facilitationand Consultation Services Group in the Systems Engineer-ing Department at the Idaho National Laboratory (INL). Inaddition, she manages the Value Engineering Program forthe INL and serves as the Systems Engineer on a key Depart-ment of Energy nuclear program. Her 18 years of experienceincludes management, systems engineering, technical and

large group facilitation, VE, decision analysis, and strategicplanning. Lori has a Masters Certificate (14-credit) in Ap-plied Nuclear Energy and a BBA in Business Management,both from Idaho State University. She has been an activemember of the SAVE International since 1995 and receivedher Associate Value Specialist (AVS) certificate in 2001.

Alison Conner, CVS: During Alisons tenure at the Idaho Na-tional Engineering Laboratory, she has spent most of hertime working as a Systems and Value Engineer. She utilizes

advanced systems engineering and project managementskills to effectively plan, manage, and conduct multi-disciplined projects that meet customer requirements andexpectations. She has a Bachelor of Science degree in En-

gineering and a Master of Engineering degree in Engineering Management. She is Life-certified as a Certified Value

Specialist with SAVE.Jodi Grgich: Jodi Grgich has been part of the Systems Engineering group at Idaho National Laboratory (INL) foralmost 3 years. She is currently working on her Bachelorof Science degree in Business Administration. Jodi was recently recognized as the 2009 Administrative Professionaof the Year by the Rocky Mountain Chapter of Administrative Professionals.

Margie Jeffs, AVS: Margie Jeffs has over 20 years experi-ence in business management, electrical contracting, hu-man resources, facilitation, and training. She is new tosystems and value engineering, and is enjoying this areavery much. She has a B.S. degree in Psychology from IdahoState University. She earned a post Bachelors 15 creditCertificate in Human Performance Improvement and is currently working on her Masters degree in Adult and Organizational Learning, both from University of Idaho. Margieobtained her AVS in June of 2008 and has been a memberof the SAVE International since 2008.

Darcie M. Martinson, AVS: Darcie Martinson has over 20years experience in management, facilitation, and application of industrial engineering, systems engineering and valueengineering tools and techniques. She has facilitated and ledmany value engineering, problem solving, decision making,brainstorming, strategic planning, team building, organizational improvement, cost reduction, process improvementand change management meetings and workshops. She ob-tained a CVS designation in 1990. Darcie holds a B.S. degreein Industrial and Management Engineering from MontanaState University and currently works as a systems engineerat the Idaho National Laboratory.



alue Creation through Open InnovationMahesh Natarajan, AVS & Ragavendra Prabhakar

A stractn a world where change is the

only constant thing, companies needto deliver products in a better way,which will change the dynamics of themarket. This will help the companiesto withstand the competition. Theproducts should be innovative, costeffective, with a shorter leadtime andwhich should also have a better intel-lectual property (IP) rights to keep the

competition at bay. Is there a secretmantra, which will help the companiesto achieve these things? The secretmantra will be open innovation. OpenInnovation coined by Chesbrough canbe described as: combining internaland external ideas as well as internal and external pathsto market to advance the development of new technolo-gies. To implement open innovation, it requires a para-digm shift in the way companies operate. This businessmodel can be extension of the service sector businessmodel, which has been a primary driving force in SouthAsias booming economy. The extent and type of inno-vation should be determined by current business perfor-mance and future expectations and by the organizationstolerance of risk. This papers showcases a successfulbusiness strategy, which has helped Satyam computerservices limited to grow up in its value chain creation forthe customer and to itself by implementing open innova-tion. It will help in understanding few known theories ofopen innovation in a better way, it also provide a practi-cal insight of the business model, as well as it answersfew of the intriguing questions regarding the IP and tools

be used.

What Is Open Innovation?

Chesbrough, who coined the term Open Innovationdescribes in his book Open Innovation: The New Imper-ative for Creating and Profiting from Technology as aprocess of combining internal and external ideas as wellas internal and external paths to market to advance thedevelopment of new technologies. It emphasis on using

the various sources of technology to develop a solution.The picture above (Figure 1) represents the way to

address the market by leveraging technology, ideas fromvarious sources. In this internal technology base (com-panies own R&D) works with other sources of technology, which abets that in developing a solution to themarket. With this process the company adopts a more

open approach in developing a solution, which givesthe company operational advantage like access for vastpool of knowledge, access to technology, reduced timeto market at reduced cost. These factors contribute to aincreased value of the product. This process integratesvarious fields of management, computer science and engineering to drive innovation, competition, and quality oflife through service systems.

W y Open Innovat on?

nnovation was the mantra of the industry to stay

ahead of the competition. The fruits of the innovationremained the propelling force behind churning out newproducts and solutions to keep the core business runningIt was a highly insulated model, where they listened onlyto top management. They failed to listen to the users,who wanted a better value for the product. The value ofthe product depends on ability to deliver a better product at a cheaper price. When the companies fail to dothat, the value curve for the product starts declining. Therepeated failures of the industries to come up with in-


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novative products and solu-tion for the problem forcedthem to embrace open in-novation. But how did openinnovation help in solvingthe problem?

t helped in improvingthe areas, like reducing costof the product, time to mar-ket and the availability oftechnology, which resultedin improved value for theproduct. A good exampleof this will be a recentlylaunched Tata Nano, theworlds cheapest car. (SeeFigure 2. below.)

This was possible for

the reason that they wereable to connect to the cus-tomer needs and afford-ability. The car developedwith affordable price tagof $2000 was feasible dueto its innovation at various level- from its engineering,marketing and to its manufacturing. This they achievedby building partnerships with suppliers and putting ev-eryone in the same room to work through problems andmake suggestionsthat has enormous value additionto the product. They had their suppliers engaged in veryearly stage of design to co-create low cost product. Onesuch engagement with a German supplier resulted in de-veloping a very cost effective ECU

ts a small control unit that controls all aspects of en-gine operation. Even for the simplest engines, they canbe expensive due to its complexity. It is required becausean engine today must satisfy emissions norms, soundnorms, produce an acceptable spread of power, and re-turn an acceptable level of economy and still more. Thiscomplexity makes it crucial and in the case of the Nano,

expensive. How-

ever, Tata workedith Bosch to take

the ECU down toan unprecedent-ed price. Amongthe solutions em-ployed, is the factthat the sensorsused by the ECUto govern the en-

gine are down to half the usual number.n a similar fashion Tata engaged with different ven-

dors to co-create value for customers.

A Successful Open Innovation

Implementation

Satyam views open innovation as a process innovation (i.e. the process of developing a new product or so-lution), which enables product innovation and therebycreating value for the custom. (See Figure 3 above.)

t has a impressive track record in the field of en-gineering services, which is evident from the positionit achieved itself in the survey conducted by the Blackbook of outsourcing. Along with engineering services italso offers service in myriad fields ranging from telecomhealth and banking.

ncreased deregulation and networking tools-is driv

ing open innovation with fresh rigor generating newwave of revenues. To make the most of new opportunitySatyam evolved itself in pursing innovation, which givesthe customer a better value for their product, which re-sulted with partner Innovation award in 2008.

How Value Is Creatednnovation is hardwired in the way business is per-

formed at satyam. While other organization is creatingexternal innovation network. Satyam innovates from

gure .

Figure 3. Adaptation of Chesbrough model to represent Open Innovation at

atyam.



within. As Venky Rao(senior vice president of innovationand leadership) explains the way it is achieved Cultivat-ing an innovative network from inside out, starting withemployees and marrying innovation management train-ing with leadership development. This innovation strat-egyfollowed in satyam helps in unleashing and harness-ing grassroots creative energy.

nnovation at Satyam is driven by the i3 framework,which is inspired from the IDEO innovation framework.The power of i3 approachinformation-based, integra-tive and iterative.

The execution of i framework can be simplified intofour different stages:

deationChallengesLeveraging the Deep Dive methodology in the I3approac

Project Selectio

Three types of Innovation investment approach-esUsing the cash curve approach to monitoring in-vestments

DevelopmentSatyams unique incubation model FUTURUS

CommercializatioChoosing the optimal Innovation business mod-el

Additional key metricsSatyams RTLC Metrics Tool - StarTrac

Tools and ecosystem for open innovation In order toharness the grass-root innovation, there is a requirementfor ecosystem to be in place. This ecosystem should actas enablers of innovation help in capturing the thoughts& ideas of the people involved and also transform thesame into intellectual assets. This will act as the tools foropen innovation. The four programs, which Satyam operates to foster innovation serves as tools for the ideationphase:

i-DNA, Create a environment for creativity and innovation. This is achieved by having customizedinnovation workshop and surveys to understand innovation climate, which results in formation of thethinking clubs. This acts a process for seeding the innovation culture into the system and abet the next

level in the process of innovation.Deep dive. It is a 3-5 day long event in which a crossfunctional team (CFT) participates. This CFT is not restricted to only engineers with different backgroundThis CFT consists of people who develop the product

ho manufacture the product, who use the productand who service the product. This CFT brainstorms onthe given focus area, develop new concept and pro-totypes the same. This helps in developing a productthat is co-created with

The Information-based, integrative and iterative (I3) approach to Innovation provides followin

salient strengths:

Core concepts taken from lean manufacturing approach of optimizing efficiency at each stage;

create a flexible and efficient workflow adapted to the type of product development needs.

Reduced time-to-market and more agile products by improving quality, timing and synthesis

of product and process information throughout the development cycle.

High adaptability to solve problems and synthesize new information continually rather than

compiled based on gate stage requirements.

This i3

framework resulted in delivering product at a cheaper price, within a shorter timemarket and with a insulation from competition in the form of Intellectual Property (IP) rights.these things improved the value of the product. The resulting IP is co-invented and co- owned

the client and satyam

gure


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users.dea Junction, a crowd sourcing site invites ideas

from anyone in the company on a variety of topics,ranging from HR policies to new business models.

ntellectual assets, the enablement team convert-ing an idea into a valuable intellectual asset for Sa-

tyam and clients.n the project selection phase, the business priori-

ties act as the driving force. The business priorities canbe classified into three major types:

Differentiate, Rule changing innovations. This kindof product will result in creating a new market for it-self. It acts as a game changer for the company

Compete, Competitive advantage investment.This is mainly adopted when the focus is on reducingcost and improving the existing services or products

Sustain, Scale investment. This is followed whenthere is a requirement to ensure the quality and ser-vice level.

The Cash curve analysis is used to monitor the inno-vation investment and to understand the payback of thesame

Enablers Of InnovationThe enablers of innovation are the people, informa-

tion and the infrastructure. It is achieved by having theright mix of people and a environment that will stimu-

late people to think innovatively. It should also contain amechanism to address the failure of such a team.The following few can be requirements of such a

team

People with exposure to a Various Domains

Subscription to Technology Journals and Websites

Tie up with Technical Institutions and societies

Training and Access to Innovation tools

Developing a culture for Innovation.

Thinking innovatively also requires a conducive atmosphere. It should facilitate a easy way to visualize the

concepts, mock up and test them. Satyam has such multiple innovation lab that aid in performing such activitiesOne such lab has a virtual vehicle development platformwhich helps in design and testing of components in vir-tual space. The FUTURUS and Global Innovation hub actas enablers of business intelligence solution The BI &PM practice has been assisting customers by developingproof-of-concepts and conducting customer demonstrations based on real-time business scenarios and challenges faced today. These things act as the tools in thedevelopment phase.

The commercialization of the product is based on different key parameters like the following:

Consumer profiling and segmentationCompetitive response and timingMarketing and investment plan.

Few of the key additional metrics for the commercialization stage are 1) Product development effi ciency 2)Portfolio effectiveness 3) status of key projects 4) rationof learning over investment in innovation projects. Althese programs abets in fostering innovation, which isdriven by the innovation framework in Satyam. All these

tools can be used either a NPD cycle or EPD cycle.

Power of Partnersh pSatyam partners with its clients, suppliers and aca

demic institution to achieve business transformationthrough open innovation. This helps in adding value tothe product with much lesser time to market.

Benefits

The most common issues that are plaguing the companies is the inability to deliver products with a better

value The value of the product depends on the ability todeliver a better product with lesser price with reducedtime to market. The benefits of Open innovation are enormous in terms of value delivered to its stakeholders.

A particular division within the Engineering servicesserving a leading North American Appliance manufacturer has engagement with the clients product development team for more than 8 yrs.

The business expectation of that team was:



Engineering Design support for Systems, NPI, Valueengineering and using DFSS methodologies

Globalized Engineering workforce

Synergy amongst various entities and creation ofCenter of excellence across Global Technology cen-ters.

But the realized benefits exceeds the expectation bya large scale

20+ NPI launches

100+ patent for disclosure

Annual Cost savings 30-40 %,

Productivity savings to the tune of $ 80 Mn in the last4 years

Developed Centers of excellence for few strategic

areas from India on Reliability, Harness, AppearanceParts and Predictive engineering.

All these things help in adding value to the product.

References:

1. Open Business Models: How to Thrive in the New In-novation Landscape by Henry Chesbrough, Boston:Harvard Business School Press, 2006

2. The New Age of Innovation: Driving Cocreated ValueThrough Global Networks by C.K. Prahalad and M.S.

Krishnan, McGraw-Hill, 2003. Articles on Tata Nano from Business week magazine

4. INSIGHTS, White paper on Innovation Networks:Harnessing the Power of Ecosystems to TransformOrganizations by Venky Rao

5. Embracing Open Innovation: A new approach to cre-ating sustainable value by British telecom.

6. Innovation Networks by Navi Radjou.

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5)

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that one or more teammembers felt that aparticular area couldbenefit from this ef-fort.

These identified po-

tential areas for Valuestudy were discussed,listed, and arrangedin generally functionalcategories.

Managemen Dec s onMatrix (MDM):Measur ng level ofmportance.

The results of theprevious work were compiled and became the agendafor more discussion of specific functional requirementsand functional alternatives. Identifying specific Value-improvable issues change from project to project andfrom study to study.

Let us assume that the management team came upwith the top ten (10) most important improvement po-tential areas (categories), as follows:

Management Support of the VE Program.

Adequate VE training

Acceptance of Change and management flexibility.

Suitable VE Study Team

The right VE Study facilitator

Having the right information

Time of conducting VE Studies

Written Procedures for the VE Program.

VE and Quality Awareness

Following up the implementation of VE Studies rec-ommendations and proposals

These improvement potential areas are in no particu-lar order. In order to determine the level of importanceof each area, we tabulate them as shown in figure 1. Thisis a paired comparison between all categories.

We begin by comparing category A with category B.by placing (in the box where A intersects with B) one ofthe following five ratings:

A1 A is more important than B, but minor preferenceand count one point for A

3)

A

B

C

D

E

F

G

H

I

J

A2 A is more important than B, but major preferenceand count for two points for A

B1 B is more important than A, but minor preferenceand count for one point for B

B2 B is more important than A, but major preferenceand count for two points for B

AB A and B have the same preference and count onepoint for A and one point for B.

Then we compare the importance of A with the restof categories. Then we move to B and compare it withthe rest, and then we do the same with C, D, E, F, G, Hand J.

We determine the number of occurrence of each let

Non-Monetary Criteria Importance scoring

A Management Support A 2 points for Major Preference, 1 point for minor, 1 point for same

B Adequate VE Training A2 B X = Total Number of points (occurrences) for all

C Acceptance of Change A1 BC C Y = 100 ( X / Total points of all letters)

D Suitable VE Team A1 BD D1 D Z = 10 ( Y / Highest Points)

E The right VE facilitator AE E1 E2 E1 E

F Proper information A1 BF F1 DF F1 FG Time of VE Study AG BG G1 D1 EG F1 G

H Written Procedures AH H2 H1 DH EH FH H1 H

I VE Awareness A2 BI CI D1 E2 F1 G1 H1 I

J Follow-up system AJ J1 J1 DJ EJ J1 GJ HJ J1 J Total

X Number of occurrences 11 5 2 7 10 7 6 10 2 9 69

Y Percentage (%) 16 7 3 10 14 10 9 14 3 13 100

Z Weight (out of 10) 10 5 2 6 9 6 5 9 2 8

igure (1): Management Decision Matrix (MDM)

A

J B

I C

H

D

G E

F

10

9

8

7

6

5

4

3

2

1

10

9

8

7

6

5

4

3

2

1

Quality

Profile

gure . ua ty at s act on o e


27/29


ter and put it in row X. For example, A gets 11 points and

B gets 5 points and so on.The total number of occurrences of all categories is

69. Therefore, the percentage (%) weight of each catego-ry is determined by the formula Y= 100 (X/69). Thus, it is16% for A and 7% for B and so on.

Finally we set the highest number in row Y (which isA=16) to 10. Accordingly, we adjust the numbers in row Zto be out of 10 using the formula: 10(Y/16). By this we getthe level of importance of each category out 10 as shownin row Z of figure 1 (previous page).

Potenal Areas for

Improvements

Level of

Importance

Out of 10

Rate of Sasfacon

Out of 10

A anagement Support 10 4

B dequate VE training 5 6

C cceptance of Change 2 4

D Suitable VE Team 6 7

E he right VE facilitator 9 4

F aving proper informaon 6

G ime of VE Study 5

H rien Procedures 9 8

I VE awareness 2 7

J ollow-up system 8 6

gure . eve o mportance an rate o sat s act on.

1 2 3 4 5 6 7 8 9 10

10 A 10

9 E H 9

8 j 8

7 7

6 F D 6

5 G B 5

4 4

3 3

2 C I 2

1 1

1 2 3 4 5 6 7 8 9 10

Importance

Figure 4. Quality Priority Model (QPM): Combining

t e eve o mportance w t t e rate o sat s act on

Now, that we determined theweight of the importance of each potential improvement area, we move todevelop the quality profile of our ex-isting practice by using the QualitySatisfaction Model (QSM) where we

measure the degree of satisfactionwithin the organization for each potential area via asking team membersto give their judgment of the rate ofsatisfaction, out of 10, whereas: 10 ismost satisfied, meaning, it has beenwell taking care of. While 1 is least satisfied and it needs to be improved.

For example, the team agreed togive A=4 out of 10 and give B=5 of 10,and so on. Once we are done with thesatisfaction rating of all categories

we tie the points together to form the Quality Profile(QP). If QP gets smaller this means we have more poorquality areas. Therefore, QSM lets you visualize the leveof quality rather than just reading it. (See figure 2, previous page.)

Priority of Potential Areas for ImprovementThe level of importance (Figure 1) and the rate of sat

isfaction (Figure 2) are summarized in figure 3 (top right)and graphically represented in the Quality Priority Mode(Figure 4, above right), where It prioritizes potential areas for improvements, as follow:

Priority No. 1 (top left quadrant of figure 4): Potential areas with high importance and low satisfactionThese are the top priority and should be discussed first.

Priority No. 2 (bottom left quadrant of figure 4): Potential areas with low importance but with low satisfac-tion. They are medium priority

Priority No. 3 (top right quadrant of figure 4): Potential areas with high importance, but high satisfactionThey are medium low priority.

Priority No. 4 (bottom right quadrant of figure 4):Potential areas with low importance and high satisfac

tion. These are the lowest priority and will probably dis-cuss them if we have some spare time.Therefore, The VE team discussed and generated

ideas according to the following sequence of priority inFigure 5 (right).

Conclusion

pon the completion of this analysis, we brainstormand generate some ideas around these subjects. However, brainstorming and generating ideas are useless if we



do not have solid base for discussionand have clearly defined needs and re-quirements. QBD methodology estab-lishes this base by using practical toolsthat will help management team toprioritize potential areas for improve-

ment. Furthermore, it differentiatesbetween needs and desires by defin-ing four level of priorities.

Reference

Al-Yousefi, Abdulaziz S., Value Management: conceptand definitions, 200

SAVE International Value Methodology Standards,2006

A out t e Aut or

Abdulaziz S. Al-Yousefi, CVS-Life, FSAVE, is the founderand owner of the first Value Engineering offi ce in the ArabWorld. He is a Certified Value Specialist for life (CVS-life)from SAVE International: The Value Society. He is the only

Arab to get a Fellow of SAVE International. He served in the

past: as the president of The SAVE International- ArabianGulf chapter; the General Secretary of the Saudi Council ofEngineers and the Vice president of PMI-AGC. He is a boardmember of SAVE International Certification Board, theSaudi Council of Engineers, King Abdulaziz Quality Awardand Saudi National Quality Council. He has more than 25years experience in Value Engineering (VE), Life Cycle Costing (LCC), Project Management and Design Reviews oflarge-scale projects.

Prio

Documents

Value World Spring 2010