Competing in the Knowledge Economy : The Knowledge Value Chain (KVC)

In a recent post Surfing the value waves I mentioned having purchased an iPad. Here’s the value calculation that drove me to buy it.  Of course it’s cool and fun—but does it make economic sense?

It first occurred to me in discussions with my wife—who wants a big, flat, thin TV like all our friends have—that we could EACH get an iPad, skip the TV, and pocket the change.  The iPad is not quite “there” in terms of programming, but for what I mainly watch (movies and sports), it’s halfway there (the movies half.)  TVs have gotten so cheap, this was actually about break-even—so there wasn’t a lot of change to pocket.

In this sense the iPad (and the Internet in general) is a textbook example of a disruptive rival to the TV—not as good in many respects, definitely cheaper—but with the future potential to knock the whole competitive game into a different orbit.

But then I started adding up the other gadgets that an iPad could replace.  I should mention that while I do not own all of these, as a “weekend warrior” musician and photographer, I own more than most people.  Your mileage will probably vary.

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Picture in your mind your organization’s typical customer or client.  Now picture the moment that customer purchases your product (or service).  Each transaction with that customer is preceded by some calculation—whether rigorous or informal— that your product is “worth it” compared to alternative solutions.  This worth-it-ness is called your product’s value proposition.

The sum of each of those value calculations over time is essentially your customer relationship with that customer.  In turn, the sum of all your customer relationships is pretty close to the value of your whole enterprise.  Each happy (successful) company starts with a happy (satisfied) customer—and the ability to scale that happiness across many customers.

Let me illustrate.   Apple (AAPL), in the waning days of a prolonged economic downturn, reported selling 3 million iPads (at $500+) in its first three months, and that same number of iPhone 4s (at $200+) in its first one month.  Millions of people (including me) made a decision to part with their hard-earned money, and possibly forego other purchases, to have one of these tools/toys (tooys?)

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We’re obviously proud of our KVC model.   We think it helps explain a lot of the mystery surrounding “how to compete in the knowledge economy.”

But the KVC is more than just a theoretical framework.  At TKA, we use it every week as a tool to solve live client problems.  In our offices, we have a KVC whiteboard that helps us understand and solve these problems.   We’ve a developed a structured technique called Value Alignment™ that helps us identify a client’s distinctive sources of value, and bring them in line with the current needs of the market.

Here’s a photo of the whiteboard at the end of a typical session.  The client was in this case designing an information-based product offering, and TKA was helping him determine with some precision HOW and FOR WHOM value was to be created.

He liked what he found so much that he used it in a pitch to investors.  Using the KVC, he could graphically map exactly where and how his product fit into his customers’ value propositions.

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