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In difficult economic times, corporations seek to improve their financial performance. One way to do this is to understand value creation. This is a technique that helps companies improve their product quality, financial performance, customer satisfaction or time to market.

Value drivers are tools to show executives where value creation opportunities exist. They help ferret out actions a company can take to improve its business. They bring a fierce focus on a limited problem.

One of the best ways to identify value drivers is to observe how corporations do things from 50,000 feet up (figuratively, of course). That's a good vantage point to determine the areas where crucial changes can make significant improvement.

In the health care field, a critical resource is the nursing staff. One value driver in hospitals is the number of nursing hours required to deliver a patient day. If you can reduce the number of nursing hours that support a patient day -- without minimizing patient care that must remain as good or better -- you can impact multiple areas of performance.

At one hospital we discovered nurses were spending a lot of time on what we call "administrivia" instead of hands on patient care. At another hospital we found nurses had great difficulty scheduling the use of specialized machines. In both cases the nursing staff felt frustrated with the working environments, which had a negative impact on the patient care.

We created value by reducing these non-critical time-wasters. This improved patient satisfaction, job satisfaction and the corporate bottom line.

Finding the Driver

We also looked at how patients chose a hospital. In most cases they were referred by their physicians. That meant the hospital had to recruit top MDs to join its staff. Well-respected and trusted doctors become a value driver for a hospital seeking to fill its beds. Our job as a consultant was to help the hospital create programs to attract this top talent.

Value drivers are always there. They're actually very simple. You just have to have to look at the problem in a different way. I remember a story about a potato chip manufacturer. The company fried its potato chips in a special oil that turned rancid after a few batches. Its workers had to dump the hot oil, clean the vat, add more, reheat the oil and start again. By changing the type of oil, the company didn't have to change it as often. That increased the number of chips they could fry in the same oil. The value driver was numbers of chips fried per oil batch. If the company could increase this ratio, dramatic performance improvement was possible.

More examples of value drivers include the number of billed hours per lawyer in the legal profession. In the airline industry, a value driver is the number of seats filled per flight.

In each case, a simple change can make a major difference. By focusing on value drivers, managers can find ways to increase the ratio without negatively impacting the process. The result: they improve performance.

What are the value drivers in your business?

Lessons from the Outsourcing Primer:

• Value drivers are tools to show executives where opportunities exist.
• Value drivers bring a fierce focus on a limited problem.
• Value drivers improve financial performance, the product or service, time to market and customer satisfaction.

Publish Date: August 2001

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IT Adds Value to Business Processes

Copyright © 2001 - Everest Partners, L.P.

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