Applying the Value Quotient (VQ): Experiment Frugally

To apply the VQ, I measure how well a company follows each of the seven principles of Value Leadership. Here's how I measure how well a company follows the principle -- Experiment Frugally -- which is harnessing happy accidents to create value for customers and partners. I detect whether companies follow this principle by looking at how well they conduct the following four activities:

• Grow organically: build new lines of business in markets that are large and growing in which competitive success depends on capabilities that your company can perform better than competitors;
• Manage development risk: break new product development projects into pieces. At the end of each piece, decide whether to continue based on results. Be disciplined about investing in projects that pass these tests and killing ones that don't;
• Partner internally: when developing new products, form a team which includes a company's different functions such as engineering, marketing, sales, manufacturing, purchasing and so on. By building product prototypes and getting fast feedback from customers, growth and profits are more likely to follow; and
• Partner externally: similarly, when a new product development will affect the design standards of an entire industry, companies should work with their extremal partners to create a mutually acceptable solution.

I give a company a score on each activity. For the 24 activities, the maximum possible score is 420 points. So the Value Quotient (VQ) for a company is that company's total points divided by 420.