Value-based Engineering (VBE)

• Value-based Engineering (VBE) is a systems-theoretic approach that co-creates value by integrating technical assets, human activities, and customer input in complex service systems.
• It balances direct service provision (customer interactions) with indirect service provision (engineered assets) to manage contextual variety and scalability.
• VBE employs cybernetic principles and the Viable Systems Model to dynamically regulate operations and sustain organizational viability in variable environments.

Value-based Engineering (VBE) is a systems-theoretic approach to engineering complex product-service systems that foregrounds value co-creation with customers, balancing direct (human/activity-based) and indirect (asset/goods-based) service provision. Drawing on Service-Dominant (S-D) Logic and Beer’s Viable Systems Model, VBE reframes organizational design and product engineering to address the challenges of contextual variety—the unpredictable ways customers use offerings—and organizational viability—the sustained capability to deliver outcomes across contexts (Ng et al., 2011).

1. Foundations: Value Co-creation in Complex Service Systems

VBE positions value not as intrinsic to goods nor merely exchanged, but as co-created “in use” through the integration of firm and customer resources. The paradigm shift, rooted in S-D Logic (FP3: “goods are a distribution mechanism for service provision”), necessitates treating technical assets and human activities as peer contributors to outcome realization. The framework identifies three interdependent elements operating within System 1 (in VSM):

• Transformation of indirect service provision (engineered assets: goods, equipment)
• Transformation of direct service provision (people, processes, customer-facing activities)
• Transformation of customer activities (customer resource integration)

Outcomes are the product of these coupled transformations in a context-dependent environment, requiring systematic and sometimes dynamic reconfiguration of the firm’s internal operations and engineered assets.

2. Direct vs. Indirect Service Provision

A substantive differentiation is drawn between:

• Direct Service Provision: Human activities such as relationship management, problem-solving, and process tailoring, which can absorb contextual variety and generate emotional/experiential value.
• Indirect Service Provision: Engineered assets/goods providing scalable, replicable platforms for delivering core functionality, where the design determines their capacity to absorb or buffer usage variability.

Direct provision is critical for flexibility and customer experience, while indirect provision is essential for scalability and replicability. The framework emphasizes the need to rebalance these, often by redesigning assets to reduce required human intervention while maintaining flexibility to insert direct service where context demands.

3. Value Proposition Design and Outcome Orientation

Modern VBE redefines the value proposition as outcome-based and co-creational. Instead of transferring product ownership, firms offer holistic solutions blending:

• Tangible, functional benefits (derived from the asset’s design/performance)
• Intangible, experiential, and emotional value (created through direct service engagement)

This formulation demands:

• Discarding the notion of assets as “sacred cows” immune to redesign
• Designing indirect service provision (assets) to perform well under varying customer use scenarios
• Simultaneously organizing direct service capabilities to absorb unexpected contextual variety and enhance the customer’s experience

Such dual provisioning is central to sustaining viability and customer satisfaction in complex service ecosystems.

4. Managing Contextual Variety and Organizational Viability

VBE faces two intertwined threats:

• Viability Threat: Legacy systems optimized for asset-transfer (low-variety) are inadequate for the demands of high-variety, context-rich service ecosystems requiring ongoing customer engagement.
• Contextual Variety: Unpredictable, diverse usage patterns that, if unaddressed, can overwhelm the firm’s internal processes or, if managed, can create innovation and value opportunities.

The Law of Requisite Variety (Ashby’s Principle) is applied:

$Variety_{control} \geq Variety_{environment}$

Viability is maintained when the internal control variety (the organization’s capacity to adapt) at least matches environmental/contextual variety. This is operationalized by dynamically tuning the mix of direct and indirect provisions, potentially leveraging customer resources to absorb unmet variety.

5. Systems Model: Application of the Viable Systems Model (VSM)

The VSM is used as a systemic organizing principle:

• System 1 is extended to explicitly encompass transformation of assets (indirect), human activity (direct), and customer activities.
• System 2 provides regulatory feedback, maintaining dynamic balance and resource allocation between scalability (indirect) and variety absorption (direct).
• Systems 3, 4, 5 impose control, coordination, and forward-looking strategic oversight.

This architecture, illustrated by tight regulatory coupling and feedback loops, ensures continual adjustment to environmental variation and maintains organizational homeostasis.

6. Implementation Guidelines and Practical Recommendations

Key actionable recommendations for applying VBE are:

• Redesign assets: Challenge static design conventions; proactively adapt equipment for better contextual variety absorption and lower dependence on manual intervention.
• Invest in human relationships: Build capacity for real-time customer monitoring, expertise deployment, and robust customer engagement frameworks.
• Adopt a systems view: Employ VSM to organize operations, regulation, and strategy, ensuring integration between core value-delivery and organizational coordination.
• Balance resources: Use cybernetic principles and feedback systems to dynamically match internal service provision to the contextual demands experienced by the customer.
• Prioritize effectiveness over efficiency: Shift focus from maximizing production throughput to maximizing co-created value and system viability in variable environments.

7. Strategic and Theoretical Implications

By reframing value as a multidimensional, co-created phenomenon and reengineering both organizational design and asset architecture to address contextual variety, VBE provides a robust blueprint for transforming manufacturing-focused firms into adaptive, customer-centric service organizations. The integration of S-D Logic, cybernetics (Law of Requisite Variety), and systems theory (VSM) yields a framework suited to the design of socio-technical systems where resilience, effectiveness, and adaptability to environmental change supersede mere efficiency. This foundational approach in VBE ensures sustainability and long-term organizational success amid increasing complexity and volatility in customer demands (Ng et al., 2011).