Value Creation

Value creation happens when a business uses its work and resources to create something of value that is sold to a customer base.  In turn, the business earns a profit for what it has created and the customers have a want or need fulfilled. 

Every day value is being built (or destroyed) throughout your business; so let’s look at how to create value.

Value is created through the organization’s purpose, strategy and business model taking into account all resources, capital, and relationships in an integrated way.

A good place to start is clarifying the purpose (or aim) of your company; purpose is not what you do, but why you do it.  The clearer the purpose of your company, the easier it will be to communicate it, get stakeholders on board to fulfill it, and decision-making becomes simple as the measure is whether it supports your purpose or not.  Purpose adds direction as business stakeholders make the little decisions moment-by-moment.  Those little decisions and actions over time have a tremendous impact.

A winning value creation strategy is essential to define where and how a company can excel in systemic change, sustaining the core, creating the new, and delivering it fast.

Next, think of your business and its business model as a complex system of value creation techniques.  Look at each element separately and as part of the whole business and see where enhancements can be made to add value.

  • Production or Service Delivery – compare your cost of a process or product to industry averages. Greater efficiency creates greater profits.  Profits come from the creation of value in production or service delivery.
  • Sales and Marketing Process – when your customer first learns the value you can provide to them; profits come from the communication of value through your sales process.  Here are ways to determine whether you’re creating value through your sales and marketing process:  focus on higher profits; identify the salespeople or marketing channels that lead to repeat sales, who create loyal customers; and use A/B testing on your sales and marketing strategies to learn what works best.
  • Technology Advantage – use technological approaches to manage customer experience, relationships and support.   Integrate software and technical applications to track and maintain customer accounts and information.  Automating various processes to help streamline customer service can also help you create value in your business.
  • Right Tools and Resources Utilization – collaborate with team members to determine which resources and tools can boost overall customer value.  Tools like surveys and market analysis can help your business increase the value it offers to customers and create a lasting business that leads to growth and success.
  • Product Development Improvement – enhance the product development processes of your company.  Use data from market analysis and evaluating customer demographics to support designing and planning new products that meet demands.  Also, address customer concerns and input to find methods of development that produce high-quality offerings that customers are willing to purchase.  By improving the product development cycle, you can create offerings that give more value to customers.
  • Investments – learn where to invest company funds to support growth and add value to the business.  Investing in marketing, sales, and customer service training for your teams can also add higher value to your organization.

Also, think how stakeholders (owners, customers, employees, and suppliers) are relevant to the purpose and techniques of your company.  Then find a way to fulfill what their expectations are from you.  By doing this, you will have viable partner commitments that permits versatility and value creation in our business.

Meaningful engagement with key stakeholders enhances understanding of the positive and negative impacts of doing business, and informs a continuous assessment of material issues informing strategy and its implementation through the activities in the business.

Business success comes from value creation for owners, customers, employees, and suppliers. Let’s look at each critical stakeholder group.

OWNERS

Business owners need to play an increasingly active and critical role in strategic guidance, oversight and effective decision-making in order to create value. 

Further, owners need to develop skills that contribute to the creation of a high-performing board culture.  Hone the ability to challenge other directors, investors, executives and experts through positive exchanges focused on the key issues that underpin value creation.

Creating value for owners (shareholders) translates into increase in stock price (if you are publicly traded), and future likelihood of investment capital.

CUSTOMERS

Value creation is not a matter of selling or convincing your customer to buy something.  Rather, how your customers perceive value is based on their perception of your product or service; make your offering something they want or need to buy.  In turn, this makes marketing and selling to customers easier. 

Identify what points of value your potential customers seek.  Here are some tips to improve value creation.

  • Understand customer needs – perform market analysis and learn about what your organization’s customers look for when making purchases.  Find ways to meet unique customer needs or wants, create lasting value with your business’s offerings, and build customer relationships.  Also, businesses that strive to fulfill customer needs/wants are better able to build trust and rapport within the market, leading to repeat business and increased revenue growth.
  • Improve customer support – customers value businesses and organizations that focus on providing exceptional service and support.  Evaluate your organization’s current customer support processes and collaborate with teams on ways to improve these aspects of customer experience.  Make it easy for customers to ask questions about products, troubleshoot issue, and connect with businesses through automated and professional support services.
  • Increase convenience features – create more convenient methods for customers to engage with your business, make purchases and use your organization’s products more easily.  Streamlining checkout methods within an online shopping platform or create bundled offerings for related products are two ways that can make the customer experience more convenient.
  • Promote value propositions – the value proposition represents the value customers find in a product or service minus the costs of purchasing the offering.  For example, the value of an offering may be higher for customers if they know they can rely on the offering over the long-term, resulting in a willingness to pay a higher cost for the longevity/quality they receive.  Creating and promoting the value propositions that are inherent to your company’s products can help engage customers and inspire them to make purchases.
  • Outdo competing offerings and prices – revaluate competing businesses to determine what methods and products provide the most value to your existing and targeted customer markets.  Then, find ways to create similar offerings that are unique to your business.  Creating alternatives to competitors can encourage new customers to purchase from your business; it will boost your business’s value and give value to customers as well.

Creating customer value is essential for growth and increasing revenue.  Customer value helps businesses maintain lasting relationships with customers.  Also, business that successfully increase customer value can often expand into more markets, develop innovative offerings, and build competitive advantages in their industries.

Value creation for customers helps sell products and services, creating value for employees results in higher efficiency.

EMPLOYEES

You don’t achieve your goals alone; you need the support of your employees to succeed.

Value creation involves creating value for your team, which translates to the increase in employee retention rate.  [See February 2022 blog for ideas to increase employee retention]

If your employees are happy, their productivity will increase, and that’s exactly what you need to help your business grow.

To receive that support, you must provide value to your employees; it goes beyond a job and a paycheck, which is enough to get them to show up for work.  You also need to appeal to their hearts and minds.

Effective employees want purpose.  Both Boomers and Gen Y found motivators like “a great team” and “the ability to give back to society through work” to be more important than money.

Help teams develop effectively; ensure teams have the necessary skills to boost value and reach customers.  With experienced and skilled teams, companies are better able to meet customer needs and provide offerings that create lasting customer value.

Value for employees includes being treated respectfully and being involved in decision-making.  Employees also value meaningful work; excellent compensation opportunities; and continued training and development.

When people feel valued, they’re more likely to go above and beyond for the organization.  They’re quicker to hold themselves accountable for their part of a project. Most importantly, they’re happier in their roles, which means they’re less likely to leave.

When leaders disregard opportunities to connect with their team and show employees their appreciation, they lose a secret weapon in building a dedicated, long-term team.

Make employee appreciation a daily habit.  Here are some ways to show your employees some appreciation:

  • Make small gestures – such as a note of appreciation, an email of acknowledgement, or call of encouragement can make a positive impression.
  • Create new opportunities – this is a way to win employees hearts and minds; let your employees take on a leadership role, a challenge of a big visible project, or invest in their learning at a workshop or conference.
  • Be specific and personalize – with your expressions of appreciation and recognition.
  • Show your employees trust – one way is by not looking over their shoulder, that their work is good enough for them to move forward on their own.
  • Make business upgrades – in facilities, technology, etc. to help make your employees more comfortable and efficient.
  • Take time to connect with your employees – find out how they are doing in their lives both in- and outside of work.
  • Establish mentorships – pair new employees with longer-term ones; both will benefit.
  • Give ownership to employees – this is a great way to motivate, especially when an initiative is of interest and leverages their expertise.  This will empower them to succeed, plus will inspire others by seeing them do well.
  • Be transparent and honest in conversations – especially when giving feedback and delivering hard truths.

Professionals in marketing, sales, customer service and other areas can work together to implement approaches to creating high value for customer that build customer engagement and achieve more sales.

SUPPLIERS

The potential of a supplier’s value creation derives from multiple dimensions including cost of offering, capacity to provide it, as well as commitment to deliver consistently.  Additional supplier value can be derived from:

  • Innovation – they are experts in their field, who has potential to easily offer you a solution to your development product or strategy. 
  • Advice – offered on what you need, not what you want to hear.
  • Their own growth and improvement of offering – their success will help ensure you obtaining ongoing value.
  • Integrity – having similar values makes doing business easier.

The best suppliers will regularly give you new ideas and suggestions to improve your business.  There is much to be gained by having a stable/long term supply base as long as they assist you to grow by improving aspects of your business.  The stability and support of your suppliers is essential when you are growing and/or your business is seeing changes in its market.

When both sides, business and supplier, benefit from the total value created by the relationship, but the degree of value capture varies.  The value perceived by the supplier is greater than that perceived by the buyer, which consequently encourages the former to boost its efforts even further to ensure that the relationship continues.

In summary, value creation is an essential base to support a profitable and lasting business.  You can create value in your business through involving other: your shareholders, customers, suppliers and employees, plus by putting your resources to best use.  Remember that value creation does not happen in a day, it takes time, so start working on it now.

P.S. Sustaining value is achieved by retaining and protecting value internally in the organization and distributing value externally to shareholders and stakeholders.  Ideally, there needs to be a balanced approach between the retention of value derived by the organization and the distribution of value to its stakeholders aligned to purpose and value objectives.

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