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Value Creation Notes and Updates

The ValueGroove Perspective: Key Value Creation Principles

In addition to being a strategy and execution process, ValueGroove is also a management perspective, focused on a few key value creation principles that can clarify otherwise difficult strategy and execution issues.

Value Creation Principles

·         The purpose of an organization is to create value for customers, employees, investors and other stakeholders in ways that integrate the interests of those groups.

·         When an organization benefits one of those groups at the expense of the others (for example, increasing returns to investors by delivering poor value to customers) it is destroying net value by depleting assets—in this case, assets on the customer balance sheet, including customer loyalty. Such “value shifting” is not sustainable, and, unchecked, leads to the decline of the organization. This is the first sense is which the ValueGroove Management Process (VMP) is focused on total value management: it aims to create the greatest total value for all constituents.

·         Another form of unsustainable value shifting occurs when an organization focuses excessively on delivering short-term results, by selling products or services that customers would not buy if they had more complete information, by under-investing in employee development and R&D, etc. Again, the value destruction occurs by destroying assets (customer assets, employee assets, company capabilities, etc.). This is the second sense in which the VMP is about total value management. A VMP organization also aims to create the greatest total value over time, balancing short-term value with sustainable long-term growth and profitability.

·         In order to thrive today, and in the long term, an organization must deliver value for customers (products, solutions) that is compellingunique and sustainable.

·         Successful organizations follow the Three C’s of value: they Create superior value for target customers; Communicate that value effectively; and Capture a portion of the value as profit.

·         When organizations find themselves value-shifting, it is often because they are no longer creating superior value for customers, and are trying to shore up profitability any way possible. This failure to create superior value can be caused by changes in the organization’s environment: changing customer priorities, technology shifts, innovative new competitors, etc. These kinds of changes are always taking place in dynamic markets, therefore an organization’s ability to create superior value is always subject to new threats and new opportunities.

·         In the short term, there are many ways to prop up profitability (as discussed above), but sustained profitability requires an ongoing process of strategy and execution to identify important changes in the environment, and to adapt and innovate accordingly, so that the organization can continue to create superior value.

For a more detailed discussion see Value Creation and Business Success, by Paul O’Malley.

Paul O'Malley