Value creation, that term much over-used by consultants and business professors alike, is usually used in a narrow definition – the Economic Profit that is generated by providing returns to shareholders above their cost of capital.
However, shareholders are just one stakeholder group in an organisation. The real value creation of a company would add the value created for customers, suppliers, employees and government, in addition to shareholders.
The value created for these groups is harder to measure, but vitally important for the long term health of the organisation. How much would your price have to rise before a customer switched to a competitor? How much would their salary have to drop before an employee goes elsewhere? How close is your supplier to walking away from your business?
Depending on your worldview, the value you create for these other groups can either represent a “buffer” for you to target and exploit, or it is the true measure of the company’s purpose, contribution to society.
With this wider definition, your will follow two different types of strategy:
- Some are zero-sum games designed to capture value from customers, employees, suppliers or government.
- Others create new value for the world through innovation.
Which do you think is more sustainable? And where would you rather work?