In business school, a professor told us this: Businesses exist for only 2 reasons: 1) is to make the world better and 2) to turn a profit and not necessarily in that order. His entire course was built around the tangible and intangible value businesses create.
As we think about value creation, both tangible and intangible value drivers become critical. Here's how...
In business school, a professor told us this: Businesses exist for only 2 reasons: 1) is to make the world better and 2) to turn a profit and not necessarily in that order. His entire course was built around the tangible and intangible value businesses create.
As we think about value creation, both tangible and intangible value drivers become critical. Here's how...
In business school, a professor told us this: Businesses exist for only 2 reasons: 1) is to make the world better and 2) to turn a profit and not necessarily in that order. His entire course was built around the tangible and intangible value businesses create.
As we think about value creation, both tangible and intangible value drivers become critical. Here's how:
I spent most of my career finding ways to create tangible or"bankable" value. In fact, an entire generation of value creators grew up along with me focusing on earnings, free cash flow, and EBITDA growth as the only true measure of enterprise value. Endless practitioners from six sigma, lean and value engineering deployed tools and methodologies to make sure the hard value is not only identified but also realized in transformation projects. The greatest of the great value creators became those who set their business case or value creation plan and delivered the financial results no matter what.
One thing all these "hard" value creators had in common is their focus on something very important. They target and measure value in terms the shareholders care about. They focus on the top metrics the business must improve. If the company has to improve on-time delivery by 10% because they are losing revenue due to late shipments then on-time delivery is what you improve. Not server uptime, days of financial close, or average hold time in the call center. If the business has cash flow issues and must collect faster then the projects focus on improving that metric and not some unrelated departmental efficiency.
All great value creation will boost the top metrics the business must improve. This is true for digital projects as much as it is true for upgrading a plant or streamlining a distribution network.
Hard value always comes first. Free cash flow rules.
However...
I used to believe that hard value is the only one that matters and projects with unclear business cases or value realization plans failed to create value. I no longer believe that. I now believe more is needed than just hard value for successful digital transformation.
To go back to my business school professor's point - the business has to turn a profit (that's the hard value) but it also needs to make things better.
I mean that in a very practical way and not in an aspirational sense. Hard value gets projects funded but it's the soft value that inspires the board, the customers, and the employees. Great businesses build their digital transformation on a solid business value foundation but they also make it compelling to all stakeholders with soft value metrics.
The best definition of the all possible value pillars for me was in Bain's 2018 article in the Harvard Business Review titled "The B2B Elements of Value". Bain researched buying decisions of thousands of decision-makers and realized that hard value criteria were important but not enough. Buyers made emotional value decisions and justified them with logical, hard value analysis. The article was written from a sales and marketing perspective but it is insightful from a value creation perspective as well.
Way too many digital projects have solid business cases from a financial perspective but let's be honest, free cash flow rarely inspires people to take action. Great leaders inspire action by laying out the intangible elements of value too. What the change brings to all stakeholders. In terms, they consider valuable, not just in terms valuable to shareholders.
The Bain study laid out 40 possible value elements business buyers or all professionals care about. The more of those value elements a company's value proposition covered, the more favorable the value seemed in the eye of the buyer. Several value elements Bain considered table stakes, It means they are expected and therefore all projects will have them. These table stakes included compliance, ethical standards, and having the right price.
There were only 2 of the 40 value elements in the study were hard dollar value components including cost reduction and revenue growth. The intangibles made up the rest of the 34 value categories. These included things like time savings, risk reduction, the ease of doing business, and many others. You can find the full list of value elements in the Bain study. I provided the link.
https://dvcr.ws/b2bvalue
Successful programs will cover both the hard value and the soft value components. And just like my professor said, the hard metrics come first, like profitability and EBITDA gains. Once you have your baseline hard value case then they can be enhanced with the soft value components.
Compelling value creation will inspire our hearts, our minds, and our pocketbooks. Having value creation plans that improve top-line metrics and make the world better for stakeholders will ensure that initiatives get funded, the board stays engaged and customers and employees will be receptive to the changes ahead.