As you guys know, I spent most of my career focusing on business value creation. Understanding what the best companies do to improve business performance. Now, let’s forget about the companies for today and let’s talk about what value creation means for you and me. If you and I want to thrive in business, how do we create value for it?
The biggest learning from my career is simply this. The ability to create value is the biggest predictor of success as an employee, a consultant or a vendor. Not education, not experience and not strategic thinking. Measurable value creation.
You may say, of course it is. We all create value. That’s what we all do. But do we really? Let’s take a look.
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Everything we do at work is either creating value or destroying value. I know it sounds harsh but it is true for all of us. We are all evaluated based on our contributions. Depending on the role you play in you may have direct impact on business outcomes like revenues and costs. In fact, some roles are almost perceived value creating. Like sales and product development roles are expected to drive revenues, and procurement and operational roles are expected to keep costs low. Yet other jobs are often considered cost of doing business like backoffice roles in finance, IT and HR.
Most businesses never bother to really understand where value comes from. And that is because it is hard to attribute value to the right teams.
Did the customer sign a contract because sales was persuasive? Or was it because the new product was so compelling? Or was it because of their past experience with our customer service? Or because our legal team was flexible? Or because our CFO is friends with their CEO?
Attributing success to specific teams is hard and because of that, most businesses assume it’s sales and operations that make most value creation happen. Or the executive team. Or marketing. Every business has traditions on who to credit for success.
The problem is that these assumptions drive significant investment decisions. If you believe sales drives results, you should hire as many salespeople as possible. If you think it’s product development then spend your capital on engineers. I know some tech companies that spend more on lawyers than developers because they believe IP protection creates the most value and not products.
On the other hand, I have worked with businesses where the conversation around valuation got very specific and measurable. In my consulting days I had a very demanding customer who was set on transforming their business. One day he summoned the executive team and all of us consultants to the boardroom.
He looked around and said this to us. Each of you are either adding value or destroying value for my business and I want to know which one. And then he went on to ask each and everybody to explain how they added value to the business. Needless to say there was chill in the room and total confusion. Then each person and team defined their value their own way. There was no consistent definition about adding value to the business. Some people claimed strategic vision as value. Others claimed better customer service. Some talked about keeping processes running efficiently. The CEO listened to all and kept asking them the same question: How does that grow my revenues and reduce my costs? We all faltered that day. That was the day I got into focusing on how different teams and technologies actually create value. Or not.
In any business, there is the inner circle of value creators. You recognize them. They are the ones that bring in the revenue or optimize costs. Overall they are driving cash flow and profitability. I believe everyone should be part of that inner circle whether you're an employee, an executive or a supplier.
Think about it. You may see a vendor selling into IT group. There is no conversation about value creation, no conversation about revenue growth or cost reduction. And the reason is because the buyer is not part of that inner circle. Maybe even their boss is not part of the inner circle. So those questions don't get asked. When they ask for their technology project to be approved then they meet the real value creators. It may be the CFO or the COO. The reason their budget isn't approved because it does not create value for the business.
It does not mean it’s not “strategic” or “innovative”. It simply means this. In the time horizon that this business plans for, the project will not improve revenues or reduce costs. And I do mean time horizons. Some businesses are willing to look at the long term revenue growth of a technology project. And for them the same project may be valuable. If your business is planning for short term, the same idea will not be valuable. Simple as that.
Ideally we all should work for companies where their planning horizon matches our value creation timeframe. If we think our ideas can create tangible value in 3 years, then work with a company that likes planning 3 years ahead. A supplier may need to do the same. Sell vision to those who are buying long term vision. Sell tactics to the the tactical buyers.
If the business “does not understand the value you are creating” it is often a sign that you are not focusing on what is perceived to be value creating.
In my experience, there are 5 universal ways to think about our value creation. Whether we’re an employee, an executive or a supplier. The same strategies apply. The closer you focus on adding value in these areas, the more valuable you are to the firm. And that is the ticket to join the inner circle of value creators.
1 - Growth
There is no wonder that the highest paid positions are about revenue growth and expanding. I believe in most businesses, focusing on growth is that surest way of creating value or a career. Growth may not always be revenues. It could be customer acquisitions, new customer projects or better customer engagement. If your career helps the business grow, or if your project drives growth - you are in the inner circle of value creators.
2 - Simplicity
The second pillar of value is simplicity. Simplicity is low cost and efficient. Complexity is expensive and inefficient. Simpler processes, simpler interactions, simpler operations are almost always cheaper and more efficient. Reducing the number of competing initiatives or the number of suppliers are great ways to drive simplicity, lower cost and value. Complexity is the enemy of value creation.
3 - Speed
The faster you get things done, you typically create more value. This is a clear about faster sales cycles, but also faster collections, faster manufacturing cycle time, faster order processing time. Anytime you focus on speed you drive more value. Simple as that.
Focusing on doing the same activities in half the time can literally double the value of certain processes. There is massive latency in most organizations. The little delays of hours in emails and task handoffs often add up to weeks. All those impact the cash cycle and literally reduce the value of the company. Creating projects that accelerate processes is massively value adding. Speed is a value creator.
4 - Business Model
People may struggle trying to optimize revenue and growth if they're operating within the wrong business model. You can you can be the blockbuster of video rentals with super optimized processes and simplicity but if your business model is ineffective, you will fail. Optimizing business models is an act of value creation. That means building the right partnerships, the right value propositions, channels and customer connections. Revising business models is typically reserved for the executive suite. Digital value creation is a business model strategy. Digitizing parts of the business model can build simplicity, speed and better customer experience in the process.
5 - Going Big
None of the above value drivers matters unless they make a material impact on the business. Whatever you and I do in value creations should be meaningful. We should not be dabblers and experimenters. In my experience, every business has a certain level of financial impact it considers BIG. Sometimes it’s 10% of revenues or maybe 5% of the costs. Whatever we do with our projects or careers, should make a meaningful impact on the business results.
The ultimate success in business is to be considered a value creator. They are the ultimate rainmakers, turnaround experts or growth gurus. Whether you and I are employees, executives, consultants or vendors we should think about the 5 ways we can add value to the business. To be a value creator we should be working in jobs or on projects that impact these 5 levers. And if something does not add value then just stop it and move on.
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