Value creation seems to be the current “buzz word” that organizations are using to describe their new strategic focus. The focus on “value” and use of terms that reflect value has become the common marketing message online and off. With so much emphasis on value creation it would seem logical that leaders would better understand what produces more value.
We used to equate an organizations “value creation” to revenue, profits and shareholder equity. While still relevant the focus to get there has shifted to understanding the underlying elements that create value for consumption. In the new economy, the yardsticks used by Warren Buffett no longer jive with traditional equity valuations. Today what is off the balance sheet is often the very things that create the most value. What is off the balance sheet are the intangibles.
Value Creation Comes From The Intangibles
Norm Smallwood writes in HBR: When contemplating the power of intangibles, leaders must figure out what they can and should do to create intangible value, and to make intangibles tangible. This challenge confronts leaders in publicly traded and privately held firms, at the top and throughout the organization, and in line and staff roles. Wherever they are, leaders have the responsibility to build and protect intangible value.
Organization capabilities are the ways an organization applies people and processes to the tasks of competition. These capabilities essentially become the organization’s identity. They define what it is good at doing and, in the end, what it is. Here are seven of the most basic capabilities an organization needs to emphasize:
- Talent: We are good at attracting, motivating, and retaining competent and committed people.
- Speed: We are good at making important changes happen fast.
- Shared mindset: We are good at ensuring that customers and employees have positive images of and experiences with our organization.
- Accountability: We are good at the disciplines that result in high performance.
- Collaboration: We are good at working across boundaries to ensure both efficiency and leverage.
- Learning: We are good at generating and generalizing ideas with impact.
- Leadership: We are good at embedding leaders throughout the organization who deliver the right results in the right way–who carry our leadership brand.
Focusing On The Right Things
If an organization knows how to build upon and connect the four steps then they are creating an advantage that is difficult for a competitor to duplicate. By building upon each step they delight customers, they engage employees, they establish reputations among investors and markets while providing long-term sustainable value creation capabilities.
Value creation only works if business leaders learn how to create more value from the intangibles within their organizations. Smarter Companies know how.