It is vital to identify where and how value is created within a company and the markets it serves as a way to identify which of its activities and assets are significant enough to provide a platform for profitable growth.
Driving value creation gives companies two advantages over their competitors< in capital and talent. This is because successful value creators will always be able to attract capital. They can generate sufficient capital internally to meet their investment needs or from the markets, which always require profitable investment opportunities.
Companies that put value creation first also create a team of managers who have higher standards and better capabilities than the competition. In a world where consumers have practically unlimited choices, the challenge for any business is to develop a unique and attractive proposition for both customers and employees. The most difficult aspect of this, however, is to do so while also creating value. Holding management to this standard means continually assessing them against the competition and identifying how they create value. Doing this creates managers and employees that adhere to the highest standards in business performance and personal achievement. Over time this means a company will have better managerial talent than its competitors, enabling it to achieve higher levels of profit and growth.
Consistently putting value creation first requires discipline, leadership skills, and perseverance and driving value creation will require the following:
• Patience when it comes to growth and an emphasis on creating value instead. The best way to build long-term growth is to put value creation first.
• A company must be better than its competitors at understanding where, how and why value is both created and destroyed within the company and its markets. This means looking at each business unit, product, customer, channel and market to reveal the truly unique capabilities and assets that a company has to drive profitable and sustainable growth.
• Information needs to be shared widely among management teams to identify where the company is good, bad and indifferent at creating value for customers and thus shareholders.
• A company must promote and reward managers who see growth as the outcome of value creation, and who consistently beat their competitors by creating value.
• Businesses in low-return markets can only create growth by building distinctive capabilities and assets through value creation which will enable them to deliver high returns at some future point.
• Companies need to remember that being a market leader means having the highest share of profit, not necessarily volume, customers or capacity.