value creation and value proposition

 

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“Think of value creation, not valuation.”

Pranav Marwah

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I believe we need to spend more time these days discussing value creation before we begin talking about, well, anything else. I believe this for three reasons:

  1. Today, it’s often about efficiency. Or minimizing to maximize. Minimize what to put in and then how creatively you craft the features. We should remember production is more about economical/efficient input and selling is more about thoughtful ideation. Regardless. I believe we need to talk more about maximizing without just talking about efficiency.
  2. I worry we talk about “things” because they seem like the right thing to do, not because they will add value <based on our vision/mission>. I worry we don’t talk more, and understand better, about what value we provide people. Oh. A business typically knows what they see as value provided, but very rarely turn the telescope and see what value a possible customer desires <or receives>. I worry we don’t talk more about value creation.
  3. Unless everyone wants to enter into a race to commodity business needs to start engaging in an effectiveness discussion. Efficiency is inherently about attempting to provide value by stripping away obstacles or the unnecessary. Effectiveness is inherently about persuading people some things are actually necessary for quality, enjoyment or substance to meet your outlay of investment (cash).

I would begin with the fact we know there is a relationship between velocity & value creation. As I noted in ‘obsession with velocity’, velocity is always about decisions. What I mean by that is there is never any lack of things to do in a business, but some just aren’t worth doing.

Velocity projects fall into 2 slots:

  • value creation initiatives which increase velocity of value offered (transactional value opportunities)
  • velocity initiatives which increase the velocity of the organization itself & indirectly enhances value (structural value elevation)

Make your project decisions wisely. Velocity is all that matters not only because it guarantees progress, rather than simple “hamster in a wheel” speed, but it also inherently gravitates toward value creation.

Regardless.

Value creation comes in two basic constructs: structural and transactional and revolves around efficiency and effectiveness.

Here you go. Just ponder.

efficiency and effectiveness

All value begins, and ends, with efficacy or the balance between efficiency & effectiveness. Many people when viewing his grid for the first time ask who would ever want to (a) be in the lower left hand quadrant or (b) be below the line at all.

Many business, and specific products, live & die off of efficiency. There is nothing wrong with that. In addition, a low cost provider will care less about effectiveness because their inherent ‘value’ is found in cheapest. I would argue everyone wants some balance but there will always be at least one incredibly efficient, not as effective, business and there will always be at least one incredibly effective business where efficiency is just not that important. Similarly, I could argue a business in & of itself can have all of these things within their business and the collection of them all make up the larger value creation offering.

Regardless. Look for your unique balance and, well, choose wisely.

 

structural value creation

This is the x axis. Efficiency to left effective to right.

Structural value can be generated through efficiency or effectiveness. Efficiency means your structural change reduces costs (tangibly or intangibly like time). Effectiveness means your structural change increases value to a point that increases price or offer opportunities for premium transactions/offers.

For example, adding 5G in a city is a structural value creation. It lifts everything to a higher value. Digital transformation is also. It’s an infrastructure change which provides structural value creation.

In addition. A structural value creation may, or may not additionally offer specific transactional value creation situations. What this means is incremental value for a specific transaction over and above the basic structural value creation.

 

transactional value creation

This is the Y axis.

Efficiency at the bottom, effective at top.

Organizations often seek bite sized improvements, therefore, may explore ways to offer distinct transactional value creation.

From an efficiency standpoint these could be things like frictionless engagement, speed, or any improvement which increases convenience or ease of use.

From an effectiveness standpoint these would be things which increase quality of actual transaction. Better products, more effective outcomes, etc.

For example. You could create a video platform, or an AI platform (to show traditional and technology) which enhances a specific transaction to a point in which you could create value (additional sales) or simply charge a higher price.

 

Value Proposition vs. Employee Value Proposition

Once identifying the value creation one offers a business you develop a value proposition ( a way to communicate what value you create). I would suggest this is an exercise not just for customers but also as a hiring criteria. You want to attract customers who desire what value you offer and you would like to hire people who contribute to your value creation proposition.

In its simplest terms, a value proposition is a positioning statement that explains what benefit you provide for who and what effective/efficient way you do it. Your value proposition isn’t meant to appeal to everyone, but it should have a value appeal of some distinction (not necessarily differentiation).

 

Lastly.

Now that maybe I’ve given you some things to ponder let me say, frankly, we don’t speak often enough about value creation dynamics within organizational modeling & business construct. Value creation, at its core, is all about people – what they do as well as what they think. Huh? When an individual feels like they are doing something of value & their value can be maximized, the organizational value creation inevitably is maximized. I would argue if you focus on the value-creation-structure the people will believe they are part of value creation and the formal structure will either fall in place or will be simpler to match up to how the value is created.

 

That’s it.

Value creation. I just don’t see how any business can have an effective vision or mission if they haven’t gone through this exercise. If you don’t have this conversation and go through the rigor, well, it seems like you run a major risk you will not get what you deserve – revenue, profit, customers or even employees.

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Written by Bruce