The important drivers of value - Part 1

30 January 2019 Jonathan Faurie

Value means different things to different people. However, it is important to establish these parameters to drive our businesses forward.

I recently read a blog post by Simon Terry who discussed this topic in detail. For over five years, he has been talking about the potential for organisations to create value everyday through the use of collaboration.

Through the Value Maturity Model, and its application in the Collaboration Value Canvas, Terry has repeatedly discussed the importance of an understanding of value to users and to the organisation.

The role of value

Terry points out that one reason for resisting defining value was to avoid an immediate reduction of value to an ROI calculation, which is both notoriously ambiguous and beside the point.

“The role of value in this discussion is not to justify investment accounting. The role of value is to shape the adoption actions, the use cases and the norms of the community that an organisation is seeking to create. The second reason for my reluctance is that value means something different to almost every organisation at every time. How an organisation and its people need to create additional value is highly dependent on their context,” said Terry.

This post will share some of Terrys thoughts on the key drivers of value creation, which he found find useful tools for anyone seeking to guide collaboration adoption in a wide range of contexts.

The ability to leverage the drivers of collaboration will help companies to identify the opportunities for value creation from collaboration, shape use cases and communicate to individual users about value in a simple way. To explain the path to these drivers, we must talk about what value and break it down to everyday topics of business conversation.

Understanding What We Mean by Value

Terry points out that value is in economics is a measure of the benefit to be gained from any activity. “Vibrant and sustainable organisations create a surplus of value, using their resources in a strategic way to create more benefits than the value of initial resources. Value add is the difference between the benefits generated and the resources consumed. The goal of most strategy is to sustain and increase the value added by an organisation,” said Terry.

He adds that, at an individual level, employees also want to experience purpose and meaning in their work. They want to deliver greater benefits to themselves and others than simply the time value of their work.

Value can be monetary. However, it can also come in wider non-economic forms. Therefore, as we think about value for individuals and organisations we need to keep in mind:

  • Economic value (rands and cents); and
  • Non-Economic value which is any other meaningful sources of value (meaningful in the eye of the beholder)

“If we break down how both economic value and non-economic value is created, we will find some common drivers,” said Terry.

Economic Value 

Economic value add can be defined as the excess of the net operating profit after tax over cost of capital.  An organisation deploys financial capital in its operating activities, that capital has a cost and the activities need to generate more operating profit to be sustainable.

“A value driver tree enables us to break these concepts down to more everyday topics of business strategy, activity and conversation in green in the table below. Sales, Cost of Sales, Other Organisational Costs, investment in assets and working capital are key elements of how much economic value added a business creates. If the adoption activities in your organisation are not changing these sources of value in some way, then they are unlikely to be creating economic value, especially after the cost of adoption is taken into account,” says Terry.

Non Economic Value

Terry points out that we can similarly breakdown some major categories of non-economic value. These include: social, environmental, governance and generational value considerations.

“Because non-economic value is in the eye of the beholder to some extent, this list is inevitably a partial one. There are likely more categories that are omitted, such is the richness of human life as expressed by individuals in organisational communities,” said Terry.

He adds that economists will argue that some or all of these aspects can be captured in or flow through to economic value, but the average person sees many of these sources of value as richer for lacking a direct monetary equation. Many of the sources of value in green are key elements of creating an organisation or living a life that is rich in human potential.

The green categories of non-economic value are those most commonly discussed in any project of adoption of collaboration. These may be the starting points for any project. “Non-economic value add is usually critical in the ultimate user and organisation success of any collaboration project. There is however a danger if this value is defined only in terms of these capitalised nouns and they are not translated into specific measures of success and initiatives that users and the organisation can embrace.  Projects that set out after the mystery of culture or engagement without further support or without considering other categories of value, especially economic value, will likely fail because users rightly question their point,” says Terry.

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