The most
significant sources of value for an organization are elusive, non-quantifiable
and not easily discerned. They include things like talent, leadership and
reputation. In order to get aligned around these elusive sources of value,
companies should take a broader view of value – how do we add value to our
stakeholders and not just the shareholders. The more traditional view of value has
a narrow focus on the numbers and can include things like:
- Short-term reactions to valuations which are sometimes dramatic such as mergers or layoffs
- A bottom-line focus on earnings from quarter to quarter
- Slow to respond to change where new ideas are not aggressively developed
- A culture where value through intellectual capital is not widely practiced
- Business success is highly centered around how we increase shareholder value
- Sources of value are isolated or fragmented and not coherent across the entire company such as having the right culture
Let’s
contrast this to a broader stakeholder view of value:
- Sustainable, competitive thinking drives the vision and the company has much more long-term strategic focus
- Value cuts across all parts of the company including the entire value chain
- There is an easy flow of ideas and a culture of innovation
- People who drive value for others (inside and/or outside the company) are promoted and advance within the company – it’s not just about meeting the numbers
- There is an incremental approach to rational decision making that is rooted in predictive analytics
- The bottom line is more about value and not earnings and this requires a broad and long-term view of the future
“A value is a belief in action. It is a
choice about what is good or bad, important or unimportant. Values shape
behavior. Until a value is acted upon it remains an aspiration. Values are hard
to detect; yet they underpin organizations like the foundations of a house. If
the foundation is weak, then the house falls down.”
- Unblocking Organizational Values by
Dave Francis and Mike Woodcook
One way of
moving away from shareholder value to stakeholder value is to identify real
value drivers for your stakeholders. These bottom layer drivers will give you great insight into what really works on reaching
the upper shareholder layer of value. This type of thinking needs to permeate
all levels of the organization so that eventually, everyone is asking the
question: How does my behavior or actions impact value and what can I do to
create more value?
“What people value causes organizations to
have cultures and acquire the reputations they have. World-class companies
usually have cutting-edge technology, superior management systems, outstanding
electronic systems, and database management, but their reputations all come
back to human beings – the people who make decisions and take actions in these organizations,
while using technological and management systems and tools. One of the critical
characteristics of successful companies is a careful balance between the
values, interests, goals, and objectives of the organization, and the values of
the individuals who work for it.”
- Value Driven Management: How to Create
and Maximize Value over Time for Organizational Success by Randolph A.
Pohlman and Gareth S. Gardiner with Ellen M. Heffes
One common
trap to value creation is to become overly pre-occupied with metrics. You
should not confuse value creation with value-based metrics. Value type metrics
are widely accepted and understood – things like EVA, Cash Value Added, Return
on Investment, etc. However, the biggest sources of value (things like leadership,
innovation, ethical behavior, knowledge, etc.) are not easy to quantify.
“Value is added in the sense that the
situation is better than if nothing was done at all. But value is destroyed in
the sense that the optimal value has not yet been implemented.”
- The Value Mandate by Peter J. Clark
and Stephen Neill
Value-creation
is a constant and difficult struggle since we can't predict the future and most
important drivers of value are not measurable. Therefore, it may be appropriate
to focus on only a few key drivers of value since organizational resources are
limited. For example, one of the ultimate drivers of value resides in your
people. So if you want to start at one single point on real value creation,
begin with your human resource capital. One reason this is important is because
people transcend and help you meet the value-proposition required by your other
stakeholder groups – customers, suppliers, partners, etc. People represent the
fluid dynamics that binds all stakeholders, covering the full range of
value-creation in this age of stakeholder value and not just shareholder value.
“We don't believe in the word ‘measurement.'
We don't supervise or manage people here; we lead. And we don't have employees;
we have people. We don't have human resources; we have a people department. Our
emotional contract with people is to treat them with respect, allow them to
have input into the company, and allow them to self-actualize within their
jobs.”
- Stephen Smith, CEO of WestJet
