Value Creation And Leaders
Let me start with the definition of value. Value is a word used contextually and sometimes loosely. Value is not price, Value does not mean quality.
Then there is a bunch of people who say Price for Value meaning they are price conscious. But you also have heard people say Money for Value meaning they are conscious about quality.
To put an end to all this, the Journal of Creating Value has a definition which is in use now:
Creating Value is executing proactive, conscious, inspired or imaginative and even normal actions that increase the overall good and well-being, and the worth of ideas, goods, services, people or institutions including society, and all stakeholders (like employees, customers, partners, shareholders and society), and value waiting to happen. That is why our parents teach us to be good kids and to do good. But this is soon overtaken by the goal of making a living, of being successful.
I will discuss Value waiting to happen later.
In a business sense, it is the worth or the value of your products that make people buy. They buy your products over competitive ones if they perceive you create more value, more good, and better worth.
And you are creating value when you improve the well-being of people.
We have to keep this definition of value in mind.
Today I am going to discuss 4 different areas of Creating Value and Leadership. I have already defined Creating Value for you as a backdrop.
In this talk, I will focus on four points:
1. Phil Kotler on Value Creation and Marketing
Kotler wrote in the Journal of Creating Value that Marketing is Value Creation.
He says: Leading marketers see modern marketing to be all about value creation. Marketing aims to meet human needs by creating value.
He goes on to say: I do not know what you thought marketing was, but in my mind, marketing is intrinsically a value-creating discipline.
Outstanding marketing companies see marketing as intrinsically involved in value creation.
You can read this free on the Journal of Creating Value, till 18 October 2020 through this link at the Journal of Creating VALUE, JCV.Sagepub.com: https://journals.sagepub.com/doi/full/10.1177/2394964320903559
2. Primary role of a leader is to create value
Since this talk is about Creating Value and leaders, let me focus on this aspect. There are four areas I will touch on:
a. Leaders create value
b. Not taught to create value
c. Getting a value creation mindset
d. Value helps you strategize and innovate better
a. You start to look at value destruction and at
b. Value waiting to happen, includes innovation
3. Leaders Create Value
Let’s talk about leaders. People are leaders not because they meet their performance expectations, but because they create value, that is they go beyond the performance expectation. Notice all the leaders around you are there because they created value. Just meeting numbers and the performance expected is not good enough and not so in today’s world.
Let me give you two examples
Take the Covid crisis. Many companies hide behind the problems caused by the crisis. Some companies in India ignored the labour force in their factories because the factories were shut down due to lockdown. The company I am speaking of (Parijat Industries) focused on these customers and the moment the lockdown was removed, they were ready with protection and 100% of their workforce returned. Consequently, for a time period, they were the only manufacturers and captured a higher market share, and even their collections (debts) improved by 70%. This happened because, first they created value for their employees and second, they created value for their dealers because they were able to supply to the dealers.
The second example is of Bajaj Auto 10 or 15 years ago started to feel that China might compete for motorcycles in the Indian market. They realised they had to start from scratch and hired fresh people to design, manage and market world-class bikes. They wanted a value creation mindset. In a few years, they had higher quality and higher technology bikes at reasonable prices. Result: Chinese bikes could not enter India.
Bajaj took these bikes into Africa, where China dominated. They took over the market leaving the very high end to the Japanese, and the very low end to the Chinese.
Today, unfortunately, leaders are influenced by the focus on the flavour of the month, CX, Customer Journey etc. These are old thoughts that are being recycled. They need to focus on Creating more Value.
Many leaders believe the extraordinary is possible. They take advantage of the situation. Why not re-engineer our company for re-deployment and for not just coping with the Covid crisis. Why not start thinking long term not just short term and add true Value?
Leaders are not taught to create value
People who reach the top do so by creating value…No one has taught them how to do this. They do it because it is in their nature to do so
Thus, they create value unconsciously and can also destroy value unconsciously.
And so, we have to teach them how to create value in a more effective manner.
Getting a value creation mindset
Value Creation for leaders is about you. You as a person and not just a leader
You can only create functional value for yourself, like learning something, education, training, practice, exercising
But the most amount of value you create is when you create value for others…so when you start to create value for your people, your employees, your customers, your partners, society, they will come back and create value for you.
And they in turn create value for you…they recognise you as a value creator
Value helps you strategize and innovate better
Here we will look at:
a. You start to look at value destruction and at
b. Value waiting to happen, includes innovation
You start to look at value destruction
First, gone are the days that the business strategy was all you needed to do. Till recently we advised companies to create a customer strategy which you used to make a business strategy. You as a leader must understand why a customer strategy is different from a business or market strategy. In the latter, we look at the market and business opportunity. The customer is secondary. The great market crash of 2008 teaches us the difference. Take the mortgage market. The customer strategy would have forced us to look at the customers better. Are they a good risk? And what will happen if prices of homes go down or interest rates go up. Do our products protect them?
The business strategy was a numbers game. Give as many mortgages we can. Bundle them and sell to the next larger bank or entity. You no longer carried the risk. And these folks bundled all their mortgages and sold them to the next buyer…. till a few companies were left holding the mortgages.
When the mortgagees started to default, the whole pyramid came crashing down causing unbelievable pain to the common man…all because people took their eyes of the customer and there was no customer strategy.
Nowadays, we advise people to also create an employee strategy (for example what to do during a lockdown or replacing people with bots), and a stakeholder strategy, including one for customers, one for partners, and one for society and sustainability. These are then used to create the business strategy.
While doing your strategy or while looking at projects you MUST start to look at value destruction. What is the value destruction potential of what we are doing? For an electric autonomous car, there is value destruction for professional drivers, existing manufacturers and repair shops, insurance, and for taxes.
The number of accidents will reduce. The number of cars on the road will reduce as on-demand cars come into vogue.
New manufacturers and repair facilities will come in creating value for these. The number of accidents will also reduce.
Another example is smart cities. Everyone will vote for smart lighting. I want you to look at the value destruction potential: Street lights even smart ones require poles. Poles like other infrastructure, are used for less than 20% of the time, which is value destroying. They are expensive, they take up land space. If we accept these to be value destroying, we are forced to look at alternatives. And what are these? You could use drones to light the street on an as need basis. Or better still, our phones could be replaced by flying phones or drone phones and light the path for us as we walk. Elegant, simple solution. No poles.
Value Creation leaders have to look at the entire range and spectrum of stakeholders. They must have individual strategies for customers, employees, sustainability, and for shareholders. Using these strategies, they should build their business strategy. To do this it is important to recognise that the customer pays for all of this, and therefore find the relative importance of each of these, using Customer Value Added or measuring value.
Value waiting to happen includes innovation
Value waiting to happen is innovation potential all around us, that we do not notice. The autonomous car is an example all of us could have guessed but failed to do or even think about. A few people did notice and created value from value waiting to happen.
Another example of value waiting to happen is learning from nature. Take seeds and their ability to absorb twice their volume of water can be used for sponge technology. MIT scientists wondered what energy was required to transport water and nutrition from the roots of trees to leaves 100 feet up. Using this technique, they have come up with an almost energy-less pump.
Medical people have seen the geckos have an adhesive system to cling to walls, and are using this to suture cuts during surgeries.
The list is long, and innovation and value waiting to happen.
3. Leaders must have Values
Values are an important part of Creating Value. Values (Value with an ‘s’). Value and Values are distinct. Values form an important part of Value creation and are our essential beliefs, ethics and morals. Too many leaders and companies mistake corporate traits with values.
Traits include ambition, competency, individuality, equality,
service, responsibility, accuracy, respect, dedication, diversity,
improvement, enjoyment/fun, loyalty, innovativeness, excellence etc.
Items that fit into Values are integrity and honesty. So, leadership
training does not focus that highly on Values.
But the culture must reflect basic Values.
In business jargon, Values are called ethics and traits are core Values. In
our definition of core Values are not traits but actually should be the ethical
In business jargon, Values are called integrity, morals, ethics etc.
4. Leaders of the Future and Value Creation
More than ever before, our basic beliefs will be shaken, and our fears of lack of control as technology take over will require Business leaders who can create value and avoid value destruction. They will choose options that pollute the least, and that does not lead to losing control of technology, be it biotechnology or AI. This requires changing the entire old way of thinking that Value Creation means creating profit. Today in this period of Covid, low and declining growth is accompanied by an improving environment and reduced pollution and lower traffic, and cleaner earth could lead to a healthier life and a planet more happiness. Leaders controlled by Creating Value for the stakeholders
including society and for sustainability will re-focus their businesses, and even accept lower growth versus their non-value creating competitors who will vote for business as usual and that profit is king. Paul Polman of Unilever eschewed short-term profits and stopped suppliers who were not sustainability friendly.
In August 2019, the 300 CEOs of the largest US companies signed off on The Business Roundtable's new purpose of a company, to create value for all stakeholders: Employees, Customers, Suppliers/Partners, Community/Society, Environment and Shareholders. Gone were the days where employees and partners were meant only to serve the company. Gone were the days when the environment and community were only talking points.
Davos in 2020, stated the same thing. So, there is to be a supposed seriousness of purpose to create value. But the problem is our training and MBA schools have taught us to create shareholder wealth, and even well-meaning leaders do not know where to start.
So, to start, you have to look at your Purpose. Ask:
What is your purpose for your family or your friends? A study has found people with purpose live 15% longer.
Is my Business purpose, to make money for stakeholders or to leave a happier world?
Since leaders can also be shareholders, should they look at creating happiness?
93% of 2000 leaders surveyed could not state why their company is in business. This means that many purpose statements do not have a proper sense of purpose. Are yours one of them?
As a leader, you must have a purpose. What is a meaningful purpose you can express in terms of values, meaning ethics and morals etc. and in terms of what you want to achieve in life for yourself and your family? What will inspire those around you? Is it clean air, a happier environment, or a product with the lowest costs and highest quality? The last is practical but it is your job. Value Creation is going beyond your job and should be your purpose.
Do you know what your customers value, what your stakeholders value? How does your purpose reflect some of these aspirations and goals?
How can you inspire your people and family to create value and for whom and how? Granted it goes beyond the purpose but it can help you formulate and articulate purpose better.
At the very least your purpose should go beyond making money and increasing shareholder wealth.
This purpose will help you revise your vision and then your mission. Working on a strategy for each o your stakeholders will get you to a great business strategy, and reinforce your purpose.
The purpose to create value for stakeholders makes you ally with employees, customers and partners in learning from them and co-creating value with them. They become part of your success.
Many of your employees prefer meaning to money. Should you too? Purpose improves employee participation and buy-in. It creates value for employees by improving their well-being.
Helping employees with creating value for themselves and having a purpose. It engenders thinking about themselves and deciding what matters in life. It builds on the self, a sense of freedom and thinking about others.
Today, I have defined Value Creation. It is about doing good. I spoke about Phil Kotler’s views on Marketing being Value Creation; You have learnt that the role of a leader is to create value. You are not taught to create value, and if you are doing this unconsciously, you could be destroying value unconsciously. Once you learn about value creation you can get to a value creation mindset, which will help you strategize and innovate better, and you will start to look at value waiting to happen and learn to look at value destruction potential to create even more value. Your business purpose is to create value for all stakeholders.
We need value-creating leaders for the future. Create more Value.
