How we measure and create value.

The historical definition of value is very simple; “It is what a man gets, what another will give, that determines value.” Amasa Walker 1866.  This is still the fundamental principle of the Market Economy where the prices of goods and services are solely guided by what customers are willing to pay. It is interesting to see that over a century later Peter F. Drucker, who is widely considered to be “the father of modern management”, elaborates on this definition and uses the same concept to describe quality. “Quality in a product or service is not what the supplier puts in. It is what the customer gets out and is willing to pay for.”

The definition of value has subtly evolved over the past hundred and forty years. We have changed the word “give” to “pay” to describe the exchange for services. This might seems small but it is represents our today’s monitory focus when measuring value.  I believe this narrow interpretation of value is one of the fundamental causes of our economical and social difficulties.

Without a doubt customers determine the value of our products and services. However, value is only an opinion developed and influenced by our culture and environment. Our assessment of value crosses many boundaries from economy and finance to identity, philosophy, ethics and morality e.g. some people didn’t buy South African products during the Apartheid. To create a balanced society we need to look further than what the consumer based economy and self-centric (individualistic) culture have led us to believe.

The word value is often used as a marketing jargon to entice customers, justify higher prices for our products and services or gain competitive advantage. In the midst of conducting business in the current market economy we have lost the essence of value.   As stated by Benjamin Franklin, “I conceive that the great part of the miseries of mankind are brought upon them by false estimates they have made of the value of things.”

The baseline for measuring value is determined by the values we set for ourselves. This has a direct impact on the organisations and the teams we lead as well as the suppliers we choose to work with.  It is the integrity and robustness of the moral values embedded in an organisation and its leaders that determine how they measure the value they deliver to their customers, stakeholders and their staff as well as what they expect from their suppliers. As Václav Havel, President of the Czech Republic (1993-2003), stated, “Without commonly shared and widely entrenched moral values and obligations, neither the law, nor democratic government, nor even the market economy will function properly.”

This is not a romantic fantasy but a pragmatic and a realistic perspective. We intuitively know the cause of our economic difficulties but our actions are dominated by the status quo – which is short-termism. I am not proposing a radical change in the way we do things but to ask ourselves simple questions as we embark on change initiatives to make our organisations more viable:

  1. Right-sizing – Are we just cutting cost or right-sizing? In today’s economy the answer always is ‘we are right-sizing by reducing costs’.  Regardless of the reasons for our actions we need to understand why we grew so big without a strategy or capability to sustain ourselves. I am certain that the global economy had a great influence on that but let’s not use it to mask our own challenges. To re-build our organisations for sustainability means looking further ahead than the next quarterly reports.
  2. Efficiency – When operating under the banner of efficiency we often forget that it is the people who innovate and provide customer experience. Automation could distant the customers from the organisation and rigid processes could suffocate innovation. Before embarking on an efficiency programme we need to fully understand that a one dimensional view of efficiency is a weak foundation for a sustainable organisation.
  3. Increase Market Identity – Are we building just a façade by telling a story or authentically portraying who we are as an organisation? Our stories will damage our reputations if they don’t reflect our behaviour and the results that we deliver.
  4. Increase Capability – Is this change aligned with our values and what are we doing to sustain the growth in our capability after coaches and consultants have left?

We need to become conscious of the broader impact of our actions rather than just meeting our next financial target.

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