Edward de Bono, the originator of lateral thinking as an idea has said that companies that solely focus on competition will ultimately die and those focused on value creation will thrive.
Creating a positive effect for customers
Someone buys or takes food to satiate one’s hunger; sometimes we take food to give company to someone we care for. At times, it could be for the ambience of the restaurant or just a matter of habit. Whatever the reason is, someone has a need and someone fulfils it by delivering a solution that creates value for the customer as well as for the enterprise that delivers the solution.
As long as the enterprise delivers the solution at a cost less than what one earns and enough customers are looking for the product or the service over a fairly long time consistently, the business thrives. One has to understand what the customers need today and what could be valuable for them in the future. Based on this understanding, the solution has to keep evolving. Organisations need systems, processes, technology, equipment, tools, finance and many other resources to create the desired solution and deliver it consistently.
Some flashes in the pan do not create value on a sustained basis. For example, one can target a few competitors to grab a share of their market by lowering the selling price or offering higher value for some time. However, one cannot do this over a very long time because this kind of operational tactic keeps generating losses and destroying the value of the shareholder funds; such a business cannot thrive. Rather one has to innovate new products or services, improve methods of production or introduce new elements in the supply chain to grab market share.
Customers keep fulfilling their needs at a reasonable price, find the value they look for and stay loyal to the organisation. In the process, the company enjoys the value of loyal customers and creates value for itself.
Creating a positive effect for employees and partners
Human relations and the approach to human interactions differentiate an organisation from its peers in a definite way. Sometimes, it is hard to differentiate a company’s offerings in the minds of a customer because of the nature of the product or service. Even in those hard-to-differentiate product categories, companies stand out by their approach to employees, customers, shareholders, business partners, local communities and governments.
Employee productivity not only depends upon the capabilities of their employees but also on the organisation’s internal environment such as the behaviour of the leaders, their systems and processes. When most of the elements remain favourable, employees stay longer and grow within the organisation; partners feel happy to be working with the organisation and look forward to a long-term partnership with the company. In the process, the organisation minimises the cost of replacing employees and partners and creates greater value for itself.
Creating a positive effect for shareholders
A business owner seeks fair returns on his or her equity, growth in the reputation of the business and growth in the value of the enterprise.
The value sought by the business owner can be fulfilled when all stakeholders of the business find value in what they seek. Customers want their needs to be fulfilled at the right price at the right time in a reliable manner. Employees seek a workplace that offers them independence, dignity, and opportunities to learn and grow; they seek fair practices and rewarding compensation. Business partners seek professional and dignified treatment, long-term commitment, transparency and commercial attractiveness in their business engagement. Local communities expect the enterprise to be socially responsible and benevolent behaviours toward them.
We can see a wide array of demands from different quarters. The leaders have to orchestrate various functions in the firm in such a way that the expectations of all the stakeholders are fulfilled simultaneously. Only then, the revenues of the company will keep growing at a faster pace than the costs and the potential for future earnings of the firm will keep growing. Thus, the enterprise value can keep growing.