What is value creation? Something commonly used in strategic discussions but not well understood among managers as well as business or design school students. If a company needs to reinvent itself, they need to put value creation first. If a disrupter wants to attack an industry leader, it needs to put value creation first.
There are many practical issues that affect value: from the nature of owners and investors to the shifting perception and behavior of the financial market, smart and foolish ways to invest, divest, reorganize and acquire etc. At the very core, it is about how companies create value by investing capital to generate future cash flows at higher rates of return than their cost of capital. And how different ownership structures and organization designs could affect value. Here I am talking about one level below.
For business managers, technologists and design professionals this means creating value with everyday decisions. Value is the source of competitive differentiation. Here are a few ideas for you to think about:
- Every innovation manager needs to know or consider constantly how each new ideas will benefit consumers and in what way, whether helping them to perform, produce, organize certain things or feel certain way. Value can be both tangible and intangible. Customer value needs to be created first before you can think about capturing it. Value creation before value capture.
- Every innovation manager must understand, and be better than their competitors at understanding, where, how and why value is created and destroyed within your industry and your company. Not only by business unit, by product, by customer, by channel, by market, by technology, or whatever best reveals your formula that drives value creation.
- Every innovation manager needs to know how their decisions will enable the organization to create, deliver and capture new value from change and foresight. By bringing new perspectives, they can help executives to make better future-informed decisions that create value.
- Every innovation manager needs to stay focused on the objective of creating value through purposeful innovation. Don’t be distracted by other management measurements and indicators that don’t build organizations (they are for managing organizations, not building them) and avoid the trap of spending time managing the lagging indicator rather than creating real value for the future.
- Every innovation manager needs to remember that creating value is also about managing expectations. They need to accept that even great ideas will fall flat and some mediocre ideas will be successful and timing can be a key factor. Avoid "short-termism" and confusing product extension with innovation. The best way we can build successful innovation that delivers growth is by putting value creation first.
A misunderstanding of “value” is causing many companies to be “recklessly cautious” or "creatively overwhelmed" and forgetting that they are competing for tomorrow’s market and cash flow – not yesterdays. And by their “short-termism” they are passing up terrific opportunities to create long-term value. “Short-termism” is not good for innovation.