2.9 Definition and Meaning of Value Creation
Value creation is the primary objective of any business
entity. It is obvious that most successful organisations understand that the
purpose of any business is to create value for its customers, employees,
investors as well as its shareholders. Because the customers, employees and
investors are linked up together, no sustainable value can be created for one
unless for all of them. The first point of focus should be that of creating the
value for the customer, remember, customers are always right. Value creation
for customers will help in selling the services provided. This can only be
achieved when the right employees are employed, developed and rewarded as well
as when investors keep receiving consistent attractive returns. However, from a
financial point of view, value is said to be created when a business earns
revenue which surpasses expenses.
Value creation simply put occurs when there is an additional
value being added to the bottom line of a business thanks to the creation and
use of new methods to maximize the shareholders wealth. Value creation from the
customer point of view entails the provision of services that customers will
find consistently useful. In today's business world, such value creation is
typically based on constant process innovation as well as constantly
understanding the customers needs with the ever changing business world. This
can be achieved thanks to the commitment, energy and imagination of the
employees. In order for these employees to work effectively and committed, they
need to be motivated and the best way of doing this is by creating values for
the employees as well.
Value creation for employees will include employees to be
treated respectively, the provision of continuous training and development as
well as the employees participating in decision making processes. Bear this in
mind that this only happens when managers decide to define their company's
interests broadly enough to include the interest of everybody-from the
employees to the customers.
Contrary to the above, things go sour when managers decide not
to focus on any value creation strategy but rather make decisions that will in
the long run decrease the value of their businesses. This always happens when
the managers decide to conceive the self-interest conception. This is because
sometimes they decide to ignore employees' satisfaction, learning, research and
development effectiveness. Consequently, when these are ignored, the outcomes
are horrible because it will definitely result to low employees morals and
performances with their associated effects.
2.9.1 Value Creation Strategies
There are different methods leading to value creation in
companies and financial institutions. The real value creation - long term
growth and profitability - occur when financial institutions decide to develop
continuous stream of services that offer unique benefits to their customers.
This implies, in order for an institution to maintain an industry leadership
position, the institution must establish a sustainable process of value
creation. The ability of developing resources and effectively matching them
with opportunities is the brain behind any well established institution's value
to customers, and the basis of its valuation by shareholders. Note that this
value creation process in turn is built on the capabilities and motivation of
the institution's employees. No doubt some experts recommend that value
creation should be treated as a priority for all employees and institutions
decisions. This is because if value creation is put first, managers will know
where and how to grow. Also, understanding what creates value will help
managers to stay focused. For example, if a customer's value is that of
consistent quality and timely delivery then what will be expected of from the
manager will be skills, systems and processes that will produce and deliver
quality services in time.
In today's business world where nearly everybody is faced with
choices, the main challenge for all businesses is to develop and sustain a
uniquely and attractive proposition for both customers as well as employees.
All the same, the most difficult challenge is doing this in such a way that
will result in value creation. This therefore implies managers will
continuously be on their feet because they will need to be constantly asking
themselves what is to be done that will be different from their competitors and
how that will result to value creation? By putting this in place therefore
implies you making for yourselves better managers and creating an environment
that attracts only people who adhere to very high business performance
standards. This more often than not, results with you having more managerial
talents than your competitors thereby enabling you to achieve higher levels
of
profitable as well as sustainable growth. Lloyds TSB is an
example of a financial institution that has made value creation drive to their
growth for over decade because at one point in time, they decided to put value
creation first.
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