The important drivers of value.
Value means different things to different people. However, it is important to establish these parameters to drive your businesses forward.
I recently read a blog post by Simon Terry who discussed this topic in detail. For over five years, he has been talking about the potential for organizations to create value every day through the use of collaboration.
Through the Value Maturity Model and its application in the Collaboration Value Canvas, Terry has repeatedly discussed the importance of an understanding of value to users and to the organization.
The role of value.
Terry points out that one reason for resisting defining value was to avoid an immediate reduction of value to an ROI calculation, which is both notoriously ambiguous and beside the point.
“The role of value in this discussion is not to justify investment accounting. The role of value is to shape the adoption actions, the use cases and the norms of the community that an organization is seeking to create. The second reason for my reluctance is that value means something different to almost every organization at every time. How an organization and its people need to create additional value is highly dependent on their context,” said Terry.
The ability to leverage the drivers of collaboration will help companies to identify the opportunities for value creation from collaboration, shape use cases and communicate to individual users about value in a simple way. To explain the path to these drivers, we must talk about what value and break it down to everyday topics of business conversation.
Understanding What We Mean by Value.
Terry points out that value is in economics is a measure of the benefit to be gained from any activity. “Vibrant and sustainable organizations create a surplus of value, using their resources in a strategic way to create more benefits than the value of initial resources. Value add is the difference between the benefits generated and the resources consumed. The goal of most strategy is to sustain and increase the value added by an organization,” said Terry.
He adds that, at an individual level, employees also want to experience purpose and meaning in their work. They want to deliver greater benefits to themselves and others than simply the time value of their work.
Value can be monetary. However, it can also come in wider non-economic forms. Therefore, as we think about value for individuals and organizations we need to keep in mind:
- Economic value (rands and cents); and
- The non-economic value which is any other meaningful sources of value (meaningful in the eye of the beholder)
“If we break down how both economic value and non-economic value is created, we will find some common drivers,” said Terry.
Economic value adds can be defined as the excess of the net operating profit after tax over the cost of capital. An organization deploys financial capital in its operating activities, that capital has a cost and the activities need to generate more operating profit to be sustainable.
“A value driver tree enables us to break these concepts down to more everyday topics of business strategy, activity and conversation in green in the table below. Sales, Cost of Sales, Other Organisational Costs, investment in assets and working capital are key elements of how much economic value added a business creates. If the adoption activities in your organization are not changing these sources of value in some way, then they are unlikely to be creating economic value, especially after the cost of adoption is taken into account,” says Terry.
Terry points out that we can similarly breakdown some major categories of non-economic value. These include social, environmental, governance and generational value considerations.
“Because non-economic value is in the eye of the beholder to some extent, this list is inevitably a partial one. There are likely more categories that are omitted, such as the richness of human life as expressed by individuals in organizational communities,” said Terry.
He adds that economists will argue that some or all of these aspects can be captured in or flow through to economic value, but the average person sees many of these sources of value as richer for lacking a direct monetary equation. Many of the sources of value in green are key elements of creating an organization or living a life that is rich in human potential.
The green categories of non-economic value are those most commonly discussed in any project of adoption of collaboration. These may be the starting points for any project. “Non-economic value add is usually critical in the ultimate user and organization success of any collaboration project. There is however a danger if this value is defined only in terms of these capitalized nouns and they are not translated into specific measures of success and initiatives that users and the organization can embrace. Projects that set out after the mystery of culture or engagement without further support or without considering other categories of value, especially economic value, will likely fail because users rightly question their point,” says Terry.
The Four Sources of Collaboration Value.
“At the beginning of my career in financial services, we had a simple mental model, derived from the Cohen Brown Sales framework, of how we delivered value to customers from the vast array of products and services that a large diversified financial services organization offered in banking and wealth management. That model was Save Money, Make Money, Save Time or Protect Money. Reducing the complexity to these four options guided bankers and other advisors through a great deal of complexity,” says Terry.
As similar guiding structures can be used for value creation; when we look at how collaboration can deliver value to each of the green elements of value in both economic and non-economic value, we find that value is created by four key drivers.
In simplest terms those drivers are:
- More growth. How can we have a bigger impact? How can we help more people? Many organizations want to grow in customer relationships, in scale of operations or in other ways.
- Better effectiveness. How can we ensure we do the most we can do? How do we do more of the right things? The literature of Lean has enriched our understanding of the value of effectiveness in economic value but effectiveness is also a concept that works for non-economic values too.
- Faster velocity. How can we take less time to do our work and to get to our goals? Time is a valuable and expiring resource. Let’s use it as well as we can and remove the traditional work frustrations of delay and waiting.
Enhanced protection. How can we avoid risks and better manage consequences? The risk is a part of any life or organization. We can, however, improve our management of risk.
Here’s a little more detail on what these drivers each mean in organizational terms:
One of the advantages of framing adoption conversations in these terms is that it helps make the value of activities clear to users and senior leaders in simple terms. The key benefits that they are likely to see are:
- Individual and organizational growth;
- Increased Individual and organizational effectiveness;
- Improved velocity in activity, opportunity, and leverage of potential, both in an employee and organizational view; and
An environment where individuals and the organization have better protection against risks
We Create Value Because We Are Human.
“If we are to make work more human and more rewarding through shared leverage of human potential in collaboration, then these key drivers should guide our projects and guide our value conversations with stakeholders. We should set our metrics and our use cases around these drivers so that we have the widest impact on value creation. If we need to increase value creation, we can come back to these drivers to search for a way forward for users and the organization,” says Terry.
Every organization and every user needs to define the value of collaboration to see effective adoption. Understanding value is critical for anyone seeking to accelerate adoption of collaboration in organizations. The four drivers of value can help us to keep conversations and the actions focused on how collaboration can have its greatest impact on value.
“GTconsult endeavors to add value in everything that we do. Defining value is as important to us as it is to our customers. Talk to us about what adds value to your business and how we can become a role player in this journey,” says Bradley Geldenhuys, Co-Founder and CEO of GTconsult.