5. The value creation cycle

The value creation cycle

Agreement between Diakonessen

Agreement between Diakonessen Hospital and Weight Watchers

The Waves of Value

Value creation is one of those terms which every organisation can visualise but which is difficult to define. When do you create value? What does that value consist of? For whom is it valuable and how do you measure value? In this article we introduce a new value creation model, known as the Waves of Value. It consists of three waves which together ensure sustainable value creation in organisations. In the first wave an organisation creates the conditions necessary to create value. In the second wave that value is actually created and measured. In the third wave the marketing of that value produces a multiplier effect.

What is sustainable value?
Sustainable value creation means that your organization starts with a cycle that leads to success. The main stakeholders are represented in that cycle: organisation, customers, employees and society. We speak of sustainable value if value is created for all four stakeholders:

  • Shareholder value – higher profit and a better price earnings ratio
  • Customer value – better service, greater customer satisfaction, better connection between the customer and the organisation, higher profit per customer
  • Employee value – employees connecting better with themselves, with colleagues and the organisation in relation to better performance
  • Social value – connecting better with society and making a contribution to society

The waves of value
Creating value for all stakeholders is not easy. Sustainable value does not arise on its own. On the contrary, it requires a great deal of work on various fronts. We identify three waves that lead to sustainable value creation.

Value Waves ENG

Lead the value
The first wave concerns the inside of an organisation. When you enter an organisation that has incorporated this first Lead the Value wave, you can sense it immediately. You notice it when you speak to people and ask them questions. You notice that there is energy, a sense of urgency or a sense of excitement about getting down to work and doing things together. There is also a clear and inspiring vision and strategy that gives people meaning and direction. As a result, the employees work with inspiration and passion and have their customers’ interests at heart. The leadership is characterized by ownership, charting the course and demonstrating solidarity with the organisation. Such organisations also have a well-designed business model and a clear target group. This target group has a clear offering and an intelligent revenue model providing a basis for economic success. Organisations which excel in Lead the Value have a healthy culture, which on the one hand provides unity but at the same time harnesses the power of complementarity and diversity.The extent to which organisations excel in Lead the Value is also measurable. The following eight indicators show how good an organisation is at leading the value:

  1. People in the organisation feel a sense of urgency/excitement
  2. People in the organisation embrace the vision and strategy
  3. People in the organisation know how they can contribute to the realisation of the vision and strategy
  4. People have the right skills to contribute to the realization of the vision and strategy
  5. People feel a bond with the organisation and their colleagues
  6. Senior management demonstrates ownership
  7. Leaders show exemplary behaviour that is in line with the vision and strategy
  8. The organisation has the right culture to achieve the organisation’s objectives.

It is logical that the first wave is at the centre of the model. After all, it generates the other waves. At the same time, the first wave alone is completely insufficient to create sustainable value, because results must also be delivered.

Manage the value
The second wave of value creation relates to ‘make it happen’: executing the strategy and demonstrating performance. Organisations that are good at Manage the Value show results! They score highly customer satisfaction rankings. Customers recommend them and employees have high productivity. Such organisations make a profit, year after year. They are in perfect financial health and post excellent growth figures. These organisations are also able to improve themselves and offer new products and services. The Manage the Value wave is also measurable. We look at various indicators to ascertain the quality of Manage the Value. The indicators are more numerous compared to Lead the Value, and are divided into three clusters: shareholders, customers and employees. The table below summarises the indicators and gives an idea of what Manage the Value is about. It is not exhaustive, because every organisation will have different principles and must draw up its own list of indicators.

The second wave concerns an organisation’s execution power and actual performance for all stakeholders. Energy, inspiration, giving meaning, a good vision and strategy are extremely important (the first wave), but the second wave of value comes about through results. It is also important that the message about the achieved value is conveyed effectively. That is exactly what the third wave of value is about.

Market the value
The third wave concerns the future expectations of the outside world. Organisations that are good at Market the Value enjoy the confidence of investors. Investors and analysts have positive expectations of such organisations and are prepared to invest in these companies. The same applies to customers and society. Organisations that are effective in the Market the Value wave earn a good reputation and are attractive employers. People talk positively about such companies. The outside world has confidence in their leadership and expects the organisation to be ready for the future market and to anticipate the relevant trends.

This third wave always contains a number of unpredictable and emotional elements, as the slightest event can cause the share price to rise or fall. We see examples of that in the newspapers every week. Sometimes the announcement of a new CEO will have very positive consequences for the share price. But sometimes it will not, and that can hardly ever be predicted. When Steve Jobs retired from Apple, its share price plummeted immediately. There are countless examples. University of Missouri Professor Steve Ferris discovered in one of his studies that share prices rose when it was announced that a celebrity had been appointed as a member of the board . Even if the celebrity concerned had no understanding whatsoever of the business, the price still rose, possibly by as much as 13.66% in a single day. In light of such cases, we can confidently state that the third wave will contain not only unpredictable and emotional elements but possibly even irrational elements.

The Value Creation Cycle

5. The value creation cycle

Now that we have considered the principle of the waves of value, we turn to more concrete matters. In other words, how do you create those waves of value? What must an organisation do to create value through each of the three waves. We refer to the approach introduced in this section as the Value Creation Cycle. Before dealing with this in greater depth, we should emphasise that the approach is not a ‘checklist’ with a number of steps you go through and tick off one by one, and from which success follows automatically. We have deliberately referred to this approach as a cycle, because the process operates continuously, with the various steps and components recurring. And the organisation must be alert in order to identify which step is necessary or in need of revitalising at any particular time. The Value Creation Cycle provides an overview of the links required to create sustainable value. Each of the links is necessary to ultimately create sustainable value for an organisation. We distinguish six of these. As stated previously, these six links form a self-reinforcing cycle which never stops but continues indefinitely.

  • Mobilise energy: this is about creating a sense of urgency or excitement which really gets things moving.
  • Take ownership: this link concerns commitment at the top of the organisation, creating a leading coalition and determining the extent to which you wish to involve people in developing the direction.
  • Set direction: this is the link concerning the actual formulation of the vision, the brand, the Business Transformation Model and the strategy required to realise it.
  • Make it happen and improve: this is about actually realising the vision and strategy by living the vision and the brand, executing the strategy and empowering entrepreneurship in the organisation.
  • Inspire others: this is about promulgating, demonstrating and sharing the results achieved.
  • Change holistically: this is about supporting and confirming the change process to bring it into existence as a whole. Leadership development, team development, change management and the achievement of breakthroughs in the culture are crucial elements here.

Mobilise energy
Nothing gets moving if there is no energy. Therefore the chain usually starts with the mobilisation of energy. Energy arises when people in the organisation gain a sense of urgency. This feeling is uncomfortable because you are forced to confront facts. In his book ‘Good to Great’, Jim Collins uses the splendid term ‘brutal facts’ to describe this situation. These brutal facts give rise to thoughts such as “If we take no action now, in five years’ time we’ll be out of business” or “We’re lagging behind our customers” and “Now I can see what our customers think of us, I’m ashamed”. Fostering a sense of urgency is an extremely effective way of mobilising energy, the only downside being that it has negative connotations. Fortunately there is also a positive form, namely a sense of excitement. This arises when people glimpse new opportunities which connect with their inner drive. A sense of excitement is accompanied by completely different thoughts, such as “We are so good at this, we must expand it further” or “We can create an entirely new market with this idea” and “Our dream is to…”.

There is a story that in its early years Nike was driven by the motto ‘Crush Adidas!’. Although it is a fairly aggressive motto, it is conceivable that at the time the still relatively small Nike derived a great deal of energy and excitement from it. Energy does not usually arise from the production, analysis and presentation of thick reports, although they often contain enough information to scare the living daylights out of you. Energy arises when you feel, experience and participate in what is going on. That requires See – Feel – Change methods. These are experiences that affect you. They could include interviews with competitors, videos of angry customers, cool hunts for places that reveal the latest trends, customer journeys, employee arenas, films, listening in to call centre employees and other similar methods.

Take ownership
Something must of course be done with the energy that is mobilised. It is quite valuable if there is a sense of urgency or excitement, but at a certain time someone must take responsibility. That is the essence of the second link, the initial requirement being that an organisation senior management must demonstrate ownership. “This is my problem and I’m going to deal with it. I’m going to put all my energy into it and make sure we take the right steps. I’m responsible and accountable for that.” When such words are spoken with conviction by the senior managers of an organisation, the listener is fuelled by genuine hope that something good is going to happen.

Of course, that does not mean senior management will deal with it on its own, because although leadership starts with commitment from the top it must be more widely supported within the organisation. The creation of a leading coalition which also takes its responsibility and participates in the creation of value is a decisive step in this regard. This is about people with formal and informal influence, who on the one hand are firmly rooted in the organisation and on the other hand have sufficient critical distance to lend energetic support to the desired changes. It is also wise to consider at an early stage who within the organisation you want to involve in setting the direction. The need for people not to be too restricted in their thinking was demonstrated in the research entitled ‘Organisatievisies in Nederland’ 4 (‘Visions of Organisations in the Netherlands’), which we conducted a few years ago. This revealed that involving people from multiple layers of the organisation has a positive impact on the quality and ambition of the vision and strategy. And ultimately on the results.

Set direction
With the sense of urgency and with the right people, the direction is then determined. This is about developing the vision of the organization formulating its Higher Goal, the Audacious Goal, its Core Values and its Core Qualities. This is a fundamental process that simultaneously defines the core of an organisation and the course for the years ahead. This vision is then supplemented with a Business Transformation Model that is as solid as can be, a strategy that is so clear that you know what you have to do tomorrow as well as an authentic brand that is able to connect with and inspire the outside world. If you wanted to encapsulate these components in a metaphor, you could say that the vision is your destination. Your strategy map is your road map. The brand is the way in which you invite your fellow travellers to go with you. And the Business Transformation Model is the engine in your car. The importance of a good Business Transformation Model has increasingly been recognized in the last few years 5. In a good Business Transformation Model you first clarify which customers actually make up your primary target group, but also which do not form part of your primary target group. That is an important choice, with numerous consequences! You then define what you want to offer these customers, something known as the ‘Value proposition’ or ‘Offer. Next, you determine how you are going to organise everything to deliver your value proposition to your primary customer, in other words your operations. Finally, you define the channels through which you are going to serve the customers, this is referred to as ‘Delivery’.

These first three elements are the primary determinants of the first wave of value: Lead the Value.

Make it happen and improve
No-one can deny that accomplishing your ideas and plans is more important than the ideas and plans themselves, unless you want to carry on dreaming and writing… The Make it happen and Improve link is therefore the essential link for inspired and disciplined action. And it involves quite a lot! In the first place it requires people to live out the organisation’s vision, day after day. Visionary organisations go all out to live the vision. For example, they do so in employee induction programmes by genuinely reflecting on the organisation’s vision and its meaning. Vision films are shown and discussed. The vision comes up again in people’s assessments, in the art that hangs on the wall, in the design of the buildings, in the business cards given to customers, in the training courses employees attend and so forth. It requires exceptional effort to keep the vision in people’s hearts, minds and feelings. But it will lead to a great deal of inspiration. However, discipline is also called for in emphasising the consistent implementation of the strategy in day-to-day practice and at all levels of the organisation. That is done by putting the customer at the centre and thereby constantly internalising the voice of the customer. That is coupled with robust performance management. On the basis of a short weekly cycle, discussions take place within each team on the status of the various objectives, the likely sticking points in the week ahead, what assistance is required and what was learned and improved in the previous week. In this way processes are continuously improved on the basis of the principles, instruments and tools offered by the Lean approach. Lean offers extremely useful guidelines and insights, provided it is not used solely as a cost-cutting programme. Lean was originally intended to create greater value for customers and employees, and indeed to bring about improvements at the financial level. By deploying Lean techniques in this way, it can be used as a lever to realise the vision and strategy and to develop people. Because developing and empowering the right people is an important precondition in order to be able to do all this. That is done by providing them with the required tools and teaching them the required skills to serve customers well. By letting them develop a personal vision and strategy, people in the organisation will discover their dream. In that way you can empower people in the organisation to become entrepreneurs, laying the basis for further improvement and renewal of the organisation as a whole.

Make it Happen and Improve is the primary determinant of the second wave of value: Manage the Value.

Inspire Others
What has been achieved must be shared! And although the expression be good and talk about it could be branded as arrogant or ‘rather 1980s’, success should always be shared. The outside world can learn about what is going well and share in it. Other people can improve as a result, and you will also improve. Just think about what you can learn when other people look at things with you and give feedback. And about the pride and satisfaction generated in the organisation when people from far and near come to see how your organisation has developed from good to great. Truck manufacturer Scania, for example, opens its factory for guided tours. Visitors are taken through the entire plant on a specially developed train and given a professional account of the unique and extremely efficient Scania Production System, which is based on an inspiring vision and a logical strategy. Many competitors have already taken the train ride, but numerous companies in other sectors have also used it to learn and improve their own services. The ‘sharing’ we are talking about must not only involve sharing communication but also practical sharing. By making your unique knowledge and expertise available to others who do not have such easy access to it, you can also fulfil your social responsibility as an organisation.

Inspire Others is the primary determinant of of the third wave of value creation: Market the Value

Change holistically
Although the circle now appears to be complete, one essential element is still missing. One other aspect is related to all the previous steps. Something that goes beyond but also has to support the previous elements. On the one hand it concerns the development of leadership and team effectiveness, since a change process focused on value creation demands a great deal of the leaders and the teams. And every phase and every step brings about new challenges for the leadership and the various teams. Setting direction requires different skills of managers than for example the behaviour required in fulfilling the vision and strategy. On the other hand it concerns the management of the change process. Because although the previous links may appear to constitute a step-by-step plan of separate, stand-alone steps, that is by no means the case. All links must be connected with one another. Careful and consistent management of such a change is a discipline in its own right, and careful consideration must be given to when to do what. Throughout this process everything is done to enrich the organizational culture and even create breakthroughs in the culture.

In that way external stimuli can be brought into an internally focused culture. For example, in an energetic ‘can-do’ culture more light can be cast on the human factor. Now that we have briefly explained the various links in the chain, it should be emphasized that none of these links in the chain can be omitted when creating sustainable value. These links have deliberately been placed in a circle. As we stated earlier, the links must not be seen as a ‘checklist’ in which you tick off the various steps one by one and then say with a sense of satisfaction that you have ‘dealt with’ them. This is actually a never-ending cycle. And let’s be honest, building a healthy and valuable organisation is an unending task. That is something every entrepreneur will agree with. Let’s continue to build.

Summary

Value creation concerns on the one hand value for all stakeholders: employees, customers, shareholders and society. If we want to create value sustainably, three waves of value are important. First, Lead the Value, which involves all activities required to mobilise energy, working on a good, ambitious and inspiring vision and strategy. In short, everything that is necessary internally to score a resounding success. We called the second wave Manage the Value. This concerns the actual achievement of results, profitmaking and continuous improvement and renewal. The third wave – Market the Value – is focused on carrying along and inspiring the outside world, positively influencing the reputation, market expectations and public sympathy towards the organisation. The Value Creation Cycle is a framework for the various concrete steps which organisations can take to energise the three waves of value. The Value Creation Cycle consists of Mobilise Energy, Take Ownership, Setting Direction, Make it Happen and improve, Inspire Others and Change holistically.

Share and Enjoy:
  • Print
  • Facebook
  • Twitter
  • email

Leave a Reply

Your email address will not be published. Required fields are marked *