Contemporary Strategies For Creating Value In Organisations

Are You a Value Creator or Destroyer?

What is the fundamental philosophy informing your management decisions? Are you creating value or destroying it?

Take this test and see for yourself what the results say …

1. The purpose of an organisation is to maximise profits.
Agree/Disagree 

2. Managements must not give quarterly guidance to investors.
Agree/Disagree

3. During difficult times, companies should cut their advertising budgets to save costs and protect their margins.
Agree/Disagree

4. Organisations should only share good and positive news and refrain from sharing bad and unpleasant news with their employees since it will demotivate them. 
Agree/Disagree

5. Employees should not be permitted to bring their own laptops to work; they should work on the company’s laptop only.
Agree/Disagree

6. During difficult times faced by a company, it should not cut the training budget of its employees to save costs.
Agree/Disagree

7. An organisation should voluntarily penalise itself if it does not deliver on the brand promise it has made to the customers.
Agree/Disagree

8. The most talented employees should be put onto solving the biggest problems faced by the company.
Agree/Disagree

9. To endure in the long run, companies must be obsessed with competition and endeavour to stay ahead of them at all times.
Agree/Disagree

10. BYOD = B_ _ _ _ _ Y _ _ _ O _ _  D _ _ _ _ _

Read on for an analysis of your answers...[PAGE BREAK]

So, how did your fare in the quiz? Did you mostly agree with the statements or largely disagree? Is your company up to speed with contemporary value creation strategies?

In the 21st century, the world’s most admired companies create value for their stakeholders by embracing wholeheartedly the maxims enunciated below… Read on! 

1. Focus on creating a ‘Business Moat’: Warren Buffet recommends that companies should create a business moat. As a moat protects a castle from enemies, a business moat protects a company’s profits from being attacked by competitors. Hence, every value creating company should have a ‘protective ring’ around its business.

2. Strategy: They believe in ‘purity’ of their brand and business and hence do not rush into every opportunity that comes their way. In fact, these companies stick to their knitting and say “Yes” to very few and select opportunities.

3. Trustee mindset: Value-creating leaders have a “trustee mindset”. This mindset encourages leaders to leave the company in better shape than when they inherited it. They do not live from quarter to quarter and hence take a long-term perspective of business.

4. Focus on EVA: Many profitable companies unwittingly end up destroying shareholder’s Value because they use incorrect measurement parameter, like Profit After Tax (PAT) to measure their performance.

But value-creating companies replace PAT with Economic Value Add (EVA) to measure the performance of their managers and their business. EVA is based on the premise that value is created when the return on the firm's economic capital employed is greater than the cost of that capital. In short EVA insures that managers take decisions that do not waste capital but create value.

5. Focus on people: Every organisation parrots that “People are our most important assets” but end up doing the opposite. No wonder research done in every part of world indicates that a majority of employees are not engaged with their job, which results in insipid and lacklustre performance.

On the other hand, value creating companies develop and nurture an organisation culture where there is no fear of failure. They encourage employees to work like entrepreneurs and take decisions as if it is their company. Such organisations believe that if you treat your employees right, they in turn will ‘reciprocate’ this gesture by working extra hard to repay. They also put their best people on mining opportunities rather than on fighting problems facing them.

6. Fun Place: They are re-labeling their ‘workplace’ as ’Fun Place’. Fun places make employees happy. Contemporary research indicates that happy and joyful employees are more productive. Cutting-edge companies encourage their employees to ‘Bring Your Own Device’ (BYOD) to work, and to work from home at least once a week. These companies have foosball tables in the employee lounge. Yahoo! has an in-house massage parlour and Google engineers are encouraged to bring their dogs to work.

7. Ensuring that customers experience the brand promise: In earlier times, companies could make a claim about their brand/services and be least bothered about whether the promise was delivered or not. Because even if the promise was not delivered, not much damage was done to the company’s reputation. But in today’s digital age, this strategy is fraught with risk. Hence, value-creating companies ‘under-promise and over-deliver’ on the promise. And if they are not able to deliver on their promise, they penalise themselves.

8. Bigger Purpose: Value-creating companies have a purpose for their business, which is more than just making money or maximising shareholders’ returns. For example, Google wishes to ‘organise the world’s knowledge’ and Facebook wishes to help people of the world to get closer and socialise.

Generation Y (people born after 1990 and who have entered the workforce in a greater number) and succeeding generations get motivated in equal measure by monetary benefits as also having an opportunity to make the world a better place. Thus, organizations that have a compelling purpose are able to attract and retain Gen Y’ers.

9. Systems & process-driven and continuously act on feedback generated by the system: They are not dependent upon the genius of a single person or a few team members. In such organisations, systems and processes are extremely robust and everyone is expected to comply with it. These organisations also exhibit a bias for action based on feedback.

10. Measurement-driven and have metrics for key monitoring business: Value-creating organisations follow the adage “What cannot be measured cannot be improved”. Such companies identify key parameters that are required to be monitored for sustainable value creation, and then relentlessly measure it in real time and take real-time action. Hence, such organisations become ‘transparent’ in everything they do, which results in ‘meritocracy’ taking root within the organisation.

11. Embed technology in the organisation: Organisations like these leverage technology to deliver memorable and unforgettable experiences to their customers; to deliver targeted messages to their target audience, which reduces wastage of advertising and sales promotion; and of course, to get more employees engaged.

12. Steady and continuous growth on key metrics instead of a ‘Yo-Yo’ approach: Such organisations pursue a steady growth on key parameters and avoid a ‘Yo–Yo’ growth trajectory.

13. Clear & real-time communication: They focus on creating an excellent communication network among all stakeholders. On a ‘need to know’ basis, everybody is aware of information of concern to them in almost real time. Such organisations share both good and bad news with their employees, and in fact ‘crowdsource’ solutions from among them.

14. Investments: Value-creating companies invest non-stop in R&D, training of their people and in long-term brand building activities. These investments may not pay off in the short term, but they persist with these investments over the long term.

By embracing these maxims, value-creating companies are able to:

a. Register higher net margins
b. Command higher price premium
c. Lower advertising and sales promotion spends
d. Exhibit steady cash flow
e. Ensure higher retention of all stakeholders
f. Make stakeholders brand advocates for the company
g. Enjoy higher reputation, which can be monetised
h. Get higher repeat business