The Value Creation Shift

 

Everyone knows I love sharing information. I learned about a great website called Elance.com for freelancers and entrepreneurs. The website allows individuals and organizations to bid out work for the best price. Initially, I was amazed at the different people bidding from across the country.

Conventional wisdom would say that a guy bidding for work in India at $5 per hour versus a guy in New York at $60 per hour would be a no brainer. However, I have purchased services from Elance.com where the price was not the prime consideration.  I looked at the individual’s experience and identified what it was worth for me to get it done.  In a nutshell, I was aiming for the most value. Likewise, organizations that want to compete must understand value creation in relationship to globalization.

Business cannot hide from the impacts of globalization.  According to Dr. James Canton’s The Extreme Future: The Top Trends that will Shape the World in the Next 20 Years, there will be a global war for Smart Talent. In fact, it will be the key driver for competitive advantage. As the world will witness, the most educated, skilled, and experienced employees will be in high demand. 

 Global competition and the shortage of workers have made diversity a center-point for most organizations. Globalization has forced many organizations to rethink their approaches. Friedman (2008) noted the progression of globalization. Globalization 1.0 was driven by the dynamic force of global integration; it was about countries globalizing.

Globalization 2.0 (roughly 1800 to 2000) was driven by global integration but with an emphasis on multinational companies; it was about companies globalizing.  In Globalization 3.0, the force is driven by the power of individuals to collaborate and compete globally.  In fact, Globalization 1 and 2 were primarily driven by European and American individuals and businesses. Globalization 3.0 will be driven by more diverse constituents. Therefore, understanding how to create value across the global will be vital for sustaining business success.

Twenty-first century organizations can no longer implement value creation in a vacuum. Value creation can be defined as an organization’s ability to convey worth of its product or service to customers. Therefore, it goes to value, which focuses on the relationship between the customer’s expectations of a product/service quality to the actual amount paid for it. 

Many organizations fail in these global markets due to a lack of understanding their customers as well as their own organizations.  Dr. Lynda Falkenstein, niche market expert, explains, “Understanding your customer’s perceptions of the world is an absolute must for one major reason; that is, no one buys something just because you want to sell it.”

C.K. Prahalad and Vemkatram Ramaswamy, authors of The Future of Competition, further argue that there is an arrogant management structure in place that cares little for the opinion of others.  However, organizations that deal with postmodern workers must foster a different corporate culture. In fact, Prahalad and Ramaswamy reason that 21st century organizations must change their value creation system. They noted the new system as an individual-centered co-creation of value between consumers and organizations. Few executives take the time to explain their values.

Sustaining effective organizations will require a focus on value creation if they hope to be successful in the global market. However, this appears to be a critical weakness in modern organizations. Many organizations exist with value misalignment. Values are the core beliefs of an individual. Different people have different values. Henry Mencken, author of Prejudices, explained, “The difference between a moral man and a man of honor is that the latter regrets a discreditable act, even when it has worked and he has not been caught.”

Global leadership expert Timothy Stagich maintains that the basic values for a high collaborative organization include mutual respect, appreciation of diverse contributions, reciprocal benefit, and a shared understanding of the underlining corporate values. Many leaders forget about the importance of values in an organization. Few institutions take responsibility for value alignment. That reality will hurt them as they fight to survive in Globalization 3.0 and later.

How do organizations adapt to the global market and create value at the same time?

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34 thoughts on “The Value Creation Shift

  1. It is extremely hard for modern organizations to compete with each other and stay in the game nowadays. Globalization and high competition level forced managers to evaluate the way they run companies and take a closer look at their values. Globalization 2.0 was represented by European and US companies and organizations, when Globalization 3.0 is more diverse and is represented by a high number of countries that entered this market in the beginning of 21st century. We now can observe countries that were considered “Third world countries” not long ago, competing on a high level with US and European service providers. Good example would be calling centers located outside of US: instead of paying US minimum wage to US workers, companies sign contracts with centers located outside of US to save on expenses associated with labor cost. Value is the crucial factor in Globalization 3.0, companies that misinterpreting value will most likely to lose the fight to survive on today’s market.

  2. Dr. Green, do you feel that with future of globalization that at some point there will be a global currency and with a global currency are global rules and regulations. And with new rules and regulations there will be a global minimum wage of some sort that could affect the global market for the good or bad? And with this global minimum wage is a way for countries to keep there jobs local. Sorry it is a little off subject, but I am just curious of what you think! Thanks.

    • Griffin, that is an interesting thought. Last summer, our family visited the Grand Cayman for vacation. The dollar was extremely weak. I felt it personally.

      With the continual decline of the dollar and our debt, I do that it is feasible that we may move to a global currency. Perhaps, I have been watching too many “Left Behind” movies.

      Great question!

  3. Wahoo for the gaining USD$! Just last week I received a revised quote from a company on a job that was originally quoted on back in October ’09. We realized a 13% savings simply due to the difference in exchange rate from October ’09 to March ’10 on the falling Euro.

    I do not see us ever going to a global currency. There are too many country leaders that want to set themselves apart from the rest of the world. The last thing they want to be known as is the leader that played “follow the leader” to another country. Pride is the winning factor here, especially when it comes to money. NATO is a rare organization in that it successfully creates an intergovernmental military alliance. Don’t expect that alliance when it comes to finances.

  4. I would like to use a localized example. Let’s take a brief look at our sports industry. We have teams that never really compete for a title and those who consistently compete at high levels. There are teams that pay astronomical amounts of money to players in order to achieve better results on the playing field or courts. This will also result in more ticket sales and increased product sells for the team or individual. If a team pays a high salary to a player who is not able to produce or if the team does not produce it fails altogether. The team willing to take the risk of trying to get a competitive balance of fair salaries and good teamwork could be a better team than that of high salaries. On the other hand, a team may look at the value of paying a player the highest salary in recorded history if it results in a championship which provides additional incentives for the team and the player.

  5. I agree with what Ken Favaro says must be done in order for an organization to compete in the global environment and simultaneously create value. Ken Favaro, CEO and managing partner for Marakon Associates, Inc. of New York and London, states that an organization can compete in the global market and create value at the same time by putting value creation first, not growth or size. There are three main reasons for this, First, value creation tells you where, how and why to grow. By understanding where, how and why value is created within your company and your markets is the best, most objective way to identify which of your activities and assets are distinctive enough to provide a platform for sustainable and profitable growth. Second, value creation gives you the capital and talent to grow. Successful value creators never suffer from a capital (e.g. cash/human/or other asset) shortage. They can either generate sufficient capital internally to meet their investment needs, or attract the capital they need from the global markets, which never stop looking for profitable investment opportunities. Third, Value creation increases your capacity to grow. If you put value creation first in the right way, your managers will know where and how to grow; they will deploy capital better than your competitors; and they will develop more talent than your competition. This will give you an enormous advantage in building your company’s ability to achieve profitable and long-lasting growth.

    Reference: “Put Value Creation First”, Ken Favaro, Marakon Home Commentary, 1998.

    • Great points Lewsi, I could’nt agree more. Our values should guide us not external forces over which we have no control. Furthermore, if you have to compromise your values to gain a marketshae, it will cost you ten-fold in the future.

  6. Solid institutional values must be in place before a company can expand and succeed on the global stage. Regardless of where an organization seeks to expand their focus should remain on universal values that are upheld in all cultures (i.e. quality outputs, honesty, trust, etc.). In essence your values are the foundation on which the institution is built that will ultimately enable it to grow and expand in diverse markets. The challenge for leaders will be there ability to keep themselves and subordinates focused on these values as the company evolves. To not be defined by different marketplaces but rather the consistent ideas and business practices that all markets can relate and understand.
    A universal value system is critical to a positive organizational structure. These “instrumental values” that serve as a guide for how goals are achieved. Providing the framework for success by focusing on the values that bind us together rather than those that divide.

    Reference:
    Jones, G & George J. (2008). Contemporary Management (6th Edition).
    New York, NY: McGrawhill/Irwin.

    • In all of our daily perchases the first thought that comes to mind whether we are aware of it or not is,”what am I getting for my dollars?” We want value in everything we get. Unfortunatly because we do not want to pay the price that goes along with high quality, it gets compromised and outsourced to foriegn countries. Talented individuals are becoming fewer and fewer because the generations that upheld quality standards are passing on. Our level of value based on the service we receive is lowered.

  7. Companies today must redefine their product or service and position it as value versus innovation. Innovation is no longer the primary key when thinking of value in a global market. Businesses today must bring their innovation skills to market themselves globally. They must position their strengths as a company with functional benefits to emotional benefits and from product oriented to customer oriented. Jay Gronlund of Global Partners, Inc. states that to market globally, companies must maximize the perceived value of their brand in order to counter the growth of lower priced products and respond more proactively to the needs of the local customers. To establish value early in the market place with enhance the customer loyalty in the long run.

    Reference: http://globalpartnersinc.com/Thought-Leadership/bid/23966/How-to-Build-Value-in-Emerging-Markets

  8. In order to be successful in the global market, organizations must be able to adapt to the individual markets that exist and make up the global economy. Cultures and values are just as important as the other aspects that make up a successful organization. I agree with Kenny that there is basically a universal set of values (quality, honesty, trust) however, every global region will measure these values differently. The challenge for managers will be to identify what each regional marketplace expects in these values, then achieve those expectations and continually monitor them. Organizations that are able dominate in regional markets and bring these together under the larger entity will be successful in the global market.

    • In order for managers to obtain the best insight into regional market values, they are going to have to hire employees native to that region. I recently watched a special on TV documenting Walmart’s entrance into the Chinese market. The president of Walmart for the asian region, who is an american, would consistently try to visit families at their homes to obtain info for what they would like to see sold and added to stores. For example, one suggested adding a bike rack outside, since that is the primary mode of transportation there.

  9. Globalization increases not just communication and good things, but also some problems as recession and crises. I believe the hardest challenge for global companies is to standardize all the procedures for all their operation worldwide. For financial procedures it’s a really difficult question. The recession and problems at the American market influences a lot of other markets due to the size of the American economy. The dollar currency weakness phenomenon it’s not a surprise. With the problems at American economy, other countries have gaining space and their money getting stronger. It happens not just because of the recession but with the development of some other areas. The globalization also facilitates that. Make it clear for our eyes. Some companies are not making their contracts in dollars anymore, because of the currency. Euro and the British sterling or the Brazilian Real can be more interesting, indeed they also had a decrease in value but not as much as the dollar with the last recession. Times ago, the dollar was the standard money for international transactions. Today the globalization and the bank systems permit money transactions in any currency easily. The international transactions are something that must be review. Why a commercial transaction between China and Russia need to be made in dollars? I think the usage of the dollar as a standard facilitates. However with the globalization, companies can customize their financial transactions as they decide what is better, to work with the currency as positive factor.
    If Monsanto sells a soy bean demand, produced in Brazilian Reais, in Euros for the German market. It will gain at least 80% in currency, if the money goes to where the product was produced. Even if the money goes to Monsanto headquarters in Missouri, the amount earned with the currency can be 30%.

  10. In order to distinguish your company and yourself from the global competition customers must see value. So companies must no only focus on what customers need but also how to create value for them. Companies need to build long-term relationships with customers by offering value that they can only do. This is not a one-time process but should be a constant goal within a company. The goal should be to always provide better service, a better product, all at a better price. Companies need to compare themselves to their competitors and also to themselves. Once its customers and its employees see the company as having high value, talent will be drawn to it. As they say the rich get richer.

  11. With globalization the market segment that a company sets out to capture is greatley increased. it is no longer good enough for the company to have simply the best product, they must now be valuable to there customers. customer satisfaction can be affected by everything from the pleasant sales person to the extended warranty to the follow up call to check how the customer likes the product. customers no longer want to be sold to they want to feel like its a partnership and the company is helping them fulfill a need. organizations should also attempt to retain the best employees at every position in the organization. organization can no longer look like the huge conglomerate with the rich guys at the top, but look like a organization that is valuable to its customers and increase brand loyalty.

  12. Global competition is challenging for all organizations. Furthermore, understanding how to successfully plan, organize, lead, and control an organization in a global setting is even more challenging.

    First an organization must identify a need for a specific service. Secondly, an organization must identify and define their core competencies. After the war, the Japanese decided they were going to build a better car than anyone in the world. The Japanese proceeded to develop and manufacture some of the most dependable cars at a very competitive price. They identified a need and proceeded to produce a product that was affordable and dependable. Recent recalls of cars demonstrates how the Japanese car industry did not remain focused on their core competencies which had made them a global leader. They now find themselves reacting to a crisis which may cost them their global leadership. Consumers demand competitive prices and quality products.

      • I feel it is possible for a market leader to remain on the top while fighting a global competition. The company must stay true to their core competencies that Meghan mentioned above, but be willing to adapt their product, marketing, and service for what the market is calling. The company obviously has a strong and effective set of core competencies, which is the reason they are the market leader. There will always be threats from competitors underpricing or whatever the case may be, so the company may need to adjust a plan, as opposed to a core competency. Just like in the case with Toyota, it seems as though the company was trying to over produce instead of staying true to their core competency of manufacturing quality, price effective automobiles. Now, Toyota has launched a new series of ads eluding to a long standing tradition of quality, and that customers should stand by them even through this “small” bump in their longstanding history. It seems like Toyota has taken a look at the reasons they are one of the most powerful automakers in the world, and are focusing on that with their new marketing plan. I am not saying Toyota may not lose market share from this. I am saying if they had stayed true to their core values, this probably would have never happened.

  13. A company can position itself to meet the needs of changing consumer demand by executing many different strategies. From a production standpoint a company could implement a JIT strategy and limit the number of resources it has on hand to produce a particular item, therefore reducing inventory and associated cost. A service company could have a fluid organization which would employee highly educated, highly compentent, professional workers with a comprehensive knowledge of their specific industry. A fluid organization would empower the SME to make critical business decisions themselves providing better resolve and quicker solutions to problems. By employing this level of professional clients will be able to make proprietary suggestions to services and could possibly result in higher activity.

  14. GGlobalization is a hot topic with today’s businesses. Communication is easier than ever to communicate and conduct business with people all over the globe. One way to get in on this growing trend and create value for your business is to promote diversity within the organization. For way to long, businesses in America have done things their way. For the most part, white males filled higher positions within an organization. Now, businesses are not only bringing in different ethnicities and sexes, they are also bringing in different cultures and religions. This in part helps the company reach a broader base of people and will allow them to get into overseas markets by appealing to people in those cultures. Also, organizations can build better relations with people from various cultures by honoring their customs and holidays. Individuals who celebrate Ramadan could be allowed that day off with pay in substitution for Christmas (they would be of on Christmas since the organization would be closed, but they would not receive pay on that day).

    http://www.usatoday.com/money/jobcenter/workplace/diversity/2002-11-12-communication_x.htm

  15. Companies that are successful locally find difficulties to succeed in other countries market that is culturally unfamiliar with. Those companies need to conduct researches and develop their product or service according to the needs of region consumers that they are doing business in and this is called “Planning products and services for culturally divergent markets”. Example for that;
    McDonalds can’t be successful in the Middle East without choosing (Halal) beef, because most consumers believe that eating none Halal beef is against their religion

    The capability to develop new global products is growing significance for firms.
    Successful companies actively cultivate new ideas, put those ideas to work quickly and efficiently, and harvest the business value benefits of successful innovations.

    Creating and managing teams of culturally diverse employees help you and your company to have better communication and understanding to conduct business in different regions, especially if those employees were borne there.

    References:

    http://globe.miis.edu/adaptingbusinessfunctions.html

  16. I think value creation is what a company needs to establish first before deciding to go globally, this will help the company understand the markets they want to venture into. Going globally is very tricky and companies need to really understand not only the universal rules of the business but also the cultures of other countries as this might determine the success or failure of the business globally. Some companies assume that what works in their home countries will work everywhere, this is definitely not true and so it’s a very important thing to understand the global market before taking any actions. Any company that does not prepare and adapt for globalization will face great challenges as the marketplace has gone global.

  17. Implementing a low-cost differentiation strategy is the easiest way to gain a competitive advantage, especially during an economic recession. Larger corporations such as McDonalds and Wal-Mart fared well during in the past two years. However, with communication and internet access being increasingly abundant, consumers are more knowledgeable about products and are able to quickly compare values. For example, http://www.consumersearch.com and http://www.epinions.com

    This requires companies to combine differentiation strategies together in order to maintain their competitive advantage. Therefore a low-cost strategy is not sufficient. The total value to a consumer is more important, now more than ever, even during an economic recession. For example, Target was more successful than Wal-Mart in selling higher end fashion products. According to MSN Money, “The discount retailer [Wal-Mart] has sustained another setback in its bid to sell higher-end women’s apparel. While Target “clothing sales spurred a 10.3% increase in same store sales” in a close period according to a Fox twin cities news reporting agency. The reason is Target added value to consumers by focusing on quality by hiring internal designers while keeping an eye on Wal-Mart’s prices to be able to compete. This would be an example of combining more than one differentiation strategy to add as much overall value to the consumer.

    http://articles.moneycentral.msn.com/Investing/Extra/WalMartsFashionFauxPas.aspx
    http://www.myfoxtwincities.com/dpp/news/business/target-corp-sales-march-clothing-apr-8-2010

  18. Value Creation Shift important

    Globalization has shaped world commerce and allows emerging economies the chance to compete on the global stage. India has found a way to offer cheap labor to American companies in need of telemarketing. With businesses making cuts to operation costs, India has capitalized on this situation and made it impossible for American companies to maintain the same level of quality at the same cost. At the same time, they have discovered a way to enrich the Indian economy by training valued employees. It may be easy to train the average person how to do a repetitious job, however, the value of a strong management team that is capable of reasoning and making sound business decisions cannot be replaced. Management is key in today’s world of business. The right managers can turn around a struggling business as well as the wrong management team can bring a company to the brink of disaster. People have irreplaceable value that gives businesses a competitive advantage. An article from Ubiquity states, “Their success is testimony to the fact that geography is no longer destiny; a company does not have to be headquartered in the “capital” of its industry to succeed.” Staying afloat in the global market is important for organizations; however, creating value simultaneously is priceless.

    Doz, Y, Santos, J. 7 Williamson, P. 2001. Ubiquity. From Global to Metanational: How Companies Win in the Knowledge Economy. Retrieved from http://www.acm.org/ubiquity/book/y_doz_1.html.

  19. Organizations can adapt to the global market and create value by expanding their thinking and planning processes to encompass a greater range of customers. Depending on the size, the organization may need to outsource operations, duplicate itself, or employ information technology capabilities in order to increase efficiency, serve a greater number of customers, and increase the level of services offered to customers in numerous geographic areas.

  20. Value Creation Shift important

    Globalization has shaped world commerce and allows emerging economies the chance to compete on the global stage. India has found a way to offer cheap labor to American companies in need of telemarketing. With businesses making cuts to operation costs, India has capitalized on this situation and made it impossible for American companies to maintain the same level of quality at the same cost. At the same time, they have discovered a way to enrich the Indian economy by training valued employees. It may be easy to train the average person how to do a repetitious job, however, the value of a strong management team that is capable of reasoning and making sound business decisions cannot be replaced. Management is key in today’s world of business. The right managers can turn around a struggling business as well as the wrong management team can bring a company to the brink of disaster. People have irreplaceable value that gives businesses a competitive advantage. An article from Ubiquity states, “Their success is testimony to the fact that geography is no longer destiny; a company does not have to be headquartered in the “capital” of its industry to succeed.” Staying afloat in the global market is important for organizations; however, creating value simultaneously is priceless.

    Doz, Y, Santos, J. 7 Williamson, P. 2001. Ubiquity. From Global to Metanational: How Companies Win in the Knowledge Economy. Retrieved from http://www.acm.org/ubiquity/book/y_doz_1.html.

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