Beyond the Breakeven Point of Value Creation

Every year it’s my ritual to take off from work, join other professionals, and meet at a university for two days to share our corporate experience with undergraduate students. 

As my trademark routine, I love to engage the young group and gain insight on their future aspirations. Yet, I am saddened by the lack of student preparation for future employment opportunities.  Many of these students are graduating seniors who are not ready for the harsh realities of life (your parents won’t be able to sustain you forever). 

 Furthermore, most students are unaware of current events, how to utilize their career center, and what to do to gain the attention of prospective employers.  

Yes, I understand them! College is fun with few obligations and adult responsibilities for the average traditional student. It’s an opportunity to live like an adult without any sever consequences due to the fact that parents will continue to fund their college experiences and bail them out of most situations.

The problem is that today’s college students cannot afford to be unfocused during this economic crisis. If they are to be employed and enjoy life, college students, as well as most of us, must understand the upmost importance of creating value to our customers.

An advanced education can create value for prospective employees. According to Georgetown University’s Center on Education and the Workforce study, a college degree adds 84% to salary over a lifetime versus just a high school diploma. Individuals need to realize that like corporations they must understand their customers in order to build value for them.  

This concept isn’t easy because customers want different things. Value is defined as the net bundle of benefits the customer derives from a product or service.  Value creation focuses on an organization’s ability to convey the worth of its product or service to customers. 

Leaders must be attuned to value creation if a flow down is to take place throughout the value chain.  This is true even for new leaders. Michael Watkins, author of The First 90 Days, maintains that effective leadership seeks to add value as much as possible.

Watkins explains, “The breakeven point is the point at which new leaders have contributed as much value to their new organizations as they have consumed from it….new leaders are net consumers of value early on; as they learn and begin to take action, they begin to create value.”

John Gamble and Arthur Thompson, authors of Essentials of Strategic Management, further explored the concept of value as a strategic advantage. Businesses can create unique capabilities and valuable resources that rivals can’t easily duplicate. This includes companies launching a variety of strategies including low-cost, differentiation, or niche. The authors suggest, “Resource-based strategies may be used in tandem with any of the three strategic approaches…and are keyed to delivering customer value in ways rivals are unable to match.”

Regardless of the industry, value creations needs to be the cornerstone of any business strategy.  What’s important to the customer should be important to the businesses. College students, looking for future employment, should always keep this in mind in their job preparation.  If individuals keep the concepts of value creation in their mindset, they will be able to overcome many of the disruptive changes to come.

How does value creation relate to sustainability for today’s leaders?

© 2011 by Daryl D. Green

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33 thoughts on “Beyond the Breakeven Point of Value Creation

  1. Value creation, just by understanding the definition, allows one to correlate its meaning with sustainability. It is in fact value creation, whether creating something brand new or bringing new life to an old philosophy, that blooms into sustainability of a product, philosophy, organization, culture, or people. According to Andres Edwards (2005), “While a bounty of commodities fueled the Industrial Revolution, dwindling natural resources are calling on business to innovate and shift from a model based on providing manufactured goods to one that delivers value to customers and supports the well-being of local communities” (p. 52).

    In our modern era and gloomy economy, it is even more important for leaders in all aspects of life, whether it be religion, business, government, or communities, to realize the need for creating more value to sustain our needs and our future as a civilized people. Successful leaders will be more heavily scrutinized than any time in the past. Leaders must create value in order to become a more effective leader and sustain the areas in which they lead. It is the leaders that take these thoughts and put them into action that will lead us to a brighter future.

    Edwards, A. R. (2005). The sustainability revolution: Portrait of a paradigm shift. Gabriola, BC: New Society Publishers.

    • Chris,
      Excellent points! You did a great job…even if you are on an island by yourself. Perhaps, the class will follow.

      Chris mentioned that all sectors will need value creation for sustainability sake.

      This is for the class!!!!

      I understand the business sector.

      How does value creation work in the following areas: (a) government, (b) communities, and (c) religion?

      What has to happen?

      • Wow, this question could open up a lot of possibly touchy ideas. When I think of government and the value it creates, or could create, I think of the partisanship that is prevalent in the US government today. If you take the view of the left, you think that more social initiatives create value for the government. If you you take the view from the right, you feel that less government interference, less social initiaties, and lower taxes will create value for the people. I wonder where other’s feel the government creates value in today’s market and economy.

  2. In the post you say “Value is defined as the net bundle of benefits the customer derives from a product or service. Value creation focuses on an organization’s ability to convey the worth of its product or service to customers.” The main objective of any business is to build or create value for it’s customers, employees, and share holders. They are all intertwined, therefore, any sustainable value can not be created for one of these groups unless value is created for all of these groups. However, foe each of these groups, value is defined differently. For the consumer it’s the products and services. For the employees, it’s the motivation to provide those products and services as well as being valued by the business in the form of respect and compensation. Creating value for the investor is consistently providing high returns on their investment. All three groups are intertwined.

  3. Value creation seems to be one of the most important concepts for getting ahead in most areas. In business it is important to create value in order to attract customers to a particular product or service. It also creates competition which helps promote growth in the economy, while we’re not seeing this as much at this time. This is why creating value is sometimes hard to do. There are many others who are trying to create value for themselves and their businesses, and they have to create more value than their competition, if they want to be profitable. This is why I also agree that students need to be trying to increase their value as early as possible, because there is so much competition from every other student that are also seeking employment.

  4. Here is an interesting idea I just heard on a podcast I listen too from time to time and it made me think of this post. The subject was bartering, which is sort of a lost artform today, but it’s how a lot of people would make due when times are tough. In bartering you always need to have a value proposition. If you don’t you really have no bartering strength. You can make parallels of this within the business world. If your company can not provide value to the customers, employees, and shareholders via products of services success will be limited or non-existant. So the lesson here can apply to businesses and individuals – have a value proposition.

  5. The creation of value Is something that students should always have in mind during their collegiate years unfortunately I believe that many of them do not. The blog is true when it states that college a period when students can enjoy the life of an adult without the responsibilities. Often times I believe students view college as their last chance to do the things they want to do simply because when they get done the real world with real world responsibilities will come knocking. This mindset is somewhat twisted as college should be viewed as a preparation process for the real world. If students were constantly focused on their individual value creation I believe they would take advantage of possibilities to increase their value during college. There are plenty possibilities to increase an individual’s value whether that be through the joining of organizational groups or participating in internships. Don’t get me wrong, obtaining a college degree is a way to greatly increase ones value; however, additional value could be created by doing these things. In a time when the economy is struggling and unemployment is extremely high, employers are looking for resumes with added value above and beyond a typical college degree.

    • Hi Paul, I agree when you state: “In a time when the economy is struggling and unemployment is extremely high, employers are looking for resumes with added value above and beyond a typical college degree.” However, I believe some College students are unprepared for the future because they do not worry about it. A few of them even go to classes in their pajamas. Students need to learn how to have fun and deal with responsibilities at the same time. Students have to look forward; so they will be able to see all the opportunities the world can offer. It might not be around you but opportunities are there and early we find it is better. “I will prepare and some day my chance will come.”( Abraham Lincoln).

    • Paul, your points are very well stated, and relevant to my thoughts on value creation for college students. My perspective is a little different, and seasoned, if you will. I graduated at age 40 with my undergrad in Organizational Management. Having began my college experience in my late thirties, I found myself early on wishing that I had went to college straight after high school and not waited almost 20 years. However, my reasoning reflects exactly what you said…I would have been one of those students whom were not concerned about creating personal value. I would not have made the investment in the work to be fully prepared after graduation. After being in the workforce for nearly 20 years before starting college, I had a very good understanding of the importance of creating the most value with my education. Even now, it is all about making me more marketable, or valuable, to my employer.

  6. Considering the word sustainability for humans, I would say that is the long-term maintenance of well-being, which has environmental, economic, and social dimensions. For professionals the meaning of value creation as delivering additional value to the bottom line through new methods. Nowadays, Globalization provides us with vast range of information, it is vital to leaders create value to the company and customers. Green and Roberts (2011) states, “Knowledge Management relates to an organization’s ability to systematically capture, organize, and store information.” (p. 7). Students do not realize that College is an opportunity to grow as a human being and gain expertise to apply in their lives outside campus and/or parents supervision.

    Green, D. G., & Roberts, G. (2011). Impending danger: The federal handbook for rethinking leadership in the 21st century. Deer Park, NY: Linus Publications, Inc.

  7. Valuation of an employee to an organization should be assessed by several attributes. That is to say that an employee is more valuable if the employee is idealistically aligned with the corporation and possesses the knowledge, skills, and attributes (KSA’s) associated with the position filled, compared to someone that is merely qualified for the position. In most circumstances, an employee can be trained to accomplish most tasks however, an employee that is motivated to serve (value congruence) in their position will go above and beyond on more occasions then someone that is not (Amos). Therefore, a leader that can motivate their team/organization will have more added value to the company and therefore increase its net sustainability by increasing long term employment and job satisfaction.

    Amos, E. A., & Weathington, B. L. (2008). An Analysis of the Relation Between Employee—Organization Value Congruence and Employee Attitudes. Journal of Psychology, 142(6), 615-632. Retrieved from EBSCOhost.

  8. Value creation in the last few decades has been dominated by the effective use of technology. The ability to innovate and successfully use technology to create a more efficient business model is paramount. For leaders in today’s market, it is also imperative to build value by using technology to develop proper sustainability. Monsanto’s CEO Robert Shapiro views technology, especially information technology, as a great way to increase productivity, while also increasing sustainability. He sites that growth and environmental sustainability on the surface seem incompatible, but the proper technology may be the bridge that leads to saving the earth for future generations, while also increasing profit margins (Magretta 83).

    Magretta, J. (1997). GROWTH THROUGH GLOBAL SUSTAINABILITY. Harvard Business Review, 75(1), 78-88. Retrieved from EBSCOhost.

  9. The most successful companies are those who are able to quickly change and deploy strategies in response to shifts in the economy or market. The key is to consistently create value for the stake holders and the organization. The first step to create value within an organization is to have a clear understanding of it current strategy. This understanding provides the information needed to coordinate activates that will be required to implement a new strategy to create customer or business value within the organization.

    The next step is to control the value-enhancing activities. This is done to make sure that the installed activates are actual creating value, and if not what changes needed to be made to insure that value is actually created.

    Once the activities are proven to be effective, the next step is to compete. To do this the organization must be responsive to and react quickly to signals in the market. The use of external activities such as customer- satisfaction programs, outsourcing, divesting business units, and mergers and acquisitions are just a few ways that an organization can compete to create value.

    Finally, a company must develop an environment that promotes value creation in the organizational. This is accomplished through internal programs such as leadership development programs and employee retention initiatives. Value creation in a company is not just meeting the needs of the end customers but all those who have a stake in the organization. The culture of creating value must be woven throughout the entire organization, this in the only way that it can remain a sustainable part of the business.

    Gary, L. (2004, August). Can you create more value? Harvard Management Update, 9(8), 3-5. Retrieved from http://web.ebscohost.com.ezproxy.lmunet.edu/ehost/detail?vid=5&hid=9&sid=40bbcaef-4b47-4c1b-add8-a8f82b438207%40sessionmgr110&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=buh&AN=14016982

    • Yes, Frank, I think that you explain it all very well. Value creation is about creating value for everyone concerned not just the shareholdes. Obviously this is catching on, because the shareholders want to maximize their every investment, of course, but they realize now that to get the most out of the company that they have invested in, all stakeholders must be satisfied. This is all very good, in my opinion and I am quite happy that stakeholders have a louder voice in what a company does from their incentives for employees, to their environmental consciousness. “‘Managers are expected to address shareholder wealth, earnings growth, and return on assets, but the most successful firms understand that those measures should not be the primary targets of strategic management. Achieving attractive financial performance is the reward for having aimed at (and hit) the real target; i.e., maximizing the value created for the primary constituents of the firm.”

      Value Creation and Business Success by Paul O’Malley
      http://www.pegasuscom.com/levpoints/valuecreate.html

      • 2. KEEP 164 WORDS REPLY Yes, Frank, I think that you explain it all very well. Value creation is about creating value for everyone concerned not just the shareholdes. Obviously this is catching on, because the shareholders want to maximize their every investment, of course, but they realize now that to get the most out of the company that they have invested in, all stakeholders must be satisfied. This is all very good, in my opinion and I am quite happy that stakeholders have a louder voice in what a company does from their incentives for employees, to their environmental consciousness. “‘Managers are expected to address shareholder wealth, earnings growth, and return on assets, but the most successful firms understand that those measures should not be the primary targets of strategic management. Achieving attractive financial performance is the reward for having aimed at (and hit) the real target; i.e., maximizing the value created for the primary constituents of the firm.”

    • Hi Frank,

      Simple concept but powerful! Companies need to understand their own strategies. It sounds pretty easy. Yet, some companies miss this point.
      Doing a situational analysis (where am I) is critical for sustainable success.

      Professor Green

  10. “For the customer, it entails making products and providing services that customers find consistently useful. In today’s economy, such value creation is based typically on product and process innovation and on understanding unique customer needs with ever-increasing speed and precision. But companies can innovate and deliver outstanding service only if they tap the commitment, energy, and imagination of their employees. Value must therefore be created for those employees in order to motivate and enable them. Value for employees includes being treated respectfully and being involved in decision-making.” (O,Malley)
    Value creation relates to sustainability easily. I’m wondering why companies haven’t done this before. Well, it does cost money to make changes in manufacturing and organizations, but simply speaking, they just did not have to, and now they do. If a company is going to stay in business they are learning that it is good to hear what the consumers want. Companies know now that if they want to sell their products in the U.S. or overseas, they need to be doing things that please stakeholders all the time, not just the shareholders, because if they don’t, then stakeholders will go some place else to meet their needs.

    Reference Source:

    Value Creation and Business Success by Paul O’Malley
    http://www.pegasuscom.com/levpoints/valuecreate.html

  11. I read this post and thought of value from a consumer standpoint. I am a mom of four kids. The kids are constantly growing, so I have to purchase clothing on a regular basis. There are stores, like Wal-Mart, that have poor quality, inexpensive clothing. These clothes fade quickly and are prone to holes. Other stores are just a little more expensive, but their clothing holds up very well. I can either buy 1 shirt from Children’s Place to last a year, or two shirts from Wal-Mart. In the long run, I spend less money at Children’s Place and their product is of superior quality.
    According to Gamble and Thompson Jr. (2011), all of the various activities that a company performs internally combine to form a value chain, so-called because the underlying intent of a company’s activities is to do things that ultimately create value for buyers. I have the consumer insight to this concept. As an employee, I can help to produce a high quality, low cost item. By doing this, I would hope to gain loyal customers.

    Gamble, J., & Thompson, A. (2011). Essentials of Strategic Management. The Quest for Competitive Advantage. New York, NY: McGraw-Hill Irwin.

  12. Value creation is essential for sustainability of an organization. In the case of boat manufacturing, creating value for our customers is what keeps us in business. In our manufacturing facility, each department must create value for its internal customer and also demand value from its internal supplier. Value creation within the facility not only consists of quality, but also eliminating time that is not value-added. By eliminating non-value added time within our process, the end customer receives a better product at a better price because we can reduce the amount of labor cost we have in each unit by eliminating non value-added time. The primary system we use for this is Lean Six Sigma. We create Kaizen events and Green Belt projects to define, measure, analyze, and improve current processes, and then control to ensure we do not deviate from the improvements. This adds value to our process, which is passed on to our customer.

  13. Value creation has everything to do with sustainability for todays, tomorrow, and future leaders. Successful organizations have always been able to maximize and sustain growth through some sort of value creation. Whether it be through efficient manufacturing (ex. Henry Ford), or innovative technologies (ex. Bill Gates), companies have produce value through products that are better, faster, and cheaper. However, this concept no longer appears to be the norm in today’s market. A quick example would be Apple’s iphone, it is by no means the cheapest or fastest Smartphone but it continues to be the most popular phone on the market. Why? Because Apple has not only developed a product but have delivered it in a fashion that appeals to consumers. As Tom Gillis, of Forbes magazine states, “Great companies of tomorrow will not be defined by products that are better, faster, and cheaper, but by products that are sexier and smarter”(Gillis, 2011). For companies to compete in the coming decades they must continue to create value in new fashions and promote products that appeals to consumer wants/needs.

    Gillis, T. (2011, July 14). The end of the engineer. http://www.forbes.com/sites/tomgillis/2011/07/14/the-end-of-the-engineer/.

  14. In the midst of a fiercely competitive market, it can result easy for corporations to deviate their attention from value creation and to focus on profit generation. Luckily, research demonstrates that value creation is what generates sustainability in the market place, “Sustainability Research tries to identify the market participants that will increase their share of overall value added in a changing competitive environment, the Sustainable Companies” (SAM, 2). We can equate this to our college education. Our success as future professionals is likely to be directly proportional to the amount of value that we will bring to and generate at our workplace. It is for this reason that we ought to prepare ourselves not only to become valuable, but also to engender sustainability in the competitive market that we will soon become a part of.

    SAM. Sustainability and Value Creation. (2006). https://secure2.sam-group.com/online/…/ValueProposition_2006_Final.pd

    • Miguel,

      Interesting! I would like to comment on the education aspect. Do you feel students should pick college degrees that have more financial value (i.e. doctors, engineers, accountants, etc.) than less financial ones (.i.e. teachers, firemen, policemen, etc.)? We are talking about sustainability.

      Professor Green

  15. 2. KEEP 200 WORDS INITIAL “It entails making products and providing services that customers find consistently useful. In today’s economy, such value creation is based typically on product and process innovation and on understanding unique customer needs with ever-increasing speed and precision. Companies can innovate and deliver outstanding service only if they tap the commitment, energy, and imagination of their employees. Value must be created for those employees in order to motivate and enable them. Value for employees includes being treated respectfully and being involved in decision-making.” (O,Malley)
    Value creation relates to sustainability easily. I’m wondering why companies haven’t done this before. Well, it does cost money to make changes in manufacturing and organizations, but simply speaking, they just did not have to, and now they do. If a company is going to stay in business they are learning that it’s good to hear what the consumers want. Companies know now that if they want to sell their products in the U.S. or overseas, they need to be doing things that please stakeholders all the time, not just the shareholders, because if they don’t, then stakeholders will go someplace else to meet their needs.
    Reference Source:
    Value Creation and Business Success by Paul O’Malley
    http://www.pegasuscom.com/levpoints/valuecreate.html

  16. KEEP 200 WORDS INITIAL “It entails making products and providing services that customers find consistently useful. In today’s economy, such value creation is based typically on product and process innovation and on understanding unique customer needs with ever-increasing speed and precision. Companies can innovate and deliver outstanding service only if they tap the commitment, energy, and imagination of their employees. Value must be created for those employees in order to motivate and enable them. Value for employees includes being treated respectfully and being involved in decision-making.” (O,Malley)
    Value creation relates to sustainability easily. I’m wondering why companies haven’t done this before. Well, it does cost money to make changes in manufacturing and organizations, but simply speaking, they just did not have to, and now they do. If a company is going to stay in business they are learning that it’s good to hear what the consumers want. Companies know now that if they want to sell their products in the U.S. or overseas, they need to be doing things that please stakeholders all the time, not just the shareholders, because if they don’t, then stakeholders will go someplace else to meet their needs.
    Reference Source:
    Value Creation and Business Success by Paul O’Malley
    http://www.pegasuscom.com/levpoints/valuecreate.html

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