Organisational value creation –– A systemic perspective

The veterans would argue for doing business in a particular way because it used to work, thus they advocate for the tried, tested and proven ways. In the end, the two camps would agree to go on a strategic planning get-away for the leadership to sit around a table and create new ideas.
The primary question at the strategic planning session is to define or redefine what the business is all about, the purpose or raison d’être, as the French would put it.

 

Answering this question is in no way an academic exercise, rather it is a business survival imperative as the purpose is the foundation on which feasible strategies, tactics and game plans can be construed.

The most successful organisations understand that the purpose of their existence is to create value for customers, for employees and for investors; in that order. The interests of these three key stakeholders are inextricably linked.

This means that no organisation can sustainably create value for one group of these stakeholders whilst ignoring the other groups. Take note that the operative word is sustainable, as such, a single stakeholder value creation, if forced through, would not last a summer.

For an organisation’s business to be sustainable, the primary focus should be on creating value for customers, subordinating the value creation for employees and investors to this goal; but not removed from it.

Global sports attire company Nike states the following as their mission statement: “To bring inspiration and innovation to every athlete in the world”. In an asterisked footnote, Nike then explains: “If you have a body, you are an athlete.” This shows that Nike aspires to inspire everyone who has a body, fully able or challenged. Anyone who has a body has life –– so Nike aspire to create value for all living beings whom they view as their customers.

Have you checked your organisation’s mission statement lately? Is the primary objective in the mission statement that of creating customer value?

What is this phenomenon called customer value creation, some may wonder? In a few words, customer value creation entails the provision of products and services that your customers find consistently valuable. The value of your business’ products and services is judged in comparison with the offerings of your direct and indirect competition.

The only way to outpace your competition is through innovation, in other words, doing business more efficiently than they do. In the present day marketplace, customer value creation is based on understanding unique customer needs and meeting these through process and product innovation.
The need for innovation is the beginning of the systemic link between our identified groups of the three stakeholders.

Customer value creation can only be achieved through excellent service, which depends on the commitment and imagination of the right employees with the right levels of energy. Employee value creation entails giving employees a chance of involvement in decision-making processes, treating employees with respect and dignity, giving employees full total rewards –– cash remuneration, work-life balance, development opportunities and recognition of performance.

We will discuss the total rewards concept in detail in later instalments. The link between customer and employee value creation can be illustrated in a diagramatic format that shows the looping relationship of the interrelated variables which are customer value creation, business sustainability and profitability, employee value creation and innovation.

An increase in any of the variables will result in an increase in the next variable in the clockwise direction. Organisations thrive on sustainability and profitability.

Profitability and sustainability increase on the increase of customer value creation. As noted already, customer value creation increases when process and product innovation increases. There is little innovation, if any, that will enhance the business and make it sustainable if there is not a committed workforce that is spurred on by the positive drive of increased employee value creation. An organisation can only create employee value when it can afford the financial outlay required.

Such financial muscle is only attainable through sustainable profitability. Profitability and sustainability increase on the increase of customer value creation… Oops, we are back again where we started in the sentence in bold above! This self-repeating cycle points to the fact that the value creation processes of the various stakeholders are inextricably linked. In the illustration above, the interrelating link explored covers customer and employee value creation only. At this point we are limiting the discussion to the systemic causal loop analysis of these two valuables, limiting the complexity; we will eat that elephant a piece at a time. In later instalments, we will discuss the interrelated looping of the three value creation functions.

What is the blockage in the value creation processes in your organisation? Is it losing employees, losing customers, or that your organisation’s sustainability is at stake due to depressed profitability, or that you may already be on the slippery slope of running at a loss? In our economy where unemployment is high, your employees may still be hanging in there for dear life, cursing under their breath and puffing without any meaningful employee value creation to partake in.

If profitability and sustainability are the issue, your organisation has to work on increasing customer value creation. Successful attraction and retention of customers will turn an organisation’s fortunes for the better. An organisation should ideally commence its cycle of analysis at the customer value creation point. The analysis should focus on trying to understand what it is that will differentiate an organisation’s offering to the customer as opposed to its competitors.

 

This will entail pushing up innovation capacity. However, innovation comes from a committed workforce. Nevertheless, remember that even if you attach a ponytail to a donkey it will never be a horse, so do not even think of taking it to a racecourse. Similarly, if an organisation does not have the right talent, its employee value creation will go down a black hole, thus causing a leakage in your system.

If the primary purpose of an organisation that seeks to be sustainable is customer value creation, it then follows that the very mission of the organisation should be defined in terms of customer value adding activities. 

Does your mission statement state the principal objective of creating customer value? If you are worried about your mission statement, you may need to rethink what the purpose of your organisation is all about.

The mission statement is the rallying point for your organisation. Sun Tzu, the mysterious warrior and philosopher spoke of “The Moral Law,” as one of the Five Constants of warfare. He stated: “The Moral Law [mission statement] causes the people to be in complete accord with their ruler [organisation], so that they will follow him [the organisation] regardless of their lives, undismayed by any danger.” The Moral Law is like the mission statement, which will be the unifying cause that unites an organisation. If we revisit the quote of The Moral Law above, this time deleting the underlined words, it reads: “The mission statement causes the people to be in complete accord with their organisation, so that they will follow the organisation regardless of their lives, undismayed by any danger”.

Dear Business Leaders,

Running a business is warfare, as Sun Tzu says, “Assess the advantages in taking advice, then structure your forces accordingly to supplement extraordinary tactics. Forces are to be structured strategically, based on what is advantageous”.

 

Hlabati specialises in Systems Thinking and Reward Management. You can contact him on samhlabati@gmail.com

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