Systemic value creation in business

A reminder to all of us: every company's basic mission is to create value. Traditionally, value has been created for owners. However, creating value solely for owners is short-sighted and no longer sufficient in the digital age. Nowadays, value is created for customers, business, owners, employees, and even society. Value is many times delivered with partners and the whole value creation can happen in many levels in the company.

What is value creation all about?

The source of money is always the customer, regardless of the type of business. Many companies and business leaders forget that value creation should benefit not only the business and owners, but also the customer. In my previous blog post, I wrote that business leaders focus on the end result i.e., money, instead of the whole value creation and forget that a business has no value unless it can first create value for the customer.

Value creation is all about exchanging value. There is an interaction between two actors where value is exchanged, and both parties benefit from each other. The customer has a problem/need and the company has a solution. If the customer feels that they are getting some benefit and value from the solution offered by the company, an exchange is made. The customer pays for the solution, and the company receives compensation for making the solution, i.e., business value is created through the value provided to the customer.

When money moves from the customer to the company, it also creates value for employees and society. Employees contribute their work to making solutions and receive compensation in the form of wages. Companies receive infrastructure from society and pay taxes on their profits, employ workers, and thus may even prevent social and economic problems of individuals. This way, money circulates from the customer to the company, then to employees, and eventually to society in the form of taxes. If a company cannot create value for the customer, it will not have the prerequisites to continue its business in the long run, pay employees' salaries, or pay taxes to society. In order to keep things running smoothly in today's society and in business, it is extremely important to understand and lead value creation in companies.

Problems with value creation in large companies

Depending on the size of the company, value can be created at different levels: product, business area, and company level.

Value creation at the product level

Startups usually have a limited offering, i.e., they usually have one product/service that solves a specific limited problem in the customer's life. In large companies, value creation is much more complex, and it should be seen systemic. This rarely happens, however, as in large companies, each product team operates independently, offering its own limited solution to the customer, and no one considers value creation as a whole. Large companies are still often organized vertically by function, and goal setting is also vertical, measuring their own area. The result is piecemeal solutions, instead of comprehensive value creation.

Business area or corporate level value creation

In large companies, there can be several different business areas, or even business areas that operate entirely in different industries. These units usually have a product portfolio that is managed within their own area. However, customer needs and the customer journey often go beyond organizational boundaries, so customers have needs in several different areas. Since different business areas do not plan their offerings together, the problem becomes holistic value creation. Sometimes, the offerings are even completely overlapping, value-added services or packaging have not been considered at the corporate level, or how to utilize the entire offering to present it to the customer. In my experience, companies completely lack a portfolio of value creation at the corporate level. Sometimes it can also be a problem within a single business area when the right hand doesn't know what the left is doing, and overlapping things are done within the same unit, and they compete with each other.

What does systemic value creation enable?

At the strategic level of companies, it should already be considered who our customers are and what problems/needs we are trying to solve for them. Value creation should thus be defined from the perspective of the customer, not from within the organization. Once it is known who we serve and with what offering, it is time to organize around it. Each team is responsible for their area of value creation, but at the same time understands how their work fits into the big picture and how value is created at the business unit level as well as throughout the organization, i.e. at the company level. Note! Nowadays, value is many times delivered with partners. It is not enough to just think about your partner, but you must understand also about the lives of the customers of your partners.

If value creation were seen systematically and customer-centric, it would enable better focus on doing things that actually matter and provide business value. Redundant, duplicated work would be eliminated, and everyone would understand their place in creating and managing the value creation portfolio, i.e. costs would also be saved when unnecessary work is eliminated. Customer problems and needs could also be addressed more comprehensively, leading to increased sales, for example through cross-selling. In order for business to be continuous, it must also be profitable. The prerequisite for profitable and sustainable business is value created for the customer over the long term. Through this, the business also wins and gains value for itself.

Final words

If business leaders are so interested in money, why not optimize their own actions so that the value created for the business is also maximized? Why are we still like a headless flock of chickens, everyone running in different directions and making their own disconnected decisions and solutions? Why not start from the source of money, i.e. the customer, and optimize and organize around the customer experience to ensure the maximization of business value? Why not lead value creation as a whole?