Value Creation

3563 Words Mar 23rd, 2012 15 Pages
Value Creation and Business Success by Paul O 'Malley

from The Systems Thinker, Vol. 9, No. 2

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The most successful organizations understand that the purpose of any business is to create value for customers, employees, and investors, and that the interests of these three groups are inextricably
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One reason may be that their training and education lead them to define their organizations ' interests too narrowly. This narrow view is powerfully reinforced by financial accounting systems that were well adapted to the industrial economy, but are inadequate in the information economy. The accounting and finance conventions of the industrial age are good at valuing tangible assets, but they largely ignore the value of harder-to-quantify assets like employee satisfaction, learning, R&D effectiveness, customer loyalty, etc. In the information age, those intangible assets are far more important than the bricks and mortar that traditional accounting systems were designed to measure. If management defines the organization 's self-interest (and consequently its goals) too narrowly—for example, to maximize this year 's or this quarter 's reported earnings—it will view that interest as being at odds with the interests of customers and employees. Given that perspective, in the short term every dollar spent on employee training is a dollar of lost profit. Every additional dollar squeezed out of a customer, even if it comes at the cost of poor service or price gouging, improves this quarter 's results.

This approach is based on "win/lose" or "zero-sum" thinking: The underlying assumption is that there is a fixed pie of value to be divided up among
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