Friday, 26 June 2015

Definition and Meaning of Value Creation

Value creation is the primary objective of any business entity. It is obvious that most successful organisations understand that the purpose of any business is to create value for its customers, employees, investors as well as its shareholders. Because the customers, employees and investors are linked up together, no sustainable value can be created for one unless for all of them. The first point of focus should be that of creating the value for the customer, remember, customers are always right. Value creation for customers will help in selling the services provided. This can only be achieved when the right employees are employed, developed and rewarded as well as when investors keep receiving consistent attractive returns. However, from a financial point of view, value is said to be created when a business earns revenue which surpasses expenses.
Value creation simply put occurs when there is an additional value being added to the bottom line of a business thanks to the creation and use of new methods to maximize the shareholders wealth. Value creation from the customer point of view entails the provision of services that customers will find consistently useful. In today's business world, such value creation is typically based on constant process innovation as well as constantly understanding the customers needs with the ever changing business world. This can be achieved thanks to the commitment, energy and imagination of the employees. In order for these employees to work effectively and committed, they need to be motivated and the best way of doing this is by creating values for the employees as well.
Value creation for employees will include employees to be treated respectively, the provision of continuous training and development as well as the employees participating in decision making processes. Bear this in mind that this only happens when managers decide to define their company's interests broadly enough to include the interest of everybody-from the employees to the customers.
Contrary to the above, things go sour when managers decide not to focus on any value creation strategy but rather make decisions that will in the long run decrease the value of their businesses. This always happens when the managers decide to conceive the self-interest conception. This is because sometimes they decide to ignore employees' satisfaction, learning, research and development effectiveness. Consequently, when these are ignored, the outcomes are horrible because it will definitely result to low employees morals and performances with their associated effects.

 Value Creation Strategies

There are different methods leading to value creation in companies and financial institutions. The real value creation - long term growth and profitability - occur when financial institutions decide to develop continuous stream of services that offer unique benefits to their customers. This implies, in order for an institution to maintain an industry leadership position, the institution must establish a sustainable process of value creation. The ability of developing resources and effectively matching them with opportunities is the brain behind any well established institution's value to customers, and the basis of its valuation by shareholders. Note that this value creation process in turn is built on the capabilities and motivation of the institution's employees. No doubt some experts recommend that value creation should be treated as a priority for all employees and institutions decisions. This is because if value creation is put first, managers will know where and how to grow. Also, understanding what creates value will help managers to stay focused. For example, if a customer's value is that of consistent quality and timely delivery then what will be expected of from the manager will be skills, systems and processes that will produce and deliver quality services in time.
In today's business world where nearly everybody is faced with choices, the main challenge for all businesses is to develop and sustain a uniquely and attractive proposition for both customers as well as employees. All the same, the most difficult challenge is doing this in such a way that will result in value creation. This therefore implies managers will continuously be on their feet because they will need to be constantly asking themselves what is to be done that will be different from their competitors and how that will result to value creation? By putting this in place therefore implies you making for yourselves better managers and creating an environment that attracts only people who adhere to very high business performance standards. This more often than not, results with you having more managerial talents than your competitors thereby enabling you to achieve higher levels of
profitable as well as sustainable growth. Lloyds TSB is an example of a financial institution that has made value creation drive to their growth for over decade because at one point in time, they decided to put value creation first.

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