What Is Value Creation? And How to Create Value (With Tips)

By Indeed Editorial Team

Published 5 May 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Value creation can be a key factor in the success of a business and a challenging job for business leaders and senior managers. Value can be financial or non-financial. Learning what value creation is and how to create value can help you ensure the long-term success of a company and boost your career development as a business leader. In this article, we discuss what it means to create value, explain why it's important for business success and describe how you can create value for an organisation.

What is value creation?

Value creation is the process of providing something in return for something more valuable to a stakeholder. This can be a product or a service and the stakeholders may include business owners and managers, investors, customers, employees and contractors. As different stakeholders may have different values, a company may incorporate a range of value-adding initiatives.

Values can be of different types, such as financial or non-financial. Financial value focuses on the profitability of a product or service that a company offers. In this case, the stakeholders may be the company's directors and shareholders. Non-financial value may include the personal aspirations of investors for the company. It can also include the societal expectations of a company's social responsibility ethos. Examples include offering an environmentally sustainable product and adopting inclusive talent acquisition and management policies.

Why is creating value important for business success?

Here are some reasons explaining why creating value in business is important:

  • helps a company's managers identify its values and structure the company's business model to meet the values of its stakeholders

  • promotes business growth by enhancing focus on the company's core values and prioritising its resources around them

  • helps a company maintain long-term relationships with its stakeholders, such as securing long-term investment and building customer loyalty

  • enhances the company's reputation within its industry

It's also important to create value in a balanced manner among company stakeholders. For example, a business owner who offers a product at a price below its cost of production may meet its customers' needs but experiences financial losses. Conversely, a business that offers a service at a price significantly above the market level may not serve the needs of those customers who value affordability. You can create value for business owners and customers by optimally pricing products at the market level while generating profits that allow sufficient cash flow and long-term growth for the company.

How to create value in business

As a business leader, you can create value for a business by taking the following steps:

1. Identify your values and aspirations

Make a list of your personal values and aspirations. This might include spending time with your loved ones or supporting particular social causes. You can then identify those values that you think can apply to a business. For example, having more time with your loved ones may apply to the work model for other employees, while supporting particular social causes such as sustainable development may become part of the corporate social responsibility (CSR) of the company.

2. Review and define the vision and purpose of the company

Review the company's current vision and identify potential matches with the above values. If there are none, you can define them for the company. Consider creating mission statements first for clarity before developing business strategies around them. You can then define the purpose of the company as creating products or offering services that align with such goals.

3. Create or add a list of goals for the company to achieve its purpose

Create or add a list of specific goals for the company to fulfil to achieve its purpose. For instance, if its purpose is to promote a diverse and inclusive workplace culture, then a goal for achieving this may be to establish talent acquisition and retention policies for actively sourcing, compensating and promoting candidates from diverse backgrounds. If the company's purpose is to become a leading developer of a particular technology in the market, its goal may be to allocate more budget for research and development (R&D) and to focus on cost reduction.

4. Gain consensus with the company's senior management

It may be important to convince the company's senior management of the potential value that your proposal can create. This can help you gain the high-level support you may need for allocating resources for future business strategies. The company's senior management may include the business owner or board of directors, shareholders and other senior managers.

One way to expedite your persuasion process is to arrange buy-in sessions with an individual or a small group of members of senior management who have a higher level of influence on the other members. Some examples are a board member who has the largest share of the company or who has a track record of successful lobbying at board meetings. It may be easier for you to gain consensus from the whole senior management with the help of this small group to lobby for your proposal.

5. Motivate the support teams of the business

Provide incentives to motivate the support teams to implement the goals of the company. Incentives can be financial, such as performance bonuses or benefits. It's crucial to also include non-financial incentives, such as introducing a platform encouraging employees to give their views or feedback on the company's policies and its business practices. A combination of financial and non-financial incentives can help hire and retain the best employees, boost their productivity and enhance their long-term engagement with the company.

Related: Guide to Company Benefits and Perks (With Examples)

6. Enhance your customers' perceived value of the business

You can further create value by enhancing your customers' perceived value of the business through the sales or marketing process. The best salesperson or marketer can often convince customers of the benefits of a product or service and how they can fulfil their needs. This communication process can enhance your customers' understanding of the worth of the company's products or services. This helps create additional value for its business.

This may mean investing more in sales promotion and incentivising the company's best salespeople or marketers. For example, identify and provide better compensation for the salespeople or marketers who have consistently generated high profits for the company. You may also focus more resources on rewarding the best sales managers who are capable of leading the company's sales teams to reach their sales goals.

Related: A Guide to Sales Promotions: Definition, Types and Examples

Examples of value creation

Here are some examples of initiatives that add values to a business:

Launch a new product or service that your competitors have not yet offered

You can gain an edge over your competitors by offering a new product or service that meets the needs of the market. It may be worth investing more in R&D, such as hiring new candidates and retaining employees with top research skills and acquiring the latest market research software and tools. Research that accurately identifies the values and needs of customers helps you provide new products and services that your customers are more likely to enjoy.

Related: Research Skills: Definition, Benefits and How to Develop

Create an employee incentive programme

You can create an incentive programme to motivate the company's employees to improve their performance. Common incentives may include more compensation and rewards for the top-performing employees and empowering employees to foster their long-term engagement with the company. Some examples include recognising employees' achievements, encouraging them to give feedback or opinions about the business and giving them the autonomy to perform their assigned tasks creatively.

Related: 12 Effective Motivational Techniques for Managers

Devise cost-saving policies or practices

Devising cost-saving policies or practices can help create value, as lower costs imply higher efficiency and more profits. This allows more budget for high-priority business areas. For instance, you can compare the costs of products or services within the same industry to determine whether they need adjustment. You may also regularly review the company's business model to identify areas that fall short of expectations and focus resources on the more profitable areas. Streamlining existing business flows to remove redundant steps and processes may be another option to increase efficiency.

Enter a new market

Another way to create value is to enter a new market. Conduct in-depth market research to gauge whether entering a particular market matches the company's and its existing stakeholders' values. Next, assess how much the potential benefits outweigh the costs. For example, if the company values environmentally friendly practices, then entering a new market for sustainable energy solutions may fit the needs of the company, their customers and society. This can help enhance the company's brand and reputation.

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