Leadership is Value Creation — Value Creation is Leadership: Connecting; Ideas, People, Passion, Results– Maker vs. Taker…

The role of leadership in business is value creation for all stakeholders– customers, employees, investors… as well as, recognizing that the interests of these groups are inextricably linked...

Leadership is value creation and value creation is leadership— they are inseparable, they are one and the same… they are the objective in an enterprise. According to ‘Economist’; value creation is raison d’être of any business entity. Many analysts use a broad definition of value creation, and they include; financial factors (e.g. financial statement analysis, cash flow, profit…), internal capabilities (e.g. innovation, leadership, people, brand reputation, customer base…), future potential of the company (e.g. growth, revenue forecasts, risk assessment…)…

According to Paul O’Malley; there are three measures of value creation; customer, employees, and investors. Creating value in a firm is an enormously complex endeavor. Yet, despite its complexity, value creation is the objective of every enterprise, every worker, and every leader. All employees should be judged by their ability to create value. Traditionally, value creation is defined in terms of financial measures– profitability, revenue increases, cost savings… However, by considering only the financial part of value creation, it’s similar to the simplicity of the novice. It’s accurate but incomplete. Business  leadership knows that value creation is more complex than just a few financial indicators…

In the article Creating Real Value by ‘Inam Ul Haq’ writes: For decades, businesses have been involved in value creation; and many think of value as maximizing profits and minimizing costs. But, there is a limit to how much a business can maximize profit and minimize cost…  Focusing just on profits and costs is unsustainable value creation, purely because of its limitations.

Too many managers have a myopic and self-centered view of value, and this is where the problem of sustainability arises. Creating only shareholder value is not sustainable. Shareholder value is not real value; it’s only a part of real value. Real value is about going beyond trade-offs, it’s about creating shared value.

Shared value is composed of a set of different values bundled together, and shareholder value is just one of them. Shared value has four arms; employee value, customer value, shareholder value, social value. The current depressed global economic climate is evidence that there is too much focus on just shareholder value… this must change; we must build tomorrow on all four arms of value, and by creating shared value; it’s the best way to ensure shareholder value.

In the article Creating Shared Value by Michael Porter and Mark R. Kramer: Companies are trapped in an outdated approach to value creation, which has emerged over the past few decades. Companies continue to view value creation narrowly; optimizing short-term financial performance while missing the most important customer needs and ignoring the broader influences that determine their longer-term success.

How else could companies overlook the well-being of their customers, depletion of natural resources vital to their businesses, viability of key suppliers, or the economic distress of communities in which they produce and sell? How else could they think that simply shifting business activities to locations with ever lower wages is sustainable solution to competition? Governments have often exacerbated the problem by attempting to address social weaknesses at the expense of business.

Companies must exercise leadership to bring business and society together. The solution lies in principle of shared value, and that involves creating economic value that also creates value for society… Businesses must connect company success with social progress. Shared value is not just social responsibility, philanthropy, or sustainability, but a new way to achieve economic success. It’s not on the margin of what companies do, but at the center. We believe that it can give rise to the next major transformation of business thinking.

The concept of shared value can be defined as policies and operating practices that enhance the competitiveness of a company while simultaneously advancing economic and social conditions in communities… The concept rests on premise that both economic and social progress must be addressed using value principles. Value creation is an idea that has long been recognized in business…

However, businesses have rarely approached societal issues from a value perspective, but have treated them more as peripheral matters. This has obscured connections between business and social concerns. In the social sector, thinking in value terms is even less common. Social organizations and government entities often see success solely in terms of the benefits achieved or money expended.

However, a growing number of companies are embarking on important efforts to create shared value… Yet the recognition of the transformative power of shared value is still in its genesis: All stakeholders must begin to realize it requires; leadership, new skills, deep appreciation of societal needs, greater understanding of the true basis of company productivity, and the ability to collaborate across profit and nonprofit boundaries

In the article How Leaders’ Values Shape Value Creation by Scott Lichtenstein writes: We’ve been practicing leadership for over 6,000 years: The Pharaohs managing the work teams that built the pyramids understood leadership. The Imperial Emperors knew how to lead the Chinese civil service that held China together for thousands of years. The Moguls of India and their administrators understood how to lead. The Roman Empire needed no leadership books or journal articles. More recently, the rise of professional management in Western economies has perpetuated a plethora of lessons in leadership.

From Al Dunlop to Jack Welch; they all knew about leadership and they all had same basic approach to leadership. Their sentiment can be summed-up by stating: It’s my way or the highway.  By any measure of success this system has worked, and in so doing has created the basis of our modern world… If the ‘my way or the highway’ school of leadership has worked for thousands of years, why is the subject of leadership under such scrutiny?  

A major reason is due to changing employees’ values, and in aggregate, societal values… Leadership is not solely about making people feel good, profit and loss responsibility… it’s also about the recognition that primary task of leadership is value creation. And, stakeholders are much more active today, and questioning:

Value creation for whose benefit? Leadership must recognize that their values shape and influence the business culture, as well as; shaping goals and strategies that motivate employees… By understanding the forces of values, leadership can implement their value creation strategies… further-faster throughout their organizations…

In blog Be Seed Planter not Bean Counter by Ron Eccles writes: I have met only 3 types of people: First, there are those who spend their lives, taking inventory of what others get in comparison to what they get in life: They keep score. In their mines it’s all about them, getting their fair share. For the most part they are moving through life passively, always coming up short and letting the world around them know it. This group, I call the ‘bean counter’.

Second, there is the ‘seed planter’. They are by far the minority and they have discovered that to be truly rich, you learn to create value and to sow richness; wherever you go or whatever you do. When you plant enough seeds, over time, you reap a bountiful harvest…

Third, there are those in the middle and they spend a lot of their time as ‘bean counter’; but they also ‘plant seed’, occasionally. Once they make the connection that being a victim (‘bean counter’) is wasted energy, then they rapidly focus their energy on being a ‘seed planter’... OK, it’s time to choose… power of choice is yours. Choose wisely, either you are; ‘seed planter–value maker’ or ‘bean counter–value taker’.

One of the best ways to understand leadership is by connecting it to value creation. For example, leaders who comprehend value take into consideration the needs and values of all stakeholders. They balance the interests of each stakeholder when making a decision– what’s best for maximizing value for everyone. This tends to contrast sharply with non-value based leaders who are overly bottom-line driven, who focus on select group of stakeholders and fail to recognize– how decisions can have positive impact on one group at the expense of another.

According to ‘exinfm.com’; leadership creates value through the ability to bring about change. Perhaps the best definition of leadership is: The capacity to make change in order to create value. One important challenge confronting leadership is bridging gaps between strategy and getting people to execute. When leadership bridges the gap, then they are able to create real value. When leadership fails to engage people in strategic execution, then value creation is difficult… As well as, recognition that without leadership, nothing changes. 

However, there are new emerging philosophies of leadership and value creation that are based on shared value and community… The assumption is that most people have leadership qualities that can be pooled and drawn upon for creating value…

The traditional system of company-centric value creation is being replaced with a new frame of reference for value creation. This is centered on personalized co-creation of value, resulting in value that is truly unique to each individual.

This new frontier in value creation is emerging because of changing role of customers and employees– from isolated to connected, from unaware to informed, from passive to active. The emerging reality of value creation is value co-creation, which is the new mandate for leadership…