Business Value Creation: People & the Business Model

Evolving Challenges | Creating Shared Value through Business Model Innovation: Platforms, People and Technology
March 27, 2017
People and the Business Model: The Quest for Operational Excellence
March 27, 2017

 

 

Your future is in the hands of your workforce.
But how do you take them to the next level?

 

The future value of human assets can be unsure.

The job core activities may need to be redesigned, and there might be unexpected demand for skills that employees do not possess.

The need to deliver value is essential, and both individuals and organisations have higher expectations.

How we approach creating business value, charts the path of our evolution on a personal and professional  level and for the organisation as a whole.

Most businesses endeavour to have an impact on the world and we make a case for business leaders to support and develop their employees according to the big shared purpose vision of their company.

If the purpose of business is value creation, it follows that the mission of any company should be defined in terms of its primary value-adding activities, and which of the many possible initiatives are the most significant for achieving its strategic objectives.

This means connecting the dots between the strategic vision and initiatives on the one hand, and the value expectations of stakeholders on the other.

How the organisation creates value

All organisations must create sustainable value for their stakeholders and people are the key enabler for this to happen. The value of an organisation’s intangible assets, the knowledge, skills and expertise of employees and the relationship between high performance leadership and improved business performance, are the drivers of competitive advantage.

An organisation’s ability to innovate and create value, stems from the overall application of the business model and the ability of the organisation to innovate so as to ensure the resilience and efficiency of the business model for value creation in the future.

Value is created through an organisation’s business model

Value is created through an organisation’s business model, which takes inputs from the capitals and transforms them through business activities and interactions to produce outputs and outcomes that, over the short, medium and long term, create or destroy value for the organisation, its stakeholders, society and the environment.

An organisation’s business model takes inputs or resources combined, transformed and leveraged to produce outputs and outcomes that represent value creation. Business inputs may include resources in the form of raw materials, employees, research, ideas, financial capital etc., as well as relationships with suppliers, partners and other stakeholders. Inputs may be internal or external and direct (labour, raw materials or cash used in transactions) or indirect (transportation infrastructure, regulatory parameters, or education of the workforce).

Value is created through the activities the business conducts (via operational or other business processes). The outputs and outcomes that in turn create value for the organisation, consumers, the environment, providers of financial capital and others.

Business activities may involve the use of processes, tools, technologies and innovation to achieve intended outputs and outcomes identified through the organisation’s strategy and targets.

A wide range of interactions occur through the course of business activities both internally between employees and contractors and externally with suppliers, consumers, regulators, communities and the environment.

Understanding the connectivity between internal and external forces that enable, enhance the business model is therefore crucial to assessing whether value is likely to  be created in the future.

Outcomes from an organisation’s business model may take the form of increased sales, profit, market share, enhanced        reputation, better community links, customer satisfaction, decline or enhancement of natural environment, positive and negative externalities etc. Outcomes from business activity that have no financial counterpart or means of financial measurement are as relevant to value creation as financial revenue and capital.

People and the business model

Overall the stability of the organisation’s governance structure and management of short term disruptions so as to continue to create value influences the level of confidence in the organisation’s ability to successfully implement its business model.

Organisations and their stakeholders need to understand how the business uses their resources, and importantly their people, to create value.

It is the ability of organisations to create value that generates financial returns to the providers of financial capital.

The business model articulates what value the organisation provides, how that value is created and what resources and activities are required to deliver that value. The business model is he driving force for the organisation to meet their objectives and obligations.

The business model demonstrates to business leaders, investors and other stakeholders how the knowledge, skills and experience of an organisation’s people are the foundation of this value-creation and sustainable growth.

But what is meant by the term business model?

What role do people play in its delivery?

And how can the value of an organisation’s people be expressed and communicated to its stakeholders?

 

The International Integrated Reporting Framework defines an organisation’s business model to create value for itself and its stakeholders (including society), as its:

“system of transforming inputs, through its business activities, into outputs and outcomes that aim to fulfil the organisation’s strategic priorities and create value over the short, medium, and long term”.

Integrated reporting describes those inputs that are key to understanding the resilience of the organisation’s business model. Human capital – people and their interactions, skills and experience are a fundamental component of any organisation’s business model.

The Integrated Reporting initiative (IR) – a new standard of corporate communication which helps companies report on their strategy, governance and performance – has identified six capitals necessary for an integrated understanding of how a company creates value. Three of these capitals are people-related (intellectual, social and human) and the remaining three represent the major tangible assets of an organisation (financial, manufactured and natural). Different business models use different combinations of these capitals to varying degrees and in different ways.

Inputs, business activities, outputs, and outcomes

Inputs

Inputs are the resources, relationships, and other forms of capital that allow the organisation to gain competitive differentiation.

Activities

Business activities are what the organisation does to create value for itself and its stakeholders (including society).

Central to the robustness of the organisation’s business model is the workflows, processes and business activities interactions that determine how inputs are converted into outputs. These business activities may include the planning, design and manufacture of products, and the deployment of specialised skills and know-how in the provision of services.

Outputs

An organisation’s outputs are its products and services, as well as any by-products, such as waste, or emissions.

Outcomes

The organisation’s business activities and outputs, determine their business outcomes, as translated in potential generated sales.  Outcomes can be both internal (employee satisfaction and engagement, revenue) and external (customer satisfaction, tax payments, social impact).

Although outcomes from an organisation’s business model are normally planned and intended, not        all outcomes can be predicted because of the interaction of the wide range of factors on which an organisation depends for value creation.

It is this need to identify and describe outcomes, particularly external outcomes, which drives an organisation to consider the kinds of capital it uses beyond just those that it owns or controls.

 

Conclusion

The business model must be resilient and agile and capable of:

  1. Delivering continuous improvement

Focus on the future. Empower people to contribute new ideas and approaches, supported by a culture that encourages innovation.

  1. Creating sustainable success

The organisation is responsive to change. Leaders have a  periscopic awareness of the external environment and the impact this has on the organisation.

Understanding the business model, therefore, is integral to understanding and achieving business success.