Sustainable Shared Value Creation and Capture

The Connections and Interdependencies of Value Creation and Business Success
March 27, 2017
Organisational Success: Driving Shared Value & Reducing Risk
March 27, 2017

 

Value creation and capture is a constant dynamic process in a company’s life cycle.

Competitive intensity, number of rivals, barriers to imitators, differentiation in product features, differences in the quality and efficiency, as reflected in the connection between all elements of the business model.

Value capture is related to investments in business model innovation, in innovation processes and product innovations.

The key differentiator entails the generating intellectual capital, and in nding and testing new technologies and business processes.

Of immense significance is to provide better education to employees tailored to meet current and future company requirements, further training or retraining of employees.

According to Dr. Sonja Brlecic Valcic, and Jana Katunar’s paper on ‘Value components in value creation and value capture concepts,’  examining sustainable business models, where key processes and resources contribute to a company’s value creation and capture, it is important to note the existence and the interdependence of the three value categories in this process: value in use, shareholder value and shared value.

A sustainable system of value creation and capture has the ability to create future cashflows based on strategy and business excellence, capital structure, optimal shareholder value, as well as support the competitiveness of a company in advancing the economic and social conditions in the communities in which it operates.

Such a sustainable system of value creation and capture is based on trust, cooperation and responsibility.

The value in use category is through combination of the return on existing assets and new investments evaluation.

Shareholder value category implies the increase of equity market value, dividends paid during the year, other payments to shareholders and outlays for capital increases.

Connection of social needs, business opportunities together with corporate assets and expertise form the basis for the shared value component.

Based on the essential parts of the aforementioned value categories, the authors propose a conceptual model for value creation and value capture.

Creating value for the company is achieved by optimising the system of business performance and business models which are aimed at achieving sustainable competitive advantages and operational objectives with the support of optimal capital structures.

Capital is the input entering the system of value creation, which, through assets and business activities and interactions, is transformed into output business results.

According to Ernst & Young, the goal of optimisation within the process of value creation is to provide consistency between operating, investing and financing activities. Such a system should result in a positive sustainable cashflow that exceeds the cost of capital.

The essence of a sustainable strategy in the value creation process is to harmonise a series of activities, from procuring raw materials to satisfying the end consumer, which will allow the creation of a new product or service in the future.

Accelerating value through Business Model innovation

In an article, ‘Business Model Innovation and its Impacts on Roles and Expectations,’ Maria Spencer and Phillip Ayoub, contest that the rapid change in today’s markets demands that companies be able to offer new and different value to customers, and business model innovation may enable growth through new market position, new user experiences and new revenue models.

The business model is a big part of what defines roles within the organisation, and successful business model innovation requires attention be paid to the effect of changes on the human element, and what human resource initiatives will be required in order to deliver on the change.

The key to sustainable growth, is strategies aimed at generating and innovating new outcomes that differentiate the organisation and secure a competitive advantage.

Growing pressure to innovate is changing the way business is done.

Disruption and continuous innovation is driving changes regarding how companies invest, operate, and compete.

Such changes that impact strategy, value proposition and other attributes of the business model, require people to work with each other differently, in supporting the changing roles and business model elements and the reallocation of resources.

Organisational research, including resource-based theory and evolutionary economics contest that value is created or maximised through innovation that allows organisations to revisit their sources of strategic advantage in order to create new value.

Connectivity, access to data and computational power, and human-machine interaction redefine strategy.

To understand how companies are responding to these challenges, Oxford Economics and Hewlett Packard Enterprise (HPE) surveyed 300 business, the majority of which admitted to have made substantial improvements to IT infrastructure and processes, but they they are aware of the need to continue to develop these capabilities, along with a culture of innovation, for developing products and services more quickly, and capitalising rapidly on ideas

Spotlight on high performers

More than three-quarters of high-profit margin companies (15% or more reported in the past two years) know that rapid innovation is about more than just having the right tools, but also fostering a culture of rapid ideation.

 

Download: Business Model Innovation and Its Impacts on Roles and Expectations

 

Innovation, agility and resilience (resources)