“Persons merely excelling in such areas [as book learning and technology] are nothing more than component parts of a colossal mechanism of the state and society. People of ability are creative people who untiringly pursue lofty ideals, who have rich individuality, and who can make free and effective use of their knowledge and skills.”–Daisaku Ikeda
Several decades ago, Japanese philosopher Ikeda defined value creation essentially as “the capacity to find meaning, to enhance one’s own existence and contribute to the well-being of others, under any circumstance.”
In narrowly defined financial terms, value creation means creating revenue, which exceeds expenses, which results in a profit, or value, to the stakeholders.
Management guru Peter Drucker broadened this narrow notion of business value creation, when he said: “Indeed the modern organization was expressly created to have results on the outside, that is, to make a difference in its society or its economy.”
Like Drucker, I believe that the implicit–and explicit–expectation is that businesses should “do good” for others: The ultimate objective is to produce a wealth of new ideas, profound change, dynamic innovation, and sustainable opportunities. To create such value, it requires: driving long-term vision; creating platforms for growth; and fostering synergistic eco-systems.
Driving Long-Term Vision
In order to create a real difference, leaders must set their sights on the long-term goals and not get trapped staring at the short-term numbers. Success isn’t measured solely by balance sheets, and focusing on quarterly returns isn’t going to work for the long haul. Volatile times can’t be avoided, but we can be ready for any disruptions in society with a long-term plan that supports our vision and enables us to create meaningful value.
Consider the following vision statements:
Nike: “To bring inspiration and innovation to every athlete* in the world. *If you have a body, you are an athlete.”
IKEA: “The IKEA vision is to create a better everyday life for the many people. We make this possible by offering a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.”
None of these vision statements actually talks about creating financial value for themselves.
Alfred Rappaport, Professor Emeritus at Northwestern University’s J. L. Kellogg Graduate School, in his book, Saving Capitalism from Short-Termism, calls for conquering the addiction to short-term profit–and getting on the path to building long-term value by:
- Gaining the commitment of senior management and the board to long-term value creation as their governing objective
- Incentives that reward CEOs, operating-unit managers, and front-line employees for delivering superior long-term value
- Performance fees that align the interests of investment managers and shareholders.
- Actively managed funds with concentrated holdings and long investment horizons that tilt the odds in favor of better long-term shareholder returns.
He argues that if corporate and investment leaders do not address the problem of short-termism, more financial crises may be in store–and they are likely to be more severe and broader than the meltdown in 2008. The trade-off is clear: We can continue to pursue short-term profit at the expense of economic vitality, individual financial security, and perhaps even the dominance of the free-market system itself. Or we can take the responsible path and generate innovation, quality, growth, and value over the long term.
Platforms for Success and Growth
The term “platform” is used in a variety of contexts. Early on, it was often a synonym for “operating system” for computing. But today it is used to describe a variety of scenarios.
A business platform creates an environment to accelerate operations, get closer to customers and partners, unlock innovation, and drive efficiencies.
Tech giants like Microsoft and Google have mastered this, but every industry needs a platform that can propel it to the next level. Take English business magnate Richard Branson, who built a platform that has evolved into the Virgin Group of more than 400 companies. With an iconic brand punctuated by his unorthodox renegade image, Branson has never let change impede his long-term goals. He launched an audio-record mail-order business in 1970 and created Virgin Records two years later. That music and media business became Virgin Megastores. By the time the digital music revolution forced him to shut towering stores, he’d already expanded his brand, starting in the 1980s, when he set up Virgin Atlantic Airways. He’s never slowed his ambitions to extend his platform, beyond Earth even, with his latest plans to build an orbital space launch system. His platform is that of business structure, brand and a unique management culture.
A business platform has the following key attributes:
- It attracts a wide variety of communities of interest. To thrive, these communities should be managed and nurtured.
- Building a community around a platform enables us to build our business more effectively with the enthusiastic help of customers, suppliers and partners.
- It does not discriminate between small and large customers or partners.
Creating Sustainable Ecosystems
A successful business platform drives a living-breathing ecosystem. In an ecosystem–a network of interlinked organizations, such as suppliers and distributors, interact with each other, primarily complementing or supplying key components of the value propositions (benefits for customers) within their collective products and services.
James F. Moore, author of The Death of Competition defined “business ecosystem” as:
“An economic community supported by a foundation of interacting organizations and individuals–the organisms of the business world. Over time, they coevolve their capabilities and roles, and tend to align themselves with the directions set by one or more central companies. Those companies holding leadership roles may change over time, but the function of ecosystem leader is valued by the community because it enables members to move toward shared visions to align their investments, and to find mutually supportive roles.”
Today every leader must nurture a healthy business ecosystem to achieve long-term success. It’s the structure we form around our organizations to get through the bad times and thrive in good times. It’s that environment that allows us to partner with differing individuals and groups who bring unique perspectives and skills.
A sustained ecosystem provides us with:
- New capabilities and process extensions that can be integrated into existing processes.
- Innovation and improvements through partner/customer feedback that is easier to generate, evaluate, and implement.
- Business opportunities that can be accessed more quickly and efficiently.
[Image: Flickr user Stevekeiretsu]