The phrase value creation gets thrown around a lot lately. At a fundamental level, the purpose of every company is to create sustainable value for shareholders and stakeholders.
Value creation is at the heart of the integrated reporting framework from the IIRC. And the latest intellectual capital model from WICI. These models and the dozens that have come before them are all helpful introductions to the concept of value creation.
The problem is that these models are all generic. They tell you that there are categories of capitals that every company has. It’s much more powerful to take the concept a step further and identify the actual capitals that a specific company has.
How do I know it’s more powerful? Because I figured out about seven years ago that the generic frameworks did nothing to interest or to help my clients. But when I took the next step and helped them create their own model, lights went on. It’s like the blind men and the elephant. Without a shared model, every one around the table at a management meeting has their own vision of how the all the invisible pieces of their company fit together. If you can get them to create a shared drawing of the value creation system (and later to measure it), everyone can be on the same page.
Creating Your Own Model
So how can you develop a value creation model for your own business? For a number of years, I have provided a free download on my website of the model that I’ve perfected in my own consulting firm and those of partner firms around the world. It’s nothing magic but it’s proven to be a powerful way of helping a team create a shared model of their key resources. On top of this foundation, they can:
- Drive better alignment by modelling how all the pieces of their business fit together
- Develop more meaningful metrics that drive better decisions around growth, strategy and risk management
- Tell a better, more complete story externally to attract employees, customers and financial capital
So enough with the background, what does this model look like?
A Simple Example
Here’s a simple example that I feel comfortable sharing because it’s already public. It’s for a network of advisors to privately-held companies called the Exit Planning Exchange. I’m one of the founders and we published the value creation chart below for our 2015 Annual Report. We’re a small network but I figured this would be a simple example to help get you started (click on the table to see a bigger version):
You’ll notice that the Unique Resource Inventory is a holistic summary of (you guessed it) how we create value, for whom, how we get paid for it, who are our partners and, most importantly, what are the resources that we have built to support our value creation processes.
Included in this example are a handful of metrics we included in the public report to tell our story. These metrics are mostly demographic; they describe what we have but don’t necessarily explain how well we are performing. Accumulating multiple years of metrics will help with the performance story but we probably also need to find other metrics to help our stakeholders understand our health and outlook.
If you’ve been reading this blog, you know that I’ve been analyzing how public companies are telling their value creation stories. I’m going to try to start using this format to summarize those stories. So stay tuned.
In the meantime, if you want to develop a value creation model for your own company, feel free to download this template. (Let me know how it goes)