--By Sharu S Rangnekar

 

The world value can be defined in many ways. The simplest definition is : Value is something we desire.  If we get it we are pleased, if we do not get it we are frustrated and if we loose it we are sorry.

 

In our life different values come at different times.  During school days everybody collects stamps or cricketers photographs, etc.  At the age of eight this has value.  However, by the age of eighteen this value is lost and these become only scraps of paper.

 

However, six values seem to be durable over our life.  These can be represented by two triangles.

 

 

The first can be called “Triangle E” because it is externally recognized.  If we have these, people know about it and we make people know, if they do not.

The second triangle can be called “Triangle I”.  These values are also important to us but they are internally recognized, i.e we get satisfaction out of these internally.  Others may or may not know about these.

 

Value Creation-Conversion-Consumption:

In life all these values are interchangeable. Right through our life we convert these between each other and also consume them so that they become less.  The life can be seen as a cycle of Value Creation, Conversion and Consumption.  Everybody has some amount of each value to start with.  He can create more value, convert or consume the value.

 

At one time I was working with a grand-son of Mr.G.D.Birla.  He told me that when he was in college his grand-father asked him, “What are you studying?”

 

He replied “Economics”.

 

His grand-father asked, “Tell me what is Capitalism?”

 

He started humming and hawing (He was wondering how to define Capitalism to the biggest capitalist!).  Mr.G.D.Birla said, “Don’t go by what the professors tell you.  Capitalism is using value to create more value.  If you get a crore of rupees you create 10 crores, if you get 10 crores you create 100 crores, if you get 100 crores you create 1000 crores - that is Capitalism”.

 

“What other ism is there?” asked the grand-son.

 

“The alternative is feudalism. You consume the value you get. So if you get 1 crore you leave 10 lakhs; if you get 10 lakhs you leave 1 lakh and if you get 1 lakh your son is driving an autoriksha - that is feudalism”.

 

G.D. Birla was talking of one value - that is money.  The game can be played with other values, e.g. power or brand-image.

 

Some people increase their power by using ethical values, e.g. Anna Hazare.  Some people increase their power by using money, some increase their power by creating terror.

 

Depending on the motivation of each individual, he is in the process of increasing value, converting value or consuming value.  Most political leaders are busy in converting power into money and money into power – thereby increasing both the power and the money.  Some others challenge this and create value through use of ethical values, e.g. like agitation against corruption.  Some use so called spiritual values to get power and then convert it into money, e.g. most of the swamijis around us.

 

Thus every leader has to be looked upon as the player in the eternal game of value creation, conversion and consumption.

 

Value Consumption

Even corporations and institutions are involved in this value game through creation of brand image.  Harvard, Stanford, Oxford, Cambridge have created a brand position due to consistent creation of academic values.  In the same game, our Indian Institutes of Management seem to use the brand image to boost starting salary of their graduates and not intellectual creativity or even industrial entrepreneurship.  They, in effect, are consuming the brand value created by the predecessors to create money. In branded organization like Shanti Niketan, no values are generated and it has become a mausoleum of Ravindranath Tagore’s creativity.  They are now only consuming the brand image for their subsistence.

 

So just like an individual can follow the feudal culture of consuming value for personal gratification, organisations can consume the value created by the predecessors.  As somebody has put it “Organizations are created by people who want to DO something and are captured by people who want to BE something.

 

Value Creation - Yesterday:

The human being is supposed to be on this earth for about a hundred thousand years.  However, till ten thousand years ago his value creation was similar to other species of animal – only survival and procreation.  Ten thousand years ago he got two technologies that changed his life and life of almost everybody else in the world.  These were farming and keeping animals.  This redefined the concept of value creation to “assets”.  In agricultural economy the primary asset was Land.  Acquiring land was considered value creation.

 

With the advent of capitalism the concept of value creation expanded to include the classical trio of Land, Labour and Capital.  With Industrial Revolution and the advent of management concepts, the value creation covered Men, Materials and Machinery.

 

Then came what Peter Drucker calls the “era of corporations”.  In physics, “flame” is defined as a region where two or more gases meet to produce heat and/or light.  Similarly, “corporation” was a region where two or more persons meet for “Value Creation” for customers, employees and investors.

 

With the corporations came the stock-market and the concept of “market value” i.e. the value the stock market gives the corporation.  Simultaneously came the accounting balance sheet giving the “book value” i.e. value of the assets minus the liabilities – and the “value for shareholders” based on the expected future performance in terms of profits.

 

The dot-com frenzy at the end of 1990s proved the unreliability of “value for shareholders”.  For many of dot-com companies, the value was ultimately measured by the liquidator – just as in Tolstoy’s story “How much land does a man require” was decided by the grave-digger.

 

Marxism brought the slogan “To each according to his needs, From each according to his ability”.   So human welfare for the entire society was considered important for value creation.

 

Value Creation - Today:

Then come the concept of EVA (economic value added).  This is the measure of output (taken as operating profit after tax and some other adjustments) less input (taken as the annual rental charge on the total capital employed, both debt and equity). Managers have all the elements of this equation (costs, revenues, debt and capital expenditure) in their hands. So when it increases or decreases they have no one to praise or blame other than themselves. This makes it (in theory) a good benchmark against which to measure their bonuses and other perks.

 

The situation changed further with the advent of Computers and Information Technology.  Now Information is considered primary for value creation and the other aspects took the secondary role.  In IT industry the value creation seems to walk-in and walk-out of the front door every day.  So talented employees became the basis of value creation.

 

The understanding of the environmental impact has made a further change in the human attitude to value creation.  Protection of environment is becoming increasingly important in value creation.  

 

Value Creation - Tomorrow:

Reviewing these complex concepts, Forbes Magazine focused on the following aspects which lead to value creation:

1.Customer satisfaction,

2.Ability to attract talented employees,

3.Innovation & Technology,

4.Alliances,

5.Environmental Performance

 

This will be the challenge for value creation tomorrow.

 

(The writer is a popular consultant and author of management classics: “In the Wonderland of Indian Managers” and “In the World of Corporate Managers”.)