Everyone wants to maximize their profits. It is the no.1, non-negotiable imperative for businesses today. Unfortunately, many businesses struggle to achieve this target. Some achieve their goals and a few others consistently beat it. Business startups cannot outspend their competitors. They must outsmart them by delivering better value to customers. Constant customer-driven innovation always creates more value for shareholders, for customers and society as a whole. More marketing initiatives and further value extraction are not the only key determinants to future growth. It is now essential to offer innovative value to the market.
Value creation starts with the customers' first impressions and their experience from the business engagement. It is not something that just exists. It has to be created, nurtured and inculcated into the corporate culture. A firm’s ability to move that value from its customers to its stakeholders depends on its ability to execute three fundamental business competencies:
1. Value Extraction
2. Value Capture and
3. Value Origination.
Value extraction is about ensuring the firm is efficient enough to maximize the value it captures (by minimizing wastage and optimise internal efficiency) and passing it to the stakeholders. This is evident in most M&A’s where it benefits from cost-synergies improving a business’ ability to extract value. Value capture is the process where value is gained by the firm, either from its competitors or its partners, i.e. through gains in market share or by ensuring its fair share from alliances within the industry (suppliers or resellers). Value origination is the creation of new products or services that customers value. It is the starting point of the value flow that the firm creates.
Many current businesses nowadays, operate based on a set of skills and arranging it to work in an efficient manner. This often leads to efficient operations, but not necessarily pinning down the precise value origination required. When looked at from a value origination perspective, it will always lead us back to the question, what sells? What do customers want? Hence business models should be based on these core objectives, and adapt the available skill sets and resources available around these value origination targets.