Value Creation Models

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Define Value Creation?

Any process that creates outputs that are more valuable than its imputs.

Why is Value Creation Important?

Value creation is the primary aim of any business entity. Creating value for customers helps sell products and services, while creating value for shareholders, in the form of increases in stock price, insures the future availability of investment capital to fund operations. From a financial perspective, value is said to be created when a business earns revenue (or a return on capital) that exceeds expenses (or the cost of capital).

The Basics of Value Creation Strategies

•Create new value - Creating new value is the most difficult approach because you are creating something from scratch. This strategy involves doing something entirely new, such as developing a new product or entering into a different market sector. •Create more value - Creating more value is an easier strategy because you are working with something you already have. One of the best examples of this approach would be making your processes more efficient so that you can deliver more for the same price. •Create better value - Creating better value is another easy strategy because it's focused on improving something that already exists. The best approach to this type of strategy is focusing on quality over quantity or delivering more power behind something that you already have.

Top 5 traits to consider

1.Create intensity - This means that your business delivers a product or service—whether brand new or existing—with additional strength and power. In other words, you are going above and beyond what your competitors are doing and exceeding customer expectations. This is how you would increase the level of intensity that your business provides.

2. Value application - The value application refers to the means in which you use to deliver or provide value to your customer base and how an application can expand that customer base. For example, if your business is a small retail store, think about the impact of an eCommerce site. Expanding your customer base from local customers to worldwide customers, creating bigger, better value.

3. Tradition - One of the largest problems in business today is that many business owners and entrepreneurs find themselves getting “stuck” in their current strategies and struggle with creating new value creation strategies, ones that will take their businesses to the next level and expand their customer bases.

However, many companies refrain from doing this for two main reasons:

•Fear - Many businesses fear change, and often worry that change will hurt the business rather than help it.

•Tradition - “If it ain’t broke, don’t fix it.” Many business owners don’t want to change the way they operate solely because “this is the way it’s worked for X number of years.”

Unfortunately, this mindset can end up being the death of your business. Therefore it is recommended to outline a new value creation strategy can lead to innovations as well as improvements in customer engagement, which will propel a business rather than hold it back.

4. Customer engagement - Similar to what we mentioned above regarding tradition, companies who are “stuck in their ways” or that fear breaking out of their shells can easily improve value simply by paying more attention to their existing customers and to what they find compelling. Established businesses can easily apply this tactic simply by leveraging information they already have on their existing customer base to create new, better or improved value.

5. Value vs. Revenue - Most businesses confuse value with a start-up. The other struggle is that many companies are inconsistent with putting people first versus revenue first. Unfortunately, if your business puts revenue first, you will find out the hard way that you are struggling to survive. You must teach your sales teams to sell on value versus price. Putting the needs of the customers first is the only true way to create value while also keeping sales afloat.

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