There’s an old saying:
“Where there is no vision the people perish.” PROVERBS 29 VERSE 18
Which means that there’s two types of vision for finance professionals, there are those who have no vision and so are held back in their careers and struggling to make a meaningful impact with their organisations; and then there are those who do have effective vision and are seen as influential and relevant in solving meaningful problems for their organisations. So which type are you?
Value Creation & the 4Cs
To help get to that answer let’s look at the organisations we work for, why do they exist? They exist to fill some need that’s not currently being met within their community (i.e. solving gaps between what people have and what they want), and in the process they create a customer, or where that need is being met, they also exist to service it more effectively and efficiently than other organisations are presently doing. In effect solving for these needs, or have-want gaps, is the process of value creation.
I’ve encapsulated this in the 4Cs model:
- Community has unmet need or ineffectively met need
- Company Owners identify need and create organisation to service it to create
- Customers, who as they grow require more
- Colleagues and other members in the Community (Suppliers, Resource Providers) to service them
So the only reason for any enterprise to exist is for value creation. And for any organisation to survive and prosper long term it must develop and use its capabilities for transforming resources such as raw materials, capital, labour, and intellectual property, to create real sustainable value for customers. Successful organisations create value by providing products or services that customers value more highly than available alternatives and they do this while consuming fewer resources leaving more resources available to satisfy other needs in the community.
The 4 Cs
Value creation involves making people’s lives better it is contributing to prosperity in the community. On the other hand organisations that don’t create value are not enhancing people’s lives, and in making unprofitable products & services they are drawing resources away from a higher value uses. If you think about it what would we advise such organisations that waste resources or business units with unattractive returns do?
We would probably suggest they be restructured, sold to a better owner or shut down. In the market economy the long term success of the business is determined by how much it is contributing to improving people’s lives and prosperity through value creation.
A formula for Value Creation
In finance we’ve even broken Value Creation down into a Net Present Value formula (NPV) where if an organisation can overtime increase cash inflows, decrease leakage of cash outflows and reduce the risk (discount rate) NPV should increase. If the organisations we work with do not create value they cease to be relevant and if we don’t create value so will we. But how many of us in Finance have taken this medicine, looked at ourselves in the mirror and regarded ourselves as in the business of helping the value creation process and hold ourselves to the standard of how well we do this?
One of our recent guest mentors on SITN, Paul Sweeney, challenged us to ask what’s your extra? Where do you add value compared to others. That’s a great place to start and over the coming weeks I share some other practical methods and steps so you can create value for stakeholders.
If you can’t wait in the meantime listen in to some of our other finance guest mentors on the Strength in the Numbers Show, who share with you their stories and hard won lessons they’ve experienced when looking to help create value in their organisations that have worked or not, and they even break their stories down so we can also benefit by putting these into practice and helping their businesses, clients, other departments create more value for their organisations.
So what’s your vision for those you want meaningful careers in Finance? Or what has worked for you?
The author Andrew Codd is the producer of the Strength in the Numbers Podcast which aims to create more influential finance professionals worldwide who solve meaningful problems for their organisations and in return have fun, rewarding and successful careers in finance.