Value Creation:
Ready to put value creation back on the agenda?

After a year of cost-cutting and efficiency, leaders are starting to focus on value creation and innovation. But what about your organization, is it ready?

In times of market uncertainty and slowing growth, the focus turns to cost-cutting, consolidation and efficiency.  But, has value creation gone out the window? That is a question being asked by a growing number of leaders. 

While 2023 was the Year of Efficiency, there are signs that 2024 could be the Year of Value Creation. In business conversations normally dominated by issues of consolidation, cuts and efficiency, there is increasing talk of innovation and growth. The result is often a more energizing, customer-focused and forward-looking conversation.

The Business Case for Value Creation

In our conversations with leaders, six reasons emerge for putting value creation back on the corporate agenda:

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After so much bad news regarding productivity, productivity may be on the rise. This is another sign that it is time to focus on value creation.

1. Value is the ultimate source of shareholder value

Maximizing shareholder returns is naturally the central goal.  However, the surest route to this is to maximize value creation not just for shareholders, but for customers, staff and the broader society too. 

As many leaders point out, value creation has to be an essential part of the organization’s mission statement. It is:

• The primary source of sustained performance and growth in organizations, industries and even societies. 
• The ultimate driver of profitability and the root source of competitive advantage.

‘It is classic playing not to lose, rather than playing to win' said one of our consultants. ‘Organizations won't win by cutting costs, however.  That requires innovation and value creation' she added.

“The tech sector needed to re-adjust – having lost the run of itself during the pandemic. But, with so much talk of quiet quitting and performance paranoia, they gave other sectors license to follow the same cost-cutting path (whether they actually needed to or not). Now it is time to get back to the business of creating and delivering value.”

“It is not just about maximizing profit, we have a responsibility to our customers, staff and even to the broader society. We can never lose sight of this.'

“Mark Zuckerberg famously described 2023 as a year of efficiency, and it certainly has lived up to that name. But being efficient doesn't mean being the best – the most innovative, agile or anything else!”

This insight emerged from strategic conversations with business leaders on the requirements of delivering today's performance & tomorrow's transformation. It is part of our most exciting research yet:

2. Cuts won’t deliver long-term performance

Cuts alone won’t deliver long-term performance. In some cases, cuts may actually hinder longer-term performance.

Short-term decisions can have long-term consequences, short-term savings can have long-term costs. Short term financial expediency can detract from strategy.

Leaders need to balance the short term with the longer term – they need to deliver performance today, while also meeting the need for transformation tomorrow.

However, one of the areas that gets cut in the drive for efficiency is future-focused ‘business unusual’ investments such as new products, processes and so on.

“In our management meetings the conversation rarely moves beyond driving efficiencies and cutting cost, to the real business of creating and delivering greater value for our customers and stakeholders”.

‘You cannot cut your way to greatness’ – few would argue with that point.  But, as one of our clients puts it: ‘If all you have is a knife then cutting looks strategic, when it is really just tactical’. ‘Besides', she adds: ‘…you will eventually run out of places to cut. So, you are going to need a plan B”

“Business needs and priorities must come ahead of short-sighted cost-cutting decisions. We have to stay the course with the longer-term strategy.”

“Over the past 12-16 months, everybody jumped on the cost-cutting bandwagon” explains one of our coaching colleagues.  “But that will only take leaders so far.  It is time to focus on creating value and not just cutting cost” she adds.

Pause for a moment to reflect on how have you added value over the past 3-6 months for your (a) customers (b) staff and (c) stakeholders.

3. Creating Customer Value is Key

Cost-cutting and efficiency drives tend to be short term focused and spreadsheet driven. Moreover, they tend to be internally rather externally focused.

Meanwhile, the ultimate source of competitive advantage and sustained long-term performance is creating value for the customer. This customer-centric thinking is reflected in the following remarks:

‘Efficiency does not trump innovation’ says one of our coaching team. ‘You need both together. We could be efficient, but failing to meet customer, stakeholder and market needs’ she adds.

“Long-term performance requires enabling the organization to adapt to market conditions with greater speed, agility and innovation. That includes the ability to bring new products and platforms to market ahead of the competition.”

‘Where we compete and how we win as an organization is key to our success and to our strategy’ says one of our clients. ‘Efficiency has a role to play in this, but creating superior value for customers and partners is essential’ she adds.

“I just hope that when all the cuts are over, we will not have damaged the organization’s ability to create value for its customers both now and into the future” said the future-focused leader.  The drive to be lean and “efficient won't have damaged our ability to serve customers in new ways and to meet their changing needs” he added.

“The danger is that many of these initiatives are being devised by those parts of the organization that our furthest removed from the customer.”

“The focus has to be on the customer, not just on costs.  We need to focus externally, not just internally.  We need to enable our strategy of transformation in response to new technologies, changing customer needs and blurring industry boundaries.”

4. Efficiency will only take you so far

‘Do more with less’ has been a constant refrain for the past 12-16 months, with widespread cuts to budgets and resources.  But as one of our colleagues points out: ‘At some point, that stops being effective – you run out of areas to cut. It is simply not sustainable’. 

There must be more to efficiency than simply cost-cutting.  Organizations must also innovate to drive performance and efficiency sustainably. They must innovate in terms of ways of working and tackle the factors that are really draining executive productivity. The importance of this is clear from our data showing that less than 50% of work is considered by executives to add value.

Many organizations have kept their ambitions regarding what is to be achieved, that is despite significant cuts to resources. They have assumed that people will make it happen regardless. However, those key people that the organization relies on to make stuff happen – are already very busy – juggling multiple priorities and projects. 

Some strategic projects and initiatives are being starved of time and resources – they are taking place ‘at the side of the desk’. This is one example of how short-term savings, can have unintended longer-term consequences.

“We have been taking the low road for the last 12 months, now it's time to take the higher road” said one leader. “It's time to focus on value creation and innovation.  This is ultimately how we want to compete and how we will win” she added.

5. Executive Engagement Is Suffering

There has been a lot of talk about engagement – even a crisis of disengagement.  But could cost-cutting and consolidation be partly to blame?  Fatigue is setting in, with executives growing wary of endless rounds of consolidation and restructuring. 

Few people see cost-cutting and consolidation as meaningful or value adding work. People want to work on exciting projects and initiatives, typically these are the ones that add value.  With the focus on short-term cost savings, many of these have been stalled or scrapped.

“People want to work on exciting projects, but with cuts being made there are less of those projects around. That presents a challenge keeping people engaged, especially when headhunters are continually snooping around for the best talent”.

“Consolidation and restructuring initiatives generate a lot of noise and interference and distract from doing the real work – from better meeting the needs of customers and channel partners. This is especially true when there seems to be one initiative after another, with no end in sight”.

“Is the organization thriving? Can it thrive while the knife is out and cost-cutting dominates the agenda? That is a question that needs to be answered”.

‘ I wonder as an organization have we given way to a mindset of scarcity? Where we increasingly see the reasons why something cannot be done and Resources cannot be found.”

6. Traditional Strategies May NOT be Working

As if there were not enough reasons to put value creation back at the top of the business agenda. Here is one more: The traditional strategies may NOT be working as intended.

After a year of efficiency and consolidation drives, the results are mixed.  For example:

• Two thirds of organizations (66%) have implemented consolidation drives, 83% of executives say there is still a proliferation of projects and initiatives.  In a form of ‘project whack-a-mole’, some organizations have magically ended up with more projects today, than before the consolidation started.

• While efficiency drives have been almost universal, the levels of efficiency remain at just 67% (on average). There is growing evidence of the need for a rethink of productivity and efficiency in the context of knowledge workers and the executive suite, in particular.

“Cuts can be made in two different ways – either with surgical precision or as a hatchet-job.  Surgical precision always has an eye on value, sustainability and longer-term performance. However, much cost-cutting is short term and reactive – it may not be fully thought through or strategic”.

We are working with our clients to make 2024 the year of value creation. Also, to ensure that efforts at consolidation and efficiency can realize their intended goals. Why not talk to us