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How to make Value really Valuable
By Harry Greene

Value is an impressive word. People talk about value creation, value propositions, customer value, value chains, enterprise value, shareholder value, value management, etc. It sounds like they know more than the rest of us. But, what is the value of all this value?

Conventional management and accounting methods cannot manage value as links in a value chain and capture the costs of creating value to know the value-added at each link and across the chain. Result-performance Management (R-pM) defines the result value and performance costs at each link for business collaboration, within the business or across business partners.

Conventional value chains, value management, and value propositions are contrived

Many enterprises have a strategy to create value that defines some value to be there at end, but few actually build up managed value in the execution of the strategy. Some say they provide a good customer value proposition, which often seems to be sales hype, rather than a substantiated number. Others talk about value chains, without a specific definition of value and the links in the chain. Value-based management seems to be based on many contrived formulas for valuation. We see how our many methods of business valuation, all give different numbers. We have confusion between stakeholder value and shareholder value. We hear of value-added. But, what value is added on what value?

So, again, what is the value of all this value? Is it possible to have one basic definition of value that we all can use to manage our enterprises?

20^th century methods prevent value management

The problem is that 20^th century financial management and accounting methods prevent us from really managing value. We can chase costs around and use the many definitions to calculate different numbers for value, but we cannot add value to value to make value really valuable. We need to re-evaluate value first.

R-pM provides the breakthrough for value management

Result-performance Management (R-pM) is a new breakthrough in enterprise organization and management that enables us to manage value. With R-pM, we manage the two entities that define enterprise business reality; the capital utilized in performance and the result produced from performance. Where does value come from; our performance or the results of our performance? Performance produces only costs. The value is created in the result produced. Our internal and external customers purchase our results. Even for a service, they purchase the result in the benefit and appreciation of the service as their input result. So, if we are going to understand and manage value, we must understand and manage results.

Results contain corporate value and must be managed as the links in the chain

We say we have a strategy to create value. But the components of the strategy that contain value are results. We need to manage results to define each point that value is created across the whole enterprise and plan and manage the strategic value from the bottom up.

Costs are generated by utilizing capital as performance solutions to produce results

We all know that we incur costs in executing a strategy. The costs come from consuming capital. But most capital is not defined as performance solutions for costing, so we have many "unknown costs".

Much of our capital is labled as "intangible assets" and the "tangible assets" are administered rather than managed to control costs and to create value. Conventional accounting and costing methods do not charge costs and expenditures against the value created. We must define our capital as specific performance solutions in order to relate the cost of capital we are consuming to the result value we are creating. Value is then a manageable number that we can use in day-to-day enterprise management. The difference between result value created and the cost of creating result value, is result value-added. What does positive result value-added tell us? What does negative result value-added tell us?

When we manage value and costs, we can optimize value-added and assess the worth of capital

So, by breaking down the value we are creating in a strategy, we can understand the value of what people produce in carrying out a strategy. We can understand the worth of new capital development embodied in the strategy. We can optimize the cost incurred in creating value against the value created to maximize value-added. Our stakeholders or shareholders can track their portion of that value. Our corporate governance, records management, internal evaluation, and management reporting can track everything the enterprise does to the strategic value being created.

When our business partners also track the value being created in their strategy, we can build a value chain based on a common understanding of value to truly maximize shared value and minimize shared costs.

R-pM principles for value management

R-pM provides the way to make value valuable through basic principles:

Ø Organize results produced to identify how and where value is created and measure value creation

Ø Organize capital consumed, including "intangible" capital, for management and costing against the value created

Ø Become familiar with result value-added as a management metric for operations, development, and collaboration

Ø Develop strategies for producing results of value that add up to the strategic value created

Ø Manage strategic development to add value to results

Ø Measure and report result value and value added by period and govern strategic result value creation

Ø Relate result value to the final result value perceived by customers and the value perceived in input results from suppliers and contractors

With R-pM we know and manage our real value

R-pM enables us to simplify and manage real result value and performance costs. More details are available in the R-pM community download "How to Build Result Value-quality Chains". Only when we use R-pM to measure result value will our personnel, management, stakeholders, collaborators, and customers understand how valuable we really are.

Harry Greene is American, with over 40 years' experience in business change. He developed Result-performance Management (R-pM), a new breakthrough in managing the enterprise that is described in the books "Eliminating Unsolvable Performance Problems with R-pM" and "R-pM Foundation and Advantage".

Harry is the President of Result-performance Management Ltd. and posts information on R-pM at result-performance-management.com (http://www.result-performance-management.com/) the home site for the R-pM community.
E-mail: harry@result-performance-management.com
dead link Jan 18-07

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