THE BLOG
12/23/2013 01:20 pm ET | Updated Feb 22, 2014

What We Often Forget About Value Creation

"Do you have the patience to wait till your mud settles and the water is clear?" -- Lao Tzu

Value. The Economist, that staid British publication of wryness and polite charm, recently provided a history of this most crucial of buzzwords (and I do mean crucial -- where an organization creates value is at the crux of any enterprise's operations).

"Value creation is a corporation's raison d'être," they said, "the ultimate measure by which it is judged." According to the article, value creation has a range of possible meanings: It could be the value the stock market assigns the company, the value shown on the balance sheet, or profits or cash expected on future performance, or, perhaps, none of these.

One could argue there are holes in these definitions. For instance, if you decide that the value of the company is measured by its stock price, that doesn't take into account the macroeconomic swirls of the market, like the dotcom boom.

If these measures don't work, how can we get a sense of value?

"Value creation" is a topic we talked about a great deal in my soon to released book, Everything Connects: How to Transform and Lead in the Age of Creativity, Innovation and Sustainability. I thought some the elements discussed in the book might just give you some food for thought as we embrace the New Year.

Manager of managers Peter Drucker gave a broad notion of value creation when he said that "the modern organization was expressly created to have results on the outside, that is, to make a difference in its society or its economy." Like Drucker, I believe that the implicit -- and explicit -- expectation is that businesses should "do good" for others, should create something valuable to the world. The question, of course, is how?

Derived from my own entrepreneurial successes and failures in my own startups, spinoff at General Electric as well as at established fortune 100 companies, I have distilled three fundamental themes that I believe are the catalysts for long-term value for greater tangible and intangible impact. It requires driving long-term vision, creating platforms for growth, and fostering synergistic ecosystems.

A Sense of Purpose is Vision

At its root, vision is ineffable -- it cannot be fully described in words. This is, I think, because vision is not wholly conceptual; rather, it is also a feeling, a conviction, a sense. To put it plainly, vision is what we're to do with the time that we have. And if we look at the central business theses of a few leading companies, we can see that they prioritize not only revenue --though surely that's essential -- but also the purpose of the work that they do. And that purpose is critical to staying a long-term course.

Consider Jeff Bezos's defense of the long term.

Bezos has said that a business, at a fundamental level, is either aligned with customers or against them -- and it is this customer alignment that is at the center of his "long-termism." In his 2013 letter, Bezos mentioned a comment made by Slate columnist Matthew Yglesias, who wrote that Amazon "is a charitable organization being run by elements of the investment community for the benefit of consumers." Bezos rejected the premise, contending that "delighting customers earns trust," a trust that helps form a partnership between the user and the brand. This, Bezos said, allows for further business down the line from those same customers, potentially in new businesses. When you take a long-term view, he concluded, the interests of shareholders and customers align.

Finding the Platforms That Are Already There

If vision is an expression of the soul of a organization, platform is its body. The assets, whether internal or external, lend the company its capabilities and character. We often calls these "core competencies," which tend to grow organically. Whether an organization (or an individual) recognizes it in themselves, these competencies are platforms, or assets with business applications.

Platform generation is taking assets that have already been created and finding new ways to use them. Think about the evolving business model of a nonfiction writer: they are taking the core assets of understanding and articulation and finding new ways to productize them. Annie Murphy Paul, who authors her weekly newsletter The Brilliant Report, writes about learning for Time, CNN, and Psychology Today -- and describes herself as author, journalist, consultant and speaker. That's a breadth of revenue that streams from a specialized core asset: an understanding of learning.

Platforms can, of course, also be tangible things -- automobile companies will use the same engine in a range of cars, and, at times, provide engines for other manufacturers, bringing in more capital from a preexisting product. Similarly, if we are going to sustainably grow our organizations, we must reach limbs out into new markets in the same way that a tree searches for sunlight.

In understanding platforms, we appreciate the wealth of possible intersections between our organizations, the world and ourselves.

Fostering Sustainable Ecosystems

James F. Moore was the first to apply the term ecosystem to a business context. He wrote that a business ecosystem was "an economic community supported by a foundation of interacting organizations and individuals." These ecosystems, he wrote, encourage companies to coevolve their capabilities. This comes in several flavors.

Sometimes an ecosystem can sprout up around a product, like the range of cases, headphones and other paraphernalia that surround the mobile devices. As well, a company can sprout whole economic worlds, as was the case of the App Store -- and in that case, the App Store itself was a new platform for Apple. Amazon also sprouted ecosystems from new business platforms: Marketplace, from which third party vendors -- who in an earlier age would be considered competitors -- can offer their wares on Amazon, creating an ecosystem in and of itself.

In a very similar sense, ecosystem thinking has become a cornerstone of web publishing -- the broad swathe of unpaid contributors creating content for the Huffington Post, BuzzFeed and other publishing platforms do so in exchange for growing their own individual readership and brand.

Why are ecosystems -- and understanding them -- crucial to sustainable value creation?

They are the structure that surrounds and supports our businesses. They spread stakeholdership out from the business and into society. Ecosystem, then, is another way of saying partnership -- a prism that lets us see the separate stars of the business sky as shared constellations.

Taken together, creating value for the long-term is a combination of inner and outer awareness. We need to know what our timescale is for what we're doing; we need to know how the competencies we've built can extend in new directions; and we need to attend to how our business fits into the larger world. When we do all three, we can be confident, committed and flexible in the value that we create.

For more by Faisal Hoque, click here.