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The Art of Value Creation

by Andrew Kakabadse

How do you create value? Over the last five years I have travelled throughout the globe interviewing leaders to gain new insights into the art of value creation. Supported by the global search firm, Heidrick & Struggles, I carried out interviews in over 100 organizations in private, public and third sectors in 14 countries.

Quizzing corporate leaders led to revealing responses. As I talked to more and more of them, it became clear to me that there are two different approaches to creating value as a leader. One is about perceived value; the other is about delivered value.

In the course of my research, I noticed that these different ways of going about creating value indicated two different types, or styles, of leader. The creator of perceived value is more likely to be a big picture thinker who elevates strategy above all else; while the creator of delivered value is characterized by their closeness to customers and other stakeholders. Most leaders have a default setting, leaning towards one or the other mindset.

So, what do I mean by perceived value?

Leaders with a pre-disposition to perceived value start by formulating a value proposition (actually it is probably best described as a value hypothesis) and then look for evidence to support their strategy. They have a pre-conceived notion of how the organization can create value and enact a strategy to achieve it. Usually, the strategy emanates from inside the boardroom and is informed by a value hypothesis that determines the strategy.

One senior manager in Australia confided that his CEO’s attempts to get a major change of structure and practice in the organization were pursued without any trial run. “The CEO’s friends in the top team and on the board supported his idea and those who attempted to challenge were brow beaten into submission. The line managers did not dare say a word and yet they all knew that a new service offering to the market was going to fail. In this case, it was a vigilant press and media in Asia and Australia that brought the failing strategy to the attention of the board. What happened? We, the general managers, got the blame.”

With the perceived value approach, there is a real danger that strategy becomes dogma as senior management seeks to justify its preconceived view of the world and value creation. In one case, for example, I encountered a legal services firm which had decided it should go into employee development. The head partner was convinced this was what the market wanted but didn’t check with customers or service deliverers whether that would create value. It didn’t and is a good example of how a strategy-driven approach can backfire.

What happens next is an all-too-familiar pattern: value creation becomes uncoupled from reality and from the evidence. Routine and denial take over and the organization may run on pre-existing competence for some time rather than on excellence. But ultimately it is doomed to failure.

There is another way. Other leaders gather evidence from stakeholders inside and outside to determine the value the organization is delivering today and can deliver in the future. A strategy is then put in place to support those findings – and is deliberately exposed to challenges from stakeholders to create engagement. These are value delivery-driven organizations.

Connecting the dots of reality on a daily and dynamic basis is the foundation to truly delivering value. Companies that are successful over a number of years find ways to inculcate their values and approach into the acts of value creation and delivery.

Leaders focused on delivered value strive to create a culture that constantly interrogates the evidence to test the strategy. These sorts of leaders are driven by value creation among stakeholders outside of the boardroom and focusing on “proving” their strategy every day with the evidence gathered. This is “delivered value”.

Andrew Kakabadse (http://www.kakabadse.com) is Professor of Governance and Strategic Leadership at the UK’s Henley Business School and an Emeritus Professor of Cranfield School of Management.  His latest book is The Success Formula, published by Bloomsbury.

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