What is success? To distil it down: Success is the creation of value – economic and social benefits and outcomes that serve a purpose for the people they are intended to help, in accordance with a set of values that the organization subscribes to.
Organizational success generally comes from having a clear plan or strategy to deliver on a mission. But a strategy is not success until it delivers its intended value.
Successful organizations create value. Organizations, of course, come in many shapes and sizes, flavours and colours. This book is predominantly concerned with companies, but the same points apply to all organizations. The definition of success will vary from organization to organization, but the need to create value in support of a mission is universal.
In the case of a company, this might be shareholder value. In the 1990s the focus of organizations worldwide shifted to generating shareholder value. Suddenly this was seen as the most relevant measure of a company and leader’s success. Its allure has since paled, but it is clearly a vital ingredient in any consideration of what constitutes corporate success.
Pure financial value also has its place. Turning losses into profits, creating financial value where it didn’t previously exist, can be immensely satisfying. Clearly, companies need to make money to survive and provide value more generally. But that is not the be all and end all of most organizations. As Henry Ford observed, “A business that makes nothing but money is a poor kind of business.”
These are enduring themes – as old as business itself. Money, price and profit are simply indicators of value. They are by-products of value creation. So, too, is quality. As the great management thinker Peter Drucker observed: “Quality in a product or service is not what the supplier puts in. It is what the customer gets out and is willing to pay for. A product is not quality because it is hard to make and costs a lot of money, as manufacturers typically believe. This is incompetence. Customers pay only for what is of use to them and gives them value. Nothing else constitutes quality.”
In other words, value is in the eye of the beholder. Value is something that is created in the mind of another person. It may have a price tag or it may be something less tangible. Value might be seen in terms of social value. Increasingly, the companies I encounter throughout the world have a clear notion of contributing to society more generally. They want to help make the world a better place, while still making a profit.
Value is often also seen in terms of the stakeholders involved:
the individuals, groups or organizations with a direct interest in the activities of a corporation. These include shareholders, customers, suppliers, employees, investors, and members of the community in the location where the company operates.
Stakeholder value thinking has been central to research at Harvard University and many American corporations. In recent years, thousands of initiatives have been launched and billions of dollars have been spent in the quest for improving stakeholder engagement to generate value. Yet, the results are mixed.
Our notions of value are continually evolving. Leading the current intellectual charge is the familiar form of Michael Porter of Harvard Business School. The originator of the Five Forces framework now talks of “creating shared value”. The debate about what constitutes value is gathering pace as the next set of challenges facing companies become clearer.
While emphases change, what doesn’t is the fact that value, in its many manifestations, is at the centre of corporate life. Different types of organizations will seek to create different sorts of value, but all organizations must create value to legitimize their existence. Value truly is the currency of success.
Andrew Kakabadse 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 is published by Bloomsbury.