We start by looking at what Value Imperative (VI) is, and the eight principles of Value creation and VI.
Value Imperative is the fundamental thinking on Value, why and how it is created.1 Value is a dominant logic because it is basic to humans, and all their actions and endeavors. It is a Human-to-Human (H2H) system.
Value goes beyond the business world into creating happiness, good for, and improving the well-being of people.
Jim Spohrer, in his preface to Service-Dominant Logic,2 comments that the market is a quest of human actors for well-being in an ever-changing context. In other words people seek Value (good, well-being). The quest to improve the quality of life is fundamental.
The Eight Principles of Value Creation and VI
These principles were first enunciated in my book, Value Creation: The Definitive Guide for Business Leaders.
Value creation is executing proactive, conscious, inspired, or imaginative and even normal actions that increase the overall good and well-being, and the worth of ideas, goods, services, people, or institutions including society, and all stakeholders (like employees, customers, partners, shareholders, and society), and ideas waiting to happen.
The First Principle: Value and its creation are a basic requirement or a necessity for sustained human flourishing (Mahajan)3 and advancement of human activity, of caring, of well-being and behavior, progress, and creativity. Value and its creation are important in all fields, education and academics, society and government, social work, innovation, entrepreneurship, and business. It impacts humanity and society. Value creation is an essential trait for executives and leaders. It goes beyond the classic business/social ecosystem. It can be latent Value or Value waiting to happen, which when perceived could provide the basis for greater Value. Value can also be enhanced, dissipated, or reemerge over time.
The Second Principle: Value is proactively or naturally exceeding what is basically expected of you or your job. It is going beyond your functional and routine roles to adding and creating Value in your ecosystem. Value creation can be planned or spontaneous in both functional and emotional thinking, and should be consciously created (today most Value creation is unconscious).
The Third Principle: Just creating Value for yourself is not enough. True Value comes from creating Value for others who turn around and say you have created Value. Value is created for you by others using your potential Value or your potential to see Value (this, in a sense, is the real reason why companies are in the marketplace, because creating Value for customers creates Value for their stakeholders). What is interesting is that such Value is not just the realm of the producer, it is also the realm of the user. Co-creation is where mutual Value is expanded together.
The Fourth Principle: Value and its creation impacts all stakeholders, that is, you, your colleagues, your employees, your partners (supply chain, delivery chain, unions), your company, government, and society to create resounding Value for the customer and thereby for the shareholder. Customers buy or use those products or services that they perceive create greater relative Value (or worth which is Benefits minus Cost) for them than competitive offers. It is essential for companies to create higher Value for their customers than competition can.
The Fifth Principle: Value and its creation leverage a person’s or an organization’s or an actor’s potential, learning, and creativity while making it meaningful and worthwhile for people and actors to belong and perform, both physically and emotionally.
The Sixth Principle: Value and its creation presents a very powerful decision-making tool for companies to select actions, programs, strategies, and resolutions of dilemmas and choices for individuals and the actors that can increase the actors’ longevity (prevention of Value starvation and destruction) and profitability.
The Seventh Principle: Value and its creation must exceed Value destruction or reduce negative Value and be done consciously (not just done unconsciously as often is the case today). You must create more Value than you consume, else the process will become destructive. The sharing of Value has to be equitable; otherwise Value will be destroyed for one or more actors. Often by not being caring, governments and people negate the impact of the Value they are trying to create. Non-Value-adding tasks4, 5 such as wasted time are Value destroyers.
Sometimes companies try to extract more Value than they create (for employees, partners, customers, and society), and this is destructive.
The Eighth Principle: Values (what you stand for, integrity, honesty, fairness, etc.) create Value. This holds for all actor-to-actor interactions.6
Having Values prevents destruction of the type Enron and others who flouted Values wreaked. Creating a culture of Values is essential for companies to succeed.
Because the business ecosystem of individuals, companies, employees, partners, supply and delivery chain, society, government, institutions, and other recipients of Value are all driven by creating and absorbing Value, VI is important to the ecosystem. In spite of changes in technology, buying and selling, marketing, and increasingly knowledgeable customers, the primacy of customers and the availability and sharing of information, Value, and the creation of Value remain a primary objective of all the actors.
VI means that ecosystems flourish, including business ecosystems, by proactively and consciously becoming aware of, and then developing and creating or co-creating Value and exchanging it with those that perceive that Value is being added to them beyond other alternatives or sources, which leads them to consider, buy, use, improve, or co-create and discard products and services.
VI goes beyond processes, and the debates of the primacy of products, services, and the customer, because to create Value for the customer one must create Value for the providers including employees, supply and delivery chain, and society at large, and the imbibing of Values such as integrity, morals, and ethics.
Just as the purpose of education is to create Value in society (though the direct recipient is the student and the employer); or the purpose of a company goes beyond just the profit motive to creating Value for the customer, to doing something for its stakeholders and society. Value goes beyond the actors, though Value has to be created for them.
Value also exists in inanimate and animate objects but becomes apparent only when perceived.
Thus, a company’s offering, be it intangible, tangible, or a combination of the two, is merely Value unrealized, i.e., a “store of potential Value,” until the customer realizes it through co-creation in context and gains the benefit (Ng, Nudurupati, and Tasker 2010).7
According to SDL, Value creation occurs because of actors involved in resource integration and service exchange which is enabled and constrained by institutions and the kind of arrangements they have, leading to a service ecosystem.
Co-creation (not just co-production) of Value is the purpose of the exchange of service for service processes, and thus fundamental to markets and marketing. The scope is widened by using beneficiaries instead of customers. Value is co-created by multiple actors including the beneficiary. Value creation takes place in networks.
From a practitioner and common sense point of view, Value is what we create for ourselves and others through our actions, beliefs, circumstances, and thoughts.
Value creation is a process that is easier to define than Value, which is generally intangible, though we try to define and label it as a tangible. Our definition of Value creation is executing normal, proactive, conscious, inspired, and imaginative performance of actions that increase the overall good and well-being and the worth of goods, ideas, services, or institutions including society and all stakeholders (like employees, customers, partners, shareholders, and society), and ideas waiting to happen. In fact, Value creation is a basic requirement for sustained human flourishing (Mahajan 2016).
Value is the balance between the effort (or the sacrifice) and the result (or the benefit), and if Value is positive (that is the perceived effort is less than the perceived result), Value is created. If the reverse happens, Value is destroyed. Value is also the benefit one gets versus the cost and is generally is seen in a competitive situation, since actors have alternatives. Value is intangible because Value depends on the various actors in the Value ecosystem and their perception of Value.
In the non-business sense, if you go out with a friend, the interaction creates Value (Benefits offset by the effort). For the friend, the Value may be different. Value depends on what and for whom. Value is dynamic and not static and could be ever changing depending on the context and circumstances (which includes emotions). Thus, if the friend was reluctant to go out the Value could be reduced for him.
Concepts like loyalty that are directly linked to Value and Customer Value Added are dynamic. Unfortunately, businesses do not fully understand its dynamic nature.
Value is fundamental. It is what we are seeking for ourselves and for our ecosystem. Value exists in what we see and in what we do not see. It implies something is good and worthy (or meritorious). Value leads to outcomes (was it worthwhile, useful, or good?) VI works in spite of the varying nuances of its definition.
From a business perspective, Value means the worth of something versus competitive offers. Measurements of Value were proposed by Kordupleski (2004) and called Customer Value Added (and if focused on employees, Employee Value Added).
Customer Value and Customer Lifetime Value (the profit motive, and what a firm gains from a customer) are outlined in detail by Kumar and Reinartz (2016).
We define VI to encompass nuances of Value as shown in the following:
Value exists, and can be seen, and can be used by a person (actor) or enhanced by him. It can be shared, it can be exchanged; and it can be created (increased) or co-created, and it can be destroyed.
Creation of Value for oneself is self-limiting, unless shared and further created or co-created with others, which increase the Value to the original creator of the Value, particularly when the receiver or sharer of Value notices or perceives the Value being provided. This is an important concept, as companies believe that they can create great Value by themselves for customers, without having the customer perceive the Value and grow it either by co-creation or by use or further creation or by communication to others about the Value the firm has created.
Value in an ecosystem is allocated to various actors, and if done unfairly, then Value can be destroyed. Non-Value-adding tasks like making people wait for meetings are Value destroying.
Value can be created for someone while simultaneously being destroyed for others.
Graphically this is illustrated in Figure 1.1.
Figure 1.1 Value Circles, where various Value actions are shown
1 We use the word created and co-created interchangeably.
2 Lusch, R.F., and S.L. Vargo. 2014. Service Dominant Logic: Premises, Perspectives, Possibilities. Cambridge University Press.
3 Mahajan. 2016, Editorial. Journal of Creating Value.
4 Mahajan, G. 2011. Total Customer Value Management. Sage.
5 Adam Smith differentiated between productive and nonproductive work, which we also do in Value thinking.
6 Mahajan, G. 2016. Value Creation. Sage.
7 https://www.academia.edu/1763648/Ng_Irene_C.L._Sai_Nudurupati_and_Paul_Tasker_2010_Value_Co-creation_in_Outcome-based_Contracts_for_Equipment-based_Service