There is a mistaken belief that all actions or Value-creating activities create Value for everyone. We have seen disruption can destroy Value, for some while it might create Value for others. And because Value is a perception, the same action may be seen to be destructive for some, while for others Value creating.
Loic Ple1 suggested probably because of the etymology of Value, to the generalized consensus that because it was co-created, Value could only improve through these interactions, a phenomenon that he called “co-creation myopia.”
Thus, Value co-destruction may also co-exist with Value imbalances among interacting actors. This situation can be either accidental or intentional.
Is it possible to consider that one kind of Value could compensate for another one? Stated otherwise, can an interaction result, for the same actor, in economic Value co-destruction on the one hand, whereas it would also result in experiential or relational Value co-creation, on the other? If so, this would mean that for a single actor, an interaction could simultaneously result in Value co-creation and in Value co-destruction yet, with Value being of two different kinds. Thus an illegal act can create economic Value and may destroy moral or ethical Value and may cause a risk to the actor.
Value starvation, where companies make it difficult for customers to reach them, get information, etc., is a form of Value destruction.
Kaldor-Hicks suggests reallocation (called a Pareto improvement) if at least one person is made better off and nobody is made worse off.
Companies have many non-Value-added tasks, processes, events, wastage that are non-Value-adding. These include starting meetings late (wasting time of many participants waiting for the meeting to start); reading unnecessary e-mails; correcting mistakes (especially for customers and in production or in tax reporting); unnecessary travel, which could be replaced by video calls; 20 people picking up bosses at airports; not doing legal or moral work; being stuck in a traffic jam.
Value co-destruction occurs mostly when there is the misuse of resources, either incorrectly, inaptly, or unpredictably. This happens when the available resources are used, say in an interaction. Companies can misuse their processes to create more Value for themselves, thereby destroying Value for others such as employees and customers. This is planned misuse. Accidental misuse can also be disastrous for customers and destroy Value for them. The reader has examples of what has happened in his ecosystem. Unplanned Value destruction happens when a bus or train is cancelled. Accidental misuse could be throwing a cell phone battery into the fireplace. Corruption destroys Value for some while adding Value for others.
The risk of losing customers this way is highly likely, as 40 percent of customers who had a bad experience will discontinue doing business with the offending firm. To prevent nearly half of consumers from churning after a bad experience, it is therefore crucial that both parties communicate their expectations extensively toward another so Value can be co-created instead of destructed.
Value co-creation has implied that both sides get benefit and that it is mutually acceptable. I get what I deserved. Value is destroyed when I feel I got less than I deserved or if something is unfair.
We also find in a generally positive Value creating merger of two companies, certain entrenched managers destroy Value by their non-cooperation and their attitudes.
Chief financial officers2 often exercise discretion—even sacrifice economic Value—to deliver earnings. Destruction of shareholder Value through legal means is pervasive, perhaps even a routine way of doing business. Indeed, the amount of Value destroyed by companies striving to hit earnings targets exceeds the Value lost in recent high-profile fraud cases.
The same issue arises when looking at executive pays. Should we look at short-term results that may destroy long-term Value or look at long-term Value that may reduce short-term wealth? Value creation and Value extraction must be viewed in a continuum. We must have better metrics for long-term results, perhaps better strategic long-term management; we should then have a strategic management system that allows managers to provide current results while driving toward long-term Value. How do we look at potential growth and innovation? Strategic management performance metrics and incentive design are then also aligned with sustainability and Value creation that benefits the ecosystem. This may destroy short-term Value, and this has to be taken into account.
Value can be created and destroyed in process improvement and service when we ignore other items such as waste created and jobs destroyed.
When any resource is misused or badly used, Value is destroyed. For example, providing a poor experience to a customer. There is a net Value concept to customers where benefits and negative benefits/sacrifices are considered. This, of course, should be obvious from the definition of Value, what you get for what you give or sacrifice.
Value destruction can also occur when Values are abrogated a la Enron fraud and lack of integrity. Value can be destroyed in deceptive marketing. Pfizer agreed to pay $2.3 billion to settle civil and criminal allegations that it violated federal rules governing drug sales. The pharmaceutical manufacturer was charged with illegally promoting its pain-killer Bextra and three other medications by offering doctors speaking fees and subsidized trips to resorts, among other benefits.
Value destruction happens when real estate Values fall, for example.
Value Destruction: Non-Value-Added Tasks Destroy Value
Companies have many non-Value-added tasks as pointed earlier. The definition of Value is benefits minus cost. Others call this, benefits minus sacrifice.
Whatever you sacrifice could be construed as Value destruction. Ouch, this takes too much time or effort, or they make me feel like a fool.
Non-Value-added tasks are actually Value-destructing tasks. A whole discipline has been brought into play where Value destroyed has become important. This in and of itself is an important discipline because it looks at net Value, which is Value created minus Value destroyed minus non-Value-added activities.
Waste can include non-Value-added work (this can be seen in the third and fourth quadrant in the chart in the next section).
However, very few researchers have looked into the possible downsides of Value co-destruction. The risk of losing customers this way is highly likely, as 40 percent of customers who had a bad experience will discontinue doing business at the offending firm. To prevent nearly half of consumers from churning after a bad experience, it is therefore crucial that both parties communicate their expectations extensively to each other so Value can be co-created instead of destructed.
For Customers
Necessary work is essential for, vital to, indispensable to, important to, crucial to, needed by, compulsory required by, or requisite for the customer.
Relevant work is pertinent to, applicable or germane to, or appropriate to the customer. This is work that can be eliminated without deterioration of present service or product.
Work a customer is willing to pay for is termed necessary work.
Every business enterprise has at least eight stakeholder groups, whose concerns must be considered when analyzing business processes: customers, suppliers and partners, managers, employees, creditors, investors, governments, and community groups.
Customer Value Added of task: (Value to Customer after the task) MINUS
(Value to the Customer prior to the task)
Who is the Customer? Are some types of work for internal customers necessary? If such work is free now, would someone pay for these services or work?
It is the final bill paying Customer at the end of the entire Value chain who determines if the work/task adds Value.
Similarly, for Businesses
Necessary work is essential for, vital to, indispensable to, important to, crucial to, needed by, compulsory required by, or requisite for the Business.
Relevant work is pertinent to, applicable or germane to, or appropriate to the Business. This is work that can be eliminated without deterioration of present service or product.
Let us list some of these tasks (see Figure 9.1).
Figure 9.1 Value-adding tasks
The more companies can align their priorities with the those of the customers and make the tasks that are relevant and necessary for customers, which is to make their business priorities the ones important for the customers the more successful they will be.
Customer anxiety, keeping them waiting, ignoring them, unnecessary contact, annoying customers, and poor quality all are a wasted effort for the company and the customer and should be cut out. These are relevant to the customer as they are exposed to these all the time.
In the example, if the company was to take Customer Value, customer experience and effort, customer redressal seriously, and move them into the top right-hand quadrant, then customer needs and company needs would start to coincide. This is shown in Figure 9.2.
Morality and Legality
There is a mistaken belief that ends justify the means. There are some who believe creating Value just for themselves is good. If they have done something illegally or immorally, have they destroyed Value for others?
Figure 9.2 Mahajan task matrix
Many times, in India and elsewhere, businessmen cheat the banks, especially public sector banks. They also cheat on taxes. Both these lead to Value destruction for the banks, the tax system, the country, and honest tax payers. Sometimes the government has to bail out such banks, causing a greater Value destruction for honest tax payers.
There are many examples you can give from your experience.
How VI Applies
The message is create Value and avoid destruction of Value.
Obviously, creating Value is natural (first principle of VI). However, if you do nothing or do not exceed what is expected of you, you could destroy Value. Non-Value-adding tasks and Value starvation are examples (second principle). You could destroy Value by not creating Value for others (third principle). The fourth principle suggests all stakeholder must be impacted positively; else you could destroy Value for some. The seventh principle specifically talks about Value destruction. The eighth principle talks about morals and Values and lack of these can destroy Value.
Consultants and academics in their desire to differentiate themselves bring out new terms for old terms. This I term as a Value reemerging.
Price Justification: This is now called Value Proposition but is no different from price justification.
Waterfall of Needs: This is called the Customer Journey, which I have renamed as the Value journey.
Customer experience: A beefed up version of customer satisfaction (were you satisfied with the experience?)
Customer Success: Whose aim is to create Value.
Value Constellations: This is another way of describing Value Chains. But Value Constellations are nonlinear and describe Value captured from a network of multiple points.
By changing the names, people have re-energized the segment.
Where Do We Go from Here?
As an individual, as a leader, as an executive, as a company, as a society, as an educationist, the world is yours. Create Value and see the impact on you and your Business.
The Value Imperative makes you aware of Value, the Value of Value and Values, of how to create Value consciously, for yourself and your ecosystem, and how to avoid destruction of Value. VI requires a Value-creating mindset and thought process. It takes you beyond functional thinking to Value creating thinking. VI is an enterprise wide/societal thinking and mindset to build a Value creation culture.
Practice Value creation as learnt from The Value Imperative for your success and well-being!
1 Loic Ple, Journal of Creating Value, Vol. 3, issue 2, with permission.