Value Creation: How to Use Benchmarking Data (Including 3 Examples)

Introduction

In today's world of business the term "value creation" is very common. Many people misinterpret what it actually means, and more importantly don't understand how to turn a concept in to genuine value and future success for the business.

To navigate this complex value creation process, the most successful firms identify key value levers, benchmark their performance, and leverage their resources effectively. So, in this blog we will explore all of these things, including:

• What Is Value Creation?
• What Are Value Creation Levers?
• How Identify Value With Benchmarking Data (Including 3 Examples)
• How To Leverage Key Resources, Capabilities, and Activities
• How To Create A Culture of High Performance
• Conclusion

It is important to remember that achieving sustainable value and growth is the holy grail for business success. Yet, the path to financial prosperity is laden with challenges. So, let's get straight in to it!

What Is Value Creation?

Value creation is the process of generating more for customers and shareholders through factors such as superior products or services, efficient operations, and exceptional customer experiences. It aims to maximize the benefits offered to customers while ensuring sustainable and profitable revenue for the business. Successful value creation enhances customer satisfaction, efficient operations and ultimately leads to improved financial performance.

Defining the Value Creation Process

Value creation is a holistic process that extends beyond financial gains. It encompasses creating value for all stakeholders, including employees, partners, and the community at large. The primary goal is to create a competitive edge and maintain industry leadership by delivering unique and compelling benefits that customers perceive. With that said we think that there are three key areas to consider, which have been outlined below.

Customer-Centric Approach

Customer satisfaction is a fundamental aspect of value creation. Satisfied customers not only drive repeat business but also become loyal customers, contributing to long-term success. Their feedback, preferences, and data play a crucial role in shaping the process for creating value.

Perceived Value

This is what customers believe they are receiving in exchange for their money. It's a subjective assessment influenced by various factors, including the quality of the product or service, customer service, and the overall experience. Understanding and optimizing perceived value is essential for any business.

Achieving Attractive Financial Performance

In the value creation chain, achieving attractive financial performance is the ultimate goal. It's about generating sustainable and profitable revenue that not only addresses shareholder wealth but also enables further growth and innovation.

What Are Value Creation Levers?

In this section, we'll explore the primary value adding activities and levers that can be optimized to generate more for customers and shareholders, including:

1. Operating Model

An efficient operating model is the backbone of any successful business. It encompasses the structure, processes, and systems that guide day-to-day operations. By optimizing the operating model, a company can enhance productivity, reduce costs, and deliver more value to customers. This may involve streamlining workflows, eliminating redundant tasks, and ensuring the right people are in the right roles.

CompanySights is a benchmarking tool that helps determine how many people are required in each function of a business. With benchmarking data like this users can quickly identify opportunities within the operating model of their business.  

2. IT and Systems

In today's digital age, IT and systems play a critical role in value creation. Modern businesses rely on technology for efficiency, data analysis, and customer engagement. Leveraging IT and systems effectively can lead to improved customer experiences, streamlined operations, and data-driven decision-making. Upgrading outdated systems and adopting innovative technologies can be a key driver of increased economic value.

3. Process Improvement

Process improvement is a continuous effort to enhance the way a company operates. By identifying bottlenecks, eliminating inefficiencies, and implementing best practices, businesses can reduce costs, boost productivity, and deliver better products or services. This lever focuses on refining internal processes to drive value creation and improve customer satisfaction.

4. Third-Party Spend

Managing third-party spend involves optimizing relationships with suppliers and vendors. Negotiating favorable terms, reducing procurement costs, and ensuring the quality of products or services received can contribute to value creation. Effective third-party spend management can lead to cost savings that directly impact the bottom line and drive shareholder value creation.

5. Product, Service, and Customer Profitability

This involves a careful examination of the products and services a company offers, which is the start of product and process innovation. You should also perform analysis of the customer base to identify high-value segments.  By continuously innovating, improving product quality, and aligning offerings with customer preferences, businesses can enhance the perceived value of their products and services.

Furthermore, focusing on customer profitability ensures that resources are allocated efficiently, directing efforts toward retaining and growing relationships with customers who contribute the most to the company's success.

This value creation lever emphasizes the importance of understanding the unique needs and expectations of different customer segments, ultimately leading to increased competitiveness and sustainable profitability. It is often a key driver for achieving profitable and lasting business success.

6. Balance Sheet

The key part to the balance sheet is considering the amount of capital expenditure (a.k.a. capex) that has been spent, and how much is planned to be spent (known as the total monetary value). Capex is important because it is the funding for the key pieces of infrastructure in a business.

A well-managed balance sheet is crucial for financial stability and value creation. It involves maintaining the right mix of assets and liabilities to ensure liquidity, solvency, and long-term growth. Efficient balance sheet management can free up capital for investment in areas that drive value, such as product development and expansion.

7. Effective Tax Management

Taxation is a significant cost for businesses, and effective tax management can lead to substantial savings. Strategies may include tax planning, credits, deductions, and compliance. By optimizing their tax management, businesses can reduce their financial burden and allocate resources more effectively.

In conclusion, value creation levers are essential tools for businesses striving to succeed in a competitive landscape. By understanding and leveraging these levers, companies can streamline their operations, enhance customer experiences, and improve their bottom line. Value creation is an ongoing process that requires a holistic approach, addressing various facets of the business to deliver maximum value to both customers and shareholders.

How Identify Value With Benchmarking Data (Including 3 Examples)

Benchmarking is a powerful tool for identifying value creation strategies, levers and ultimately achieving business success. By comparing your business's performance with that of others in your industry, you can gain valuable insights into areas where improvements are needed. To illustrate the process, let's consider three examples in relation to people and the operating model:

Example 1: Revenue per Sales Employee ($M)

In this example, businesses can benchmark their revenue per sales employee against industry standards. A higher revenue per sales employee indicates greater efficiency in the sales process, resulting in profitable revenue and better financial performance. Customer retention, a hallmark of a successful business, can also be evaluated in conjunction with this data.

Example 2: Finance Employees as % of Total Employees

By analyzing the ratio of finance employees to total employees, businesses can assess how efficiently they manage their financial operations. This data can indicate whether the company is allocating resources in a sustainable manner. Successful firms understand the importance of optimizing this ratio to generate more value while minimizing overhead.

Example 3: Employees in High-Cost Countries (%)

For businesses with a global presence, the percentage of employees in high-cost countries is a crucial metric. It directly impacts the cost-effectiveness of operations. Even very big businesses can struggle with high costs in certain regions. Analyzing this data can lead to cost reduction strategies, freeing up resources for revenue growth and product and process innovation.

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How To Leverage Key Resources, Capabilities, and Activities

Successful firms understand that certain elements within their organization are instrumental in creating the most value possible. These elements can be broadly categorized into the following:

1. Marketing Strategies: Crafting effective strategies is the start of the value creation chain and crucial for reaching new customers and retaining existing ones. These strategies should use customer data, consider the customer life cycle, and ultimately help convey the core value proposition and differentiate themselves in existing markets.
2. Sales Processes: A well-structured sales process can significantly impact revenue growth. It helps businesses streamline their efforts, focusing the sales team's time on converting leads into customers instead of chasing unqualified prospects. This is usually achieved through spending the sales force's time building customer relationships on the back of providing outstanding service.
3. Customer Relationships: Driving customer value through building and maintaining strong customer relationships is essential. Customer surveys and data analysis can provide valuable insights, allowing businesses to understand customer preferences, anticipating target customers needs, and provide outstanding service.  
4. Tangible Assets: Tangible assets, such as infrastructure, equipment, and technology, are vital for creating significant value. They enable efficient production and service improvement, which, in turn, leads to more satisfied customers. It is important to understand how much value can be extracted from tangible assets, as they play an important role in the whole value creation chain.
5. People: People are usually both the biggest asset and cost a business. They play a pivotal role in creating value by finding new customers and then providing the service or product. The key ways to gain the most value from people include optimizing the size of teams and improving their performance to ultimately generate more revenue per employee.

How To Create A Culture of High Performance

Creating a culture of high performance within an organization is pivotal to the value creation process. It is more than just working harder; it's about optimizing processes and maximizing efficiency to deliver exceptional customer value and shareholder returns.

A high-performance culture maximizes customer satisfaction, fosters innovation, and increases employee engagement. Satisfied customers are more likely to become loyal customers and advocates for the brand, while innovation ensures competitiveness in rapidly changing markets. Engaged employees are motivated to serve customers and contribute to the company's success.

A company typically creates a high-performance culture through leaders who set the example by demonstrating a strong work ethic and commitment to delivering value. But at the same time some company managers struggle with employee development, which involves offering opportunities for training and personal growth.

Recognizing and rewarding high performance through incentives and a culture of celebration motivates and retains top talent. Data-driven decision-making, clear communication, and alignment with the company's mission and values are also essential components. Ultimately, a high-performance culture results in total value creation. It leads to improved customer satisfaction, increased innovation, and higher employee engagement, driving sustainable and profitable revenue growth.

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Conclusion

In today's highly competitive business environment, understanding the intricacies of such value creation is paramount to building a profitable and lasting business. Those that can effectively forecast revenue, optimize customer relationships, and align their resources with key value levers are well-positioned to thrive.

Utilizing benchmarking data allows companies to gain a competitive edge by identifying areas of improvement and optimizing their value creation strategies. In doing so, they can not only address shareholder wealth but also unlock the potential for long-term success and growth.

As we've explored in this blog, the value creation process is a multifaceted journey that involves creating more value for customers and shareholders. By putting customer value at the forefront, businesses can nurture loyal customers and ultimately achieve strong financial performance.

Key value levers, including sales processes, tangible assets, and strategic management, play a critical role in creating value. Benchmarking data empowers businesses to identify areas for improvement, leading to more value creation. Leveraging these insights and fostering a culture of high performance will set the stage for a bright and prosperous future in today's competitive business landscape.