Today’s posting is a little different. Most of our topics fall clearly into one of our three main categories of topics from LEAD 365: 1) Being a person worth following; 2) building a great team; or 3) creating clarity around purpose, vision and value.
Today’s topic is part of LEAD 365 but doesn’t fit so neatly into one of these three categories. I suppose you could say it spills into all three. It also doesn’t fit so well into “leadership” as we describe it in the very first session of LEAD 365—it might fit better into the management category. It probably aligns more with an MBA program than it does with our leader development program.
With all of that said, we still think it’s an important topic to cover, so I’m choosing to write about it today to remind you of it and hopefully get you thinking about it in new ways.
The Value of Business
How well do you remember your Business Acumen day? What do you remember about value and how important it is? You may recall a premise we have that “Value Wins!” If you are not producing as much value as someone else could and would, you’re in danger—either as a company or as a person in a specific position. Value is really important and you ignore it at your own risk, because in the long run, greater value will always win.
Do you remember what we covered from the first two chapters of Conscious Capitalism regarding the value that capitalism has brought to the world? The authors point out how much good was produced in the world when the capitalistic free-market philosophy was unleashed.
I have a friend who was CEO of Campbell’s Soup for many years, and I remember him commenting once about the fact that all money is created by the private sector. The money that is created in the private sector then fuels everything else in our country through taxes and donations. As such, the value of creating and running businesses is a worthy endeavor. Businesses fuel the economy and can enhance everyone’s life in one way or another.
Of course, like any economic system, people come to have unequal amounts of power and that power is often used for selfish or greedy purposes rather than unselfish or philanthropic purposes. This is true of capitalism and any other “ism” system you might want to mention like socialism, communism, etc.
This is why the authors propose that a “conscious” version of capitalism is what is needed for the world to be its best. I agree with them and this is one reason why we integrated portions of that book into our year-long curriculum.
When, later in the year, we talked about having a meaningful purpose for your organization, we mentioned that a possible default purpose is just to provide jobs to people. As one author said, a job is the greatest social program of all time. Not only does it provide income for one’s life and family, it also provides challenge, structure, social networks, and much more. A job truly is a great way to help a person live and grow.
The Business of Value
You may also recall from that session in LEAD 365 that we had a focused conversation on “value.” Do you recall how we defined value? It’s interesting to ask someone how they would define it, which I did recently. Sometimes it’s not easy to put a concept we know well into words. He struggled, and I think most of us do. I’m curious to know how many of you remember our definition of value.
Our definition for value is “perceived benefit gained by something divided by the perceived cost of that same thing.” Perceived benefit divided by perceived costs
To one person, a brand new car that’s never been driven by anyone else, which still has that new car smell (or what some of us would call the outgassing of plasticizers), is well worth the significant amount of depreciation that happens the moment your drive it away from the dealership.
A brand new car usually costs several thousands of dollars more when compared to buying that same model one year old with 12,000 miles on it. To one person, the benefit of having a brand new car far outweighs the cost of the depreciation. To another person, that benefit isn’t even close to offsetting the extra cost.
How one weighs the amount of benefit of something is very subjective.
But what about the costs? Many of us would assume that the costs (notice I’m using the plural word here?) of something are objective and easily measured. It’s just the dollars spent to obtain it. In the example above, those costs might be $30,000. But here again there’s more to it than meets the eye.
There are also the costs of where I have to go to get the car. We once drove almost two hundred miles to a dealer that had the kind of car we really wanted. That was a pain. That was a cost, not only in extra dollars on another car, but also in time and hassle. But the benefit of that particular car, which we couldn’t find closer to home, was worth it to us.
The older I get, them more I realize that “hassle” is a big portion of what something costs for me. Lately, I often pay more for something in order to save the hassle. I used to put in my own plumbing when buying a new sink, or dishwasher, or ice maker. No longer. The cost of dealing with plumbing is much higher for me these days.
So not only are the benefits of something subjective, but the costs are also subjective. This makes value, the resultant of these two, doubly subjective. One way to experience this subjectivity of value is to ask how much your house is worth, or how much your services are worth, or how much a great athlete, like Tom Brady, is worth. The answer that I subscribe to is, he’s worth what someone is willing to pay him.
Ultimately, successful businesses, and even successful non-profit organizations, understand this value proposition, either inherently or cognitively. The deal is that in order to offer more value than a competitor, I either need to offer more benefits for the same cost, or the same benefits for less costs—or even better, more benefits for less costs.
In a month or two, I’ll write more about how to intentionally create this kind of value to ensure you and your company aren’t at risk of having someone else provide more value than you.
In the meantime, I hope you and your organization bring lots of value to the world this week!