Why Most Value Creation Initiatives Fail
Every business knows the importance of value creation. Owners know how value creation distinguishes them from the competition; helps secure repeat, stable and loyal customers; provides a unique identity to their brand and solutions, and supports a profitable and sustainable business.
Everyone knows the lack of value creation initiatives results in lost business and reduced business value, threatening customer retention and the bottom line. A focus on the bottom line leads to a shortsighted perspective that fails to recognize the value that quality sales and customer loyalty bring to their business. To accelerate growth and meet sales targets, they prioritize rapid acquisition over value creation. Organizations need to balance achieving continued growth with creating value for their customers and prospective investors.
Reasons Why Value Creation Initiatives Fail
The value creation strategy needs to be holistic. Business owners identify ways to generate value but do not adequately analyze them when determining initiatives necessary to capture a sufficient portion of that value. That lack of analysis leads to missed investments into the capabilities required to sustain long-term competitive advantage.
Such business value creation mistakes can be categorized into distinct types. Some do not correctly estimate the impact of new technologies and business models on company value. Others tightly align business operations with their unique market position and cannot adapt to changing customer tastes. They overlook some elements of the value creation plan or do not understand their interdependencies.
Key reasons why value creation initiatives fail include:
Lack of Urgency
Too often, leaders draft the value creation plan and put it aside, which is worse than not having a plan in the first place. The value creation plan needs to be continually used and reviewed to serve as an effective management tool. Also, no business plan has a good shelf life. It needs to be implemented at the right time and completed within a pre-determined timeframe to deliver the desired results.
Unrealistic or Unclear Expectations
Many value-creation initiatives fail because they attempt to chase unrealistic goals or do not define the objectives. The lack of the right resources and the absence of focus on value creation compound the failure. The value creation plan must include a manageable number of initiatives and goals and assign adequate resources to execute those and achieve them. With effective planning, businesses can improve their chances for the successful implementation of value-creation initiatives.
Lack of Commitment
No pain, no gain. A plan requires follow-through to succeed; lacking that, it fails. Most firms have value creation plans because logic says they should have one, but half-baked effort does more damage than good. Business leaders need to fully understand how these initiatives and the value-creation strategy will improve their companies. Only this knowledge can bring the commitment required to the value-creation process.
No Executive Champion
Without leadership focused on value creation, activities are likely to be de-prioritized for what staff believes is “more important” (e.g., day-to-day operations or short-term goals).
Let’s consider the value creation initiative of building a long-term, loyal customer base. Rather than wasting effort on the wrong customers to increase sales quickly, businesses need to find customers they can count on who can advocate their brand values.
The key is to filter out unsuitable prospects, let go of ill-fitting leads, and prioritize high-value and high-quality information. Leaders should ask questions like:
- How does my solution solve the pain points of this prospective customer?
- Does this lead look like the customers our solutions have already helped?
- Can our solutions address the lead’s most pressing problems?
Companies need not only to create value through their solutions but also customer-facing employees. These people within the company must create value for the company to earn the right customers’ loyalty. They should aim to build genuine, long-term customer relationships beyond mere transactions by offering real value and communicating that value effectively to attract new customers.
Therefore, businesses need executive champions who can hire the right people or train the existing people to be customer-focused, consultative, and insightful to build long-term relationships rather than focusing on a quick win.
Failure to Adapt
When business owners ignore marketplace realities, discount potential problems not having an immediate impact on business, and rely on false assumptions while undermining the facts, their businesses stagnate. This inflexibility lulls them into complacency, which neglects periodic reviews of the value creation plan to adapt to the changes in the market. The failure to adjust allows their initiatives to become misaligned with new business scenarios and miss out on new opportunities. Like all other business plans, even the value creation strategy should be flexible to accommodate changes per market conditions.
No Metrics to Measure Progress
Most planning teams don’t realize the importance of having time-bound, measurable goals. As a result, there is no clear visibility of the progress/performance achieved within a specific period. Without the proper metrics to measure success, they cannot analyze the journey completed thus far or determine how far they need to go.
A value creation expert can help them easily identify company-specific risks and determine what is not working for their businesses via well-defined QA and QC procedures, baseline financial needs, and value. Without quantifiable metrics, a business cannot achieve its value creation goals because management cannot periodically reassess goals, move the yardstick, and realign initiatives.
No Connection Between What to Do and How to Do It
Many companies do not have a plan that correlates value to plan initiatives. After determining growth targets and identifying the value gap (what to do), they must translate them to achievable objectives (how to do it).
Merely knowing the importance of value creation and what will happen without value creation initiatives is not enough. Management/leaders/business owners need to avoid pitfalls in executing value-creation initiatives. Assigning the right people to lead the value creation strategy, involving subject matter experts (both internal and external), involving the entire staff and training them to pursue value creation, and using the right tool to ease the value creation process is essential.