What exactly is this “VALUE” that great leaders are learning to add?

Let’s take a brief moment to get grounded in what this “value” you’re going to be adding actually is.  Put simply, for something to have value, someone must be willing to buy it.  The value of that “something” is what the ”someone” is willing to pay for it.

In the simplest case, business-wise at least, the “something” is a product or service and the “someone” is a customer.  Businesses only exist if they can make products or services and find customers that will pay more for them than they cost to produce.   When people in a company take a raw material and make it into a product, they are adding value to that material.  Likewise, when someone finds a customer to buy that product, they are adding value to it. 

Adding value directly to products and services is a critical function of every business, but it is limited by the law of diminishing returns.  You can only make products and sell them so fast.  You can only work so hard. 

Great business leaders add a different kind of value.  A kind of value that doesn’t really have any limits.  They learn very early to think in terms of adding value to the COMPANY they are working for.  What makes a company valuable?  Sustainable profits.  The “someone” that determines the value of a public company is the shareholder.  And what that shareholder values is the cash flow that the company creates (or that the shareholder believes it will be able to create in the future).

There are essentially four ways to make a company’s profits go up: 

That’s it.  It still all depends on delivering products and services that customers value.  But increasing the company’s ability to produce and sell them -- rather than just working harder to produce and sell more yourself – allows you to defy the law of diminishing returns when it comes to adding value.

Let’s look at two examples…

If value is being added, people are innovating (coming up with good ideas), communicating (sharing information), and executing (getting things done).

There is nothing else needed to add value other than innovating, communicating and executing.  In fact, not only is nothing else needed, there is nothing else that CAN add value. 

If you were adding value, you were either innovating, communicating or executing.  If you were doing anything else, you were not adding value.  In addition, ALL three need to happen for value to be added.

Let’s look at Susan’s improvement to the widget making process that created $2,000 a day of value.

It started with her thinking up a way to reduce the scrap.  That was the idea.  It was an idea with a value of $1 per widget.  Then, rather than just doing the new better way herself, she shared it with the other 19 workers on the assembly line.  Her communication multiplied the value of her idea by 20 times. 

Then she and the other workers executed the idea.  They executed it 100 times per day per worker.  If they didn’t actually make the change, or they stopped making widgets altogether, the value of all of it would immediately go to zero.  They actually have to keep executing the idea to continue to get the $1 of value per widget.  Conversely, if the sales went up and the company doubled their assembly work force to build twice as many widgets, the value of Susan’s improvement actually doubles as well.

Notice how all of this is actually a multiplication equation.  The value produced equals the value of the idea, times the effectiveness and magnitude of the communication, times the effectiveness and magnitude of the execution.

And just like when multiplying by 0, if any of the factors -- innovating, communicating, and executing -- are left out you create no value at all.  Great idea left unexecuted?  No Value.  Communicate and execute the heck out of a zero value idea?  No value.

I consider this relationship between adding value (the objective of business leadership) and Innovating, Communicating and Executing (the factors needed to produce value) the Fundamental Law of Business Leadership, and I call it The Value Equation:

The Value Equation is a very simple idea.  But understanding its implications can have a profound impact on your Business Leadership Capacity.

The Value Equation makes it possible to visualize how good you are at adding value.  And in doing so, visualize how good you are at business leadership. 

How is your memory for fifth grade geometry?  Not good?  Ok.  I’ll remind you.  The equation for the volume of a box is Length x Height x Width.  Sound familiar?  It should.  That looks a lot like the value equation:  Three factors multiplied by each other to produce a product.  Value = Innovation x Communication x Execution.    This means that we can “draw” the value equation as a box in three dimensional space just like we can “draw” the volume equation as a box in three dimensional space.  Here’s what it would look like:

Recall that the objective of business leadership is to add value to the business, and the way to add value is to innovate, communicate and execute.  What the illustration above is showing is your Business Leadership Capacity.  Your business leadership capacity means your ability to get the right things done.  And by right things, we mean anything that will make the business more profitable.

The “I” or Innovation dimension of the box represents your ability to generate good business ideas. 

The “C” or Communication dimension of the box represents your ability to communicate effectively.

The “E” or Execution dimension of the box represents your ability to get things done.

These dimensions are not as easy to measure as the sides of a box, but the point here is not trying to determine precisely how long each of your value dimensions is.  The point is to use this visualization to help you get better at business leadership.  A picture is worth a thousand words. 

If you want to get twice as good at business leadership, you’re gonna need a bigger box.  How much bigger?  Exactly twice as big.