How do organisations add value to their business?

A business needs to be able to create value for its customers. It is essentially what makes a business what it is. Next to a business brand, it is essentially how organisations build a reputation. In today’s fast-paced and competitive landscape, organisations constantly seek ways to stay ahead. Value creation and capture are key factors that can make all the difference. Value creation is about generating customer benefits, while value capture is about ensuring that the organisation benefits financially from the value it creates. For example, Amazon consistently creates value for its customers through vast product selection, competitive pricing and Prime membership. Amazon’s Prime service offers benefits like fast and free shipping, access to streaming services and exclusive deals, making shopping and entertainment easier and more convenient. An organisation may use innovation to capture value and successfully turn the value it captures into profit. 

Nespresso, founded in Vevey, Switzerland in 1986 by Nestlé, is the manufacturer of pod-based premium coffee. They were the first brand to offer coffee machines and capsules. Nespresso innovates by offering a premium experience and then monetises that experience through high-priced branded capsules, demonstrating a strong value creation strategy. Anything that adds value to an organisation means it will make a positive impact on its operations, products, services, or bottom line. It involves identifying areas for improvement and implementing changes that benefit the organisation as a whole. Value capture can take many forms, from improving processes and reducing costs to developing new products and services.  

What are the advantages of adding value?  

1. It gives a product or service a sense of self-worth, which is important as the value is created from quality procedures and standards that make the product good enough for the consumers in the market where it is intended.  

2. Value-added products or services may potentially increase profitability, as they can command higher prices. For example, adding a camera to a mobile phone increases its market value.

3. Employees feel valued. If an organisation's employees feel valued, it can boost morale, and they may experience a higher level of job satisfaction and increased productivity. The value created and captured has an impact on their day-to-day activities.

The disadvantages of adding value

1. If not nurtured, value creation in business organisations can increase costs as it requires investments, and the costs of those investments have to be managed.

2.  Adding value often means changes to the business processes. If not managed properly, it may lead to operational inefficiencies, which may mean longer production times, more training of staff, or additional customer support, for example.

Useful key evidence and insights

Value creation drives profitability; it does so by aligning business operations with business needs. For example, a business may need to increase its market share to stay competitive. By offering more value, businesses are more likely to gain a larger share of the market, whereby customers are more likely to choose a brand that delivers more benefits for their customers. 

Insights from the IMD Business School

Value creation in football clubs