Business value
From Meritology
Definition
Business value includes all the forms of value that are necessary for an business' long-term success, from the viewpoint of key stakeholders:
- Shareholder Value — cash return on their investment, plus ownership rights, voting rights, etc.
- Customer Value — benefits customers receive from products or services, net of costs. Includes relationship factors such as trust, confidence, and reputation.
- Partner Value — competitive advantage that suppliers, distributors, and other partners receive through the relationship
- Employee Value — salary and benefits, plus skills, experience, and relationships that enhance their career prospects. Also security, social reputation, etc.
- Manager Value — capabilities to exercise control, leadership, and influence over the firm, including various forms of power, reputation, and managerial knowledge (e.g. strategy).
- Society Value — impact on the physical environment, social environment, culture, political environment, and the common good, etc.
- Intellectual Capital and Business Model — the forces that link and integrate resources and capabilities into a synergistic whole. Without a coherent business model and intellectual capital, there is hardly a business, and certainly not a business that is profitable, growing, sustaining, renewing.
A complete estimate of business value will include adjustments for risk. (Also see: risk adjustment.)
Each industry and each strategic group within an industry has their own mix of business value elements. Some are very simple (e.g. a typical rock quarry) and others are very complex.
Why it matters
Business value matters because it includes all the forms of value that a firm must create to succeed in the long run. While shareholder value is very important, it's not sufficient alone to guide management decision-making. The reason is that, for most modern organizations, their long-term success will be determined by the joint efforts of all their stakeholders. In essence, business value is co-created by the firm and it's stakeholders (or ecosystem or value chain, if you prefer). There's no way to influence the behavior of stakeholders if you don't know what they value.
Most important: the value of information technology (IT) depends critically on it's value to each stakeholder. Whether or not your IT investments contributed to shareholder value depends on the getting cooperation of employees, managers, customers, partners, and even societal agents.
Every good business manager knows this intuitively. However, until recently there was no way to represent this in a value measurement system.
