Value Creation

I've reached the point in my intellectual journey where I cannot think about value creation without squirming a little. Sometimes the words "value creation" are said lightly, but value creation is an abstract concept that can be hard to clearly think about. Often, I have to step back and ask myself a two questions before I can get close to identifying value:

1. Who is the customer?

Creating something of "importance" or something "good" for its own sake is not creating value. There has to be the person who is going to get the joy, removal of discomfort, utility or whatever you want to call it. Sometimes, when I have multiple customers, this starts to become an interesting and complex question. For me, it has become my anchor when I think about value creation.

2. When will the value be created?

I give the Associates a simple example that has allowed me to get my mind around this question. Say you run a lemonade stand. When is value created? For most, the instant answer is: when the customer gives you the money. This was my initial reaction as well. However, think for a bit longer about this. I think the value is created when the customer uses the lemonade and gets the joy from it. It doesn't matter if they are drinking it for the taste or holding the cup for the coolness of it and never actual drink it. The money a customer pays is for the value they expect to get out of it. Usually answering this question uncovers the assumptions about the nature of the value to the customer(s).

Once I have answers to these questions, they usually pave the way to more questions. My experience has been that until I answer these two questions, the other questions are difficult to answer.

Do you have shortcuts that help you think about value? How do you help others work through the abstract concepts of value and value creation? Do think I'm out in left field here?

Comments

[Jonny B]

I find recently I have been subbing the word helpful for value. This helps the buzz word haters actually think about what I am trying to say. The customer focus piece is very helpful to me also, thanks to you Doc Z. (former associate here). In fact, you were the first to help me realize that I can be the only customer for a possible value creating activity.
One thing I like to consider that helps me leverage my value creating activity is the wonderful concepts of scarcity and subjective value. Working with mostly teenagers and teen-like 20 somethings, I find that they are their only customer most of the time and getting them to think in terms of scarce resources being maximized for the benefit of themselves by helping others get what they want, somehow makes it more romantic and therefor more worldly.