The Nature of Value

While value has many definitions, the one most commonly associated with it in MBA programs and economics courses involves measuring the gap between perceived and actual benefits and perceived and actual costs. This quantification of value as “utility,” even with provisions for such items as the ceiling of the Sistine Chapel and “Layla,” is woefully inadequate and has unfortunately resulted in the rise of labor unions, outsourcing, civil strife, and war.

The idea that “value is added” reflects a bottom-up mentality that would be the envy of Sir Mix-A-Lot. It is an extension of the zero-sum game mindset where Win-Win is what you call your Chinese houseboy, not a modus operandi for achieving grand visions and creating wealth in all its forms. The concept of adding value assumes that a void of value is an inherent base state and further implies with mathematical certainty the limitations of creation.

Contrary to popular belief, value is not some increment of work applied to an input and in successive stages of development until a product pops out into the world, screaming for its superior profitability. Value is the voltage of human potential, waiting to be arced in an electric cascade of social, civil, or commercial beneficence. How effectively value is transmitted past resistance and capacitance into the free-flowing circuits of a business is the determining factor.

Properly designed business processes turn the key in the rusted iron shackles of bureaucracy, redundancy, and the fear of losing control – all constraints devised by humans to be inflicted on humans. But those will only serve the sergeants of effectiveness and efficiency. True value-sourced current requires innovation – the connection between local and nonlocal consciousness - as its fuel. Innovation that is continuous, shape shifting, and game changing, and this can only occur when the human brain is given a suitable environment for connecting beyond the ego.

Productivity is only a measurement of circuit design, not the goal let alone the vision. And value is unleashed, not added. When these concepts are firmly rooted, the next great enterprise has gestated and is ready for birth.

Why We Earn

My time in an MBA program was intellectually invigorating, physically exhausting, and emotionally turbulent, and I'm a better person because of that long march toward a deeper understanding of the capitalist schema in which I worked for over 15 years. At the same time, my mother's childhood admonition to "question authority" was never put to better use than in a graduate business school.

In courses ranging from finance to marketing to strategy we were told that the primary purpose, the moral imperative of every business is to generate an above-average profit. Superior profitability is the reason for existence, the end of the rainbow and The Goal for commercial organizations. To those professors who so righteously proclaimed this dictum I say (in the fashion of my friends from the isles of Great Britain), "bollocks!"

This misguided guidance can be traced as the root of the greatest acts of corporate malfeasance in this new century and much of the last one. Focusing on earnings with a purity of thought is by nature a mathematical endeavor, and as is the case with such undertakings, the numbers become more meaningful than the work or the world they represent. Andrew Fastow, Enron's CFO, was clearly a venal and mendacious criminal, but he achieved The Goal through the classification of loans as revenue and debt as assets - just moving numbers from one column to another. From the perspective of a mathematician, Fastow performed arithmetic functions with Deep Thought accuracy, even if the accounting rules were stretched to a diaphanous veneer that ultimately showed the naked shriveled, and scabrous body that was Enron. This single-minded concentration on profitability was more recently the affliction at Dell, who paid a $100 million fine as a company, and Michael Dell, it's founder, who was relieved of $4 million personally for classifying anti-competitive kickbacks loyalty payments from Intel as revenue.

For both Enron and Dell (and many others), the real creativity offered became that of satisfying The Goal instead of The Customer. Befriending equity analysts is certainly better than beheading them, but not by much when they are confused as the means to create real economic prosperity.

And therein we find the true purpose of the capitalist organization - creating prosperity is to create value. Value creation is the moral imperative, the primary objective, and with it comes customers, markets, analysts, and superior profitability. Want more profits? Create more value. Need more customers? Offer more value. Need to expand your markets? Expand your value. Not only does this concept overturn the stare decisis of the tenured class, it can reverse the concept of marketing itself.

What determines market size, revenue potential, growth curves, and all the other metrics of the modern marketing-driven product company? Value, or the gulf between returns and costs, is the source of these measurements. Widen this gulf and you will expand your market; deepen this ravine and you will accelerate growth. Value is like the baseball field in Field of Dreams - "if you build it, they will come."