Introduction
Present-day organizations have to deal with numerous threats and challenges, both from their competitors and from the business, social, economic, political, and legal environments. They have to deal with governmental regulations, industry rules, social constraints, tough competition, depleting natural resources, inflation, natural disasters, and other factors that can undermine their success. Experts argue over the essential components of a business needed to ensure a company’s capability to stay afloat. Yet most agree that no successful business is viable without value creation, sustainability, and innovation. These key concepts taken together create the foundation for growth and development regardless of the industry.
Value Creation
Any business, no matter how successful it promises to be, needs to create value as a starting point. In fact, the institution as such does not exist without value, which must be delivered to the target audience in an efficient way that enables profit generation.
Value, which can be defined as the health, well-being, and worth of the business, can be attained only through work, either mechanical or creative. Yet, not every kind of work is capable of producing value as an outcome, which implies that the primary goal of each company is to identify what activities are potentially value-creating.
There are three major conditions that have to be met by organizations in order to have value:
- Irreversibility. All types of economic operations, transactions, and transformations, conducted within the company must be thermodynamically irreversible to be deemed valuable.
- Entropy. Value-creating activities have to increase entropy at a global level while reducing it locally.
- Fitness. In order to be value-creating, the firm must produce artifacts or provide services that satisfy a particular set of human needs.
Combining these three components into one definition, value creation is an irreversible process, imposing inner order on business activities and giving resources higher usefulness to potential consumers.
Although each activity can be value-producing, it would be wrong to state that value is created equally. In fact, there are types of value, as well as strategies of its creation, that bring about more benefits than others. First and foremost, this is determined by the substitutability of the product or service. If customers have a wide range of options and the company’s offer is not meaningfully distinct from those made by its competitors (which means that the business is in competitive equilibrium), there is a strong chance of failure.
When competitors are undifferentiated, any of them can replace another one. Thus, products or services must be unique to be able to produce the value that would create a competitive edge. It is important to remember for any business that each successful company is drastically different from its rivals since its success came due to finding an unprecedented solution to a given problem. In more general terms, the business is thriving if it manages to do something that others cannot.
These are the activities involved in value creation:
- Inbound logistics. It encompasses all processes connected with the storage and distribution of inputs.
- Operations. They cover transformational processes performed in order to obtain outputs that are to be purchased by the customer.
- Outbound logistics. This refers to product delivery to the customer.
- Marketing and sales. These processes are meant to advertise the value of the product, showing its advantages over those offered by competitors.
- Services. They include all activities necessary to maintain the created value once the product has already been purchased.
Although each business has its own version of each of these activities, the whole set should be present to create the foundation for producing value. However, it is not enough for companies to have value–they must ensure that it will be sustainable.
Sustainability
Business sustainability is a process of managing financial, social, and environmental risks and concerns that allows organizations to achieve ethical and responsible success. To put it another way, sustainability characterizes business resiliency over time, which depends on its ability to overcome challenges and survive shocks by relying on effective financial, social, and environmental strategies.
In order to be sustainable, companies must follow the principles of sustainable development–the ones allowing businesses to satisfy the needs of the present-day population without compromising or undermining the ability of future generations to do the same. Sustainability requires that organizations have to address the following issues:
- Economic development – efficiency, prosperity, innovation, productivity, etc.;
- Social equity – human rights, health and wellness, unemployment, poverty, etc.;
- Environmental accountability – biodiversity, extinction of species, land use, climatic changes, etc.
The following practices are considered to be the best to foster sustainable business:
- Stakeholder engagement. Organizations should not rely exclusively on their own experience–they must be able to learn from their employees, customers, partners, and the whole community. It is essential, not only to find the like-minded for support and joint decision making but also to understand the opposition to be able to surpass it.
- Environmental management systems. These systems help companies to embed environmental efficiency into their corporate culture and organizational strategy. They provide standards of processes and structures that facilitate interactions with the environment. ISO 14001 is currently the most widely accepted standard but there are also region- and field-specific ones.
- Reporting and disclosure. Sustainability is impossible without management and control. Companies are free to decide their level of transparency to outsiders as well as their reporting standards.
- Life cycle analysis. The products manufactured by the firm must be systematically analyzed as per their social and environmental effects.
Companies that manage to achieve sustainability attract more labor force and experience fewer risks. As a result, they are usually more progressive and open to innovation.
Innovation
Innovation is the process of looking for new ideas and solutions that could lead to the creation or improvement of the product, service, or process. Innovation is crucial for any company since its value and sustainability depends on the ability to be flexible in the changing business environment. Innovation assists organizations in:
- Problem-solving. It is highly improbable to be able to solve problems using the same thinking that created them; it requires another perspective, which is provided by innovation.
- Adaptation to Black Swans. Black Swans are unpredictable events that may present challenges, demanding new approaches. Innovation allows finding unprecedented solutions to obtain benefits from such events.
- Taking advantage of international entrepreneurship. The movement is now popular, especially in emerging markets, and is aimed at making the business world a more sustainable place. Innovation empowers organizations to enable their people to strive for prosperity and a better future.
- Using Blue Ocean possibilities. This implies that innovation helps organizations make effective strategic moves to create ‘blue oceans’ of uncontested markets.
- Keeping track of new technologies. Technology is one of the key factors changing the basis of competition; the companies that can successfully implement the most recent technological solutions are proliferating via modern equipment, cloud computing, social media, internet of things, etc.
- Responding to increasing expectations. Human-centered innovation increases value by immediately addressing the customer’s changing needs.
- Maximizing connectivity. Innovation opens new horizons to businesses since it creates opportunities for international trade and investment.