More than creating value, how about capturing it?

I had the pleasure of spending three days recently in a UCLA Executive Education course.
One of the first concepts covered was the role of leadership. What I was taught was that
leaders in the organization not only have the obligation to create value, but to capture it.

Owners are usually pretty solid when it comes to creating new value for clients doing
business with someone else; that is how they launch the business. And, most of the time,
this is how they continue to build the business, by adding more and more value to the
offering.

Sometimes a business starts with a strong value proposition, creating considerable value for
clients and to some extent the company, only to falter. This happens when leadership fails
to recognize and adapt to change.

The change can come from the external side; buyers, suppliers, the competition,
potential competitors, product or service substitutes, or the impact of economic, cultural,
demographic trends and government regulation. Sometimes, the change is forced from
within; financial, generational and so forth.

Many employees in a company are pretty good at creating value as well. I don’t say this to
be factious, but one owner told me that “every employee on my payroll thinks they have a
license to spend.” He meant that it is easy for an employee to spend someone else’s money
under the guise of helping a customer.

Employees at any level might argue that money spent can be justified under the heading

of “creating value.” The salesperson spending money on clients at a very expensive dinner
(help closing the deal); the assistant sending documents overnight when regular mail would
suffice (letting the recipient know how important the documents are); printing color copies
of an internal report (far easier to read) are but a few examples.

Let’s be clear, creating value costs time, talent and treasure. These resources aren’t always
readily visible on the profit and lose statement, balance sheet or on the cash flow report.
But the resources are expended and it is often nebulous what and that value is captured.

I am also not saying that owners should sit around, list all the value added things provided
to clients and ask, “How can we make money on this thing we are now giving away for
free?”

I am suggesting that there are ways to capture value that works for both clients and
companies; supply chain partners as well.

More than a few years ago, when I was in the consumer products world, we were
approached by Sam’s Club with an interesting proposition.

Sometimes cases of product are damaged in shipment. What Sam’s Club asked, rather than
to save up the returned cases and then ship a pallet back to our warehouse for repackaging,
was if they could set the damaged cases aside and along with damaged cases from other
manufacturers, and provide the products to a local food bank.

Sam’s Club provided us with their estimate of anticipated damaged cases based on previous
experience with all their suppliers. The number was reasonable. In return, we would
provide Sam’s Club with a “damaged case rate.” This off invoice allowance on each case we
sold Sam’s Club would cover the expense.

It took us about three minutes to make the calculation. We would save on return shipping,
incoming handling, issuing return stock documents, rework, issuing credits on previous
invoices, and space in the warehouse, not counting labor, printing, postage, and all the
tracking required through the system. We jumped on the opportunity, started saving
money quickly and did our best to bring this value capturing idea to other clients in other
segments.

Capturing value can’t be a once in a while thing for an organization that constantly tries to
create value, it needs to be an all the time thing. Don’t discount the source of the idea; that
idea from Sam’s Club was from an employee working on a loading dock at a distribution
center.

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