Value Creation Measure

A Value Creation Measure is a quantitative indicator that assesses the additional value generated by an entity, process, or activity for stakeholders through resource transformation, capability application, or opportunity exploitation.

• AKA: Value Generation Metric, Value Addition Indicator, Value Enhancement Measure, Worth Creation Gauge.
• Context:
  • It can typically quantify Economic Value through financial performance assessment.
  • It can typically monitor Value Creation Process through value chain analysis.
  • It can typically evaluate Investment Effectiveness through return measurement.
  • It can typically compare Resource Input against Value Output through efficiency evaluation.
  • It can typically align with Stakeholder Expectations through value delivery assessment.
  • It can typically inform Strategic Decision through value creation insight.
  • It can typically differentiate between Short-term Value Creation and Long-term Value Creation through time horizon analysis.
  • ...
  • It can often incorporate Multiple Value Dimensions through balanced measurement approach.
  • It can often identify Value Creation Drivers through causal factor analysis.
  • It can often highlight Value Creation Opportunity through performance gap identification.
  • It can often support Value-Based Management through objective setting.
  • It can often incentivize Value-Creating Behavior through performance evaluation linkage.
  • It can often detect Value Destruction Risk through early warning indication.
  • It can often evolve with Business Model Change through measurement adaptation.
  • ...
  • It can range from being a Financial Value Creation Measure to being a Non-Financial Value Creation Measure, depending on its value measurement approach.
  • It can range from being a Shareholder Value Creation Measure to being a Stakeholder Value Creation Measure, depending on its value beneficiary focus.
  • It can range from being a Short-Term Value Creation Measure to being a Long-Term Value Creation Measure, depending on its value assessment timeframe.
  • It can range from being a Tangible Value Creation Measure to being an Intangible Value Creation Measure, depending on its value attribute materiality.
  • It can range from being a Direct Value Creation Measure to being an Indirect Value Creation Measure, depending on its value connection proximity.
  • It can range from being a Retrospective Value Creation Measure to being a Prospective Value Creation Measure, depending on its temporal orientation.
  • ...
  • It can be used within Financial Reporting for performance communication.
  • It can be integrated into Executive Compensation for incentive alignment.
  • It can be applied in Investment Appraisal for opportunity assessment.
  • It can be incorporated into Balanced Scorecard for strategic management.
  • It can be utilized in Merger and Acquisition Analysis for synergy valuation.
  • It can be employed in Value Chain Analysis for process optimization.
  • It can be featured in Sustainability Reporting for long-term value demonstration.
  • It can be included in Investor Communication for investment thesis support.
  • ...
• Examples:
  • Financial Value Creation Measures, such as:
    • Market-Based Value Creation Measures, such as:
      • Total Shareholder Return, measuring shareholder value creation through stock price appreciation and dividend payment.
      • Market Value Added, assessing market value relative to invested capital to determine value creation efficiency.
      • Tobin's Q Ratio, comparing market value to replacement cost to evaluate value creation effectiveness.
    • Accounting-Based Value Creation Measures, such as:
      • Economic Value Added, calculating economic profit by subtracting the cost of capital from operating profit.
      • Return on Invested Capital, measuring invested capital efficiency through profit generation.
      • Cash Flow Return on Investment, evaluating cash flow generation relative to investment.
  • Operational Value Creation Measures, such as:
    • Productivity Value Creation Measures, such as:
      • Total Factor Productivity, measuring overall efficiency of production factor utilization.
      • Revenue per Employee, assessing workforce productivity through revenue generation capability.
    • Quality Value Creation Measures, such as:
      • Defect Reduction Rate, quantifying quality improvement through defect minimization.
      • Customer Problem Resolution Time, evaluating service value creation through issue resolution efficiency.
  • Stakeholder Value Creation Measures, such as:
    • Customer Value Creation Measures, such as:
      • Customer Lifetime Value, calculating long-term customer relationship worth through future profit stream estimation.
      • Net Promoter Score, assessing customer loyalty-based value creation through recommendation likelihood.
    • Employee Value Creation Measures, such as:
      • Employee Engagement Index, measuring workforce value contribution potential through engagement level.
      • Knowledge Value Added, quantifying intellectual capital contribution to organizational value.
    • Social Value Creation Measures, such as:
      • Social Return on Investment, calculating social impact relative to resources invested.
      • Shared Value Metric, assessing simultaneous business and social value creation.
  • Innovation Value Creation Measures, such as:
    • Research and Development Value Creation Measures, such as:
      • Innovation Revenue Percentage, measuring new product contribution to overall revenue.
      • Patent Economic Value, assessing intellectual property worth through future profit potential.
    • Digital Value Creation Measures, such as:
      • Digital Engagement Value, quantifying digital interaction contribution to customer value.
      • Platform Value Multiplier, measuring network effect value creation through ecosystem expansion.
  • ...
• Counter-Examples:
  • Value Extraction Measures, which assess value redistribution rather than value creation.
  • Cost Reduction Metrics, which focus on expense minimization without value generation consideration.
  • Activity Volume Measures, which track action quantity without outcome value assessment.
  • Resource Utilization Indicators, which monitor input consumption without output value evaluation.
  • Compliance Metrics, which measure regulatory adherence without value creation contribution.
• See: Value Measure, Value Creation, Value Extraction, Stockholder Value Maximization, Value-Based Management, Value Chain Analysis, Value Driver, Performance Metric, Balanced Scorecard, Economic Value Added, Total Shareholder Return, Return on Investment, Customer Value Proposition, Strategic Value, Value Creation Process.

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References

2014

• (Lazonick, 2014) ⇒ William Lazonick. (2014). “Profits Without Prosperity.” In: Harvard Business Review, 92(9).

2013

• http://www.businessdictionary.com/definition/value-creation.html#ixzz3Gk6ZcOmz
  • QUOTE: The performance of actions that increase the worth of goods, services or even a business. Many business operators now focus on value creation both in the context of creating better value for customers purchasing its products and services, as well as for shareholders in the business who want to see their stake appreciate in value.

1987

• (McChesney, 1987) ⇒ Fred S. McChesney. (1987). “Rent Extraction and Rent Creation in the Economic Theory of Regulation.” In: The Journal of Legal Studies.

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