Value Creation: A Dialogue on Models and Methods

Originally published in with Ewald Van den Auwelant and Jan Beyne, AMS Sustainable Transformation Paper Series No. 7, 2022

By Ewald Van den Auwelant, Wayne Visser and Jan Beyne

Antwerp Management School

Contents

Executive summary

Outline and speakers of the two sessions

Introduction: history of value

Defining different types of value
Stakeholder value
Blended value
Sustainable value
Shared value
Integrated value

7 7 7 7 8 9

How the concepts have been applied:
Value creation methodologies
Total Impact Measurement and Management (TIMM)
True Price
Long Term Value
SDGs

10 10 10 11 13

Challenges and how to overcome them Long term strategy and materiality Data collection

12 12 13

Conclusion

References

15
1.
Excecutive
summary
Value creation is the primary aim of any organization and is inherent to sustainable development. In 2020, the Value Creation Roundtable
was jointly organized by ABIS - The Academy of Business in Society and Antwerp Management School as an exchange of knowledge,
competences or ideas on sustainable transformation and positive impact amongst important sustainability actors. The event featured
leading academics as well as companies and organizations whose commitment to sustainability is translating into changes to their value
creation models. Two sessions were organized: one on Value Creation Concepts, where renowned thought leaders were invited to share
their reflections on the models they have developed. This was followed by the second session on Value Creation Methodologies. The
latter Roundtable consisted of experienced business leaders from EY, PWC, Blended Value Group, the Impact Institute and ABIS.
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2.
Outline and
speakers of the
two sessions
Session I - Value Creation Concepts
Speakers:
→
Steven de Haes, Dean at Antwerp Management School
and Ivo Matser, CEO of ABIS, who jointly introduced
the session.
→
Robert Phillips, George R. Gardiner Professor in
Business Ethics and Professor of Strategic Management
at York University’s Schulich School of Business,
discussing stakeholder value.
→
Professor Jed Emerson’s, Founder of Blended Value
Group and an independent strategic advisor to impact
investors,
elaborated on blended value.
→
Professor Stuart Hart, who’s the Steven Grossman
Distinguished Fellow in Sustainable Innovation at
the University of Vermont Grossman School of
Business emphasized on sustainable value.
→
Mark Kramer, co-founder and Managing Director
of FSG and a Faculty Member at Harvard Business
School,
shared his vision on shared value.
→
And Professor Wayne Visser, Holder of the Chair in
Sustainable Transformation at Antwerp Management
School, emphasized on integrated value.
→
Jan Beyne, Researcher, Antwerp Management School
(chat facilitator).
Session II - Value Creation
Speakers:
→
William Evison, Director, Director at PWC
and an economist focused on integrating natural and
social capital.
→
Maarten Dubois, EY’s Director for Climate and
Sustainability and an environmental specialist in
oil and gas.
→
Adrian de Groot Ruiz, Executive Director and
co-founder of the Impact Institute;
→
co-founder of True Price.
→
Ivo Matser, CEO of ABIS (moderator)
→
Karolina Sobczak, Knowledge Manager, ABIS
(chat moderator)
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3.
Introduction:
history of value
Prof. Visser gave a brief introduction to the history of value creation by business, starting with charity and philanthropy, where we have
plenty of instances throughout history. Figures such as Carnegie or Rockefeller institutionalized this concept and started to share most of
their wealth towards the end of their life. Interestingly, we didn’t question so much how those business leaders made their money, so long
as they were generous with giving it away. In the case of John D. Rockefeller, he was the richest man in the world at the time and towards
the end of his life gave away more than 95% of his wealth, but when you analyze his career, he engaged in many ethically questionable
business activities.
In the early 1900s we start to see the first instances of what we now would call
corporate social responsibility. Companies typically set up agreements with
charities and the intellectual foundations of this movement started to emerge.
In the 1960s and 70s, there was still a focus on shareholder value with Milton
Friedman, but the issues of ethics began to appear on the agenda. During the
first Round Table, in a poll, only 11% of the 165 participants thought that we
have moved beyond the shareholder value model for businesses.
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4.
Defining
different types
of value
In order to define different types of value,
we interacted with academic experts
on the various models that have been
developed and used in businesses. It is
clear that understanding in a critical and
thoughtful way these existing theories
and concepts will be important for the
further development and adoption of
sustainable valuation approaches.
4.1 Stakeholder value: beyond shareholder value and trade-offs
Since 1978, the Business Roundtable, an association of chief executive officers of America’s leading companies, has periodically issued
Principles of Corporate Governance. Each version of the document issued since 1997 has endorsed principles of shareholder primacy – that
corporations exist principally to serve shareholders. However, on August 19, 2019, 181 CEOs signed a new announcement and committed to
lead their companies for the benefit of all stakeholders – customers, employees, suppliers, communities and shareholders.
For Robert Philips, one of the more interesting points about the new announcement of the Business Roundtable is that it rings the death
knell of shareholder wealth maximization as a legal requirement. “The idea that you have a legal obligation to maximize shareholder wealth
died”, Philips says. Elsewhere, he writes: “A strong stakeholder manager will look for ways to align the values among stakeholders and this
often involves having creative, third way solutions rather than skipping straight to trade-off.” (Phillips, 1996)
4.2 Blended value: generate a blend of financial, social, and environmental value
Jed Emerson recognized many similarities between ‘stakeholder value’ and ‘blended value’. “We need to recognize that all our ideas are
grounded in social and cultural constructs for how people at different periods of time have understood the nature of value”, he says. According
to Emerson, we need to step back and revise our understanding of the value that we seek to create in the world and then look at what are the
best mechanisms, tools and techniques that we can use - and mobilize these in order to advance that value.
For Emerson, value is fundamentally whole and non-divisible. It consists of economic, social and environmental elements that form the
triple bottom line, but not as separate components. Without an integrated approach to the triple bottom line , the result is a set of trade-offs
that limit the ability to optimize and capture value. In order to pursue strong sustainability integration, organizations must be evaluated
based on their ability to generate a blend of financial, social, and environmental value (Emerson, 2003).
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4.3 Sustainable value: time to take the ‘green leap’
For Stuart Hart, driving conventional economic value by business isn’t enough. If a company wants to be in business for the long term, it
should be constantly growing tomorrow’s capabilities.
FIGURE 1: SUSTAINABLE VALUE FRAMEWORK – STUART HART
Building Tomorrow’s Opportunity
Base
of the
pyramid
Clean
Tech
Nurturing
Engaging
SUSTANABLE
Internal
Capabilities
External
Constituencies
VALUE
Pollution
prevention
Product
stewardship
Managing Today’s Business
Hart’s sustainable value framework shows how global sustainability challenges can help identify strategies and practices that contribute to a
more sustainable world while simultaneously driving shareholder value. “We call this ‘win-win’ approach the creation of ‘sustainable value’
by the firm”, says Hart. Organizations who are ambidextrous by nurturing internal capabilities and engaging external constituencies, as well
as managing today’s business and building tomorrow’s opportunities, are on their way to integrate sustainability from a full perspective.
Stuart Hart calls this a new market space [upper-right quadrant in his framework]. “This is where the work on base of the pyramid really came
from”, he says. Hart explains that there are many opportunities for organizations around new market creation where an organization can
co-create new business models for unmet (societal) needs. For this, organizations need to embrace new business models and build new
collaborative ecosystems (Hart, 2003)
Hart also believes that emerging clean technologies, such as renewable energy and biomaterials, hold the keys to solving many of the
world’s global environmental and social challenges. “It seems to me that there’s a driving need for more investment in the top part of the
sustainable value matrix and that’s what I thought about as the ‘green leap’”, says Hart.
4.4 Shared value: finding simultaneous social and economic opportunities
Mark Kramer argues that companies can move beyond corporate social responsibility and gain competitive advantage by including social
and environmental considerations in their strategies. Business leaders, and Business School students, need to understand that social and
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environmental issues are a part of the business equation and not something that is on the side or a cost to be minimized or avoided.
Together with Michael Porter, Kramer presents three routes for organizations to create ‘shared value’ (Porter & Kramer, 2011). The first is
about finding new opportunities, new products, and new markets. It links to the idea of competitive positioning and differentiation. The
second path is about increasing productivity in the value chain. And the third route is about strengthening the competitive context in which
an organization is operating. “In each of these areas, we’ve seen that companies can be a very powerful actor in delivering positive social and
environmental benefits and they can do it in ways that reinforce their competitive position”, argues Kramer.
4.5 Integrated value: building of multiple ‘non-financial’
capitals through synergistic innovation
“Integrated value is not the same as shared value, although Mark Kramer’s idea represents an important piece of the puzzle”, Wayne Visser
explains. “Indeed, integrated value would not be possible without the emergence of numerous other concepts of value creation that went
before”, Visser continues.
Visser says we need integration at three levels: 1) in our understanding of the forces of breakdown in society, especially how global
economic, governance, societal, and environmental challenges are interconnected; 2). in our understanding of the forces of breakthrough
in society, and how these opportunities are interconnected; and 3). in our management processes to turn breakdowns into breakthroughs
(Visser, 2022b).
For the first two levels, this means integration between the six great transitions to thriving: from degradation to restoration of ecosystems,
from depletion to renewal of resources, from disparity to responsibility in communities, from disease to revitalization of health, from
disconnection to rewiring through technology, and from disruption to resilience of infrastructure and institution (Visser, 2022c). For the
third level, this translates into the six steps of integrated value management, namely rethinking patterns (systems), re-aligning partners
(stakeholders), renewing principles (values), redefining purpose (strategy), re-assessing performance (reporting) and redesigning portfolios
(innovation) (Visser, 2022a).
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5.
How the
concepts have
been applied:
value creation
methodologies
In order to see how various value
creation concepts have been applied,
we interacted with experts on three value
creation methodologies: Total Impact
Measurement and Management, True
Price and the Long Term Value framework.
5.1 Total Impact Measurement and Management (TIMM)
PwC’s Total Impact Measurement and Management (TIMM) framework incorporates and values various non-financial impacts. The frame-
work aims to create a holistic view of what businesses need to understand about their risks, opportunities and their positive impact on
society. “TIMM opens up three fundamental areas to sustainable value creation”, William Evison highlights. The first is about having lower
negative impacts than your peer organizations. “Being less bad is absolutely critical and fundamental to our survival as a human society”,
Evison says. “The second area is finding ways to capture positive societal impacts that aren’t currently rewarded”, Evison continues. The
third area of TIMM is about targeting the negative impacts of others, other sectors, other organizations as business opportunities (PwC,
2022). Notwithstanding the great diversity of approaches in the world, resonance for a basic approach where societal value, on the one hand,
and how to turn that into business value, on the other hand, is seen across more than 20 countries in a plethora of industries (PwC, 2022).
5.2 True Price
“The mission of the True Price Foundation is to create a standard for and adoption of True Prices. A True Price is the market price plus the
social and environmental costs in the value chain of a product”, Adrian de Groot Ruiz explains. “Our vision is that we should work towards
an impact economy where work, technology and entrepreneurship don’t work to accumulate capital, but to engender a better word”, de Groot
Ruiz continues. The True Price methodology aims to go beyond the classic ‘profit and loss’ accounting. It does not only focus on one
capital but instead encompasses various capitals - manufactured capital, intellectual capital, natural capital, social capital and human
capital. Secondly, True Price quantifies not only the value for investors, but for all the material stakeholders, such as employees, clients,
the clients of the clients, governments, etc. “We identified that an organization needs a statement on each of their societal goals, based on
the profit and loss”, de Groot Ruiz explains (True Price Foundation, 2022)
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5.3
Long Term Value
“For companies to genuinely generate long-term value, a focus on stakeholder outcomes should be deeply embedded across the organization
and guided by its purpose”, explains Martin Dubois. “With the methodology of ‘Long Term Value’, EY aims to build further on TIMM and
True Price”, Dubois continues. In the Long Term Value framework, there are three major types of metrics: (1) Consumer Value – how much
trust consumers have in the brand, how much innovation an organization can bring to the market, and what the brand loyalty is; (2) Human
Value - what a company brings to the society related to their workers – such as wellbeing, retention, and diversity. And finally (3) the Societal
Value that you create - everything related to climate change, safety, ethics, etc.
The ‘Long Term Value’ framework recommends a four step process to establish company-specific metrics. The first step is about mapping
the overall purpose of a company. The second step is about assessing what is material to the organization and how the stakeholders value
what is important for them. The third part is about defining strategic priorities of the company, and actions to generate value that meets
what stakeholders estimate as value. The fourth step is about developing metrics linked to what the stakeholders think is important and
the strategic priorities (EY, 2022). As such, double materiality is customized for each individual organization, which can be linked to more
societal value, as for example expressed in the SDGs.
FIGURE 2: LONG TERM VALUE FRAMEWORK - EY
Set purpose - driven strategy
Drive transformation
Demonstrate impact
Purpose and
stakeholders
Competitive
advantage
Business
redefined
Measurement and
communication
What is your purpose
and how does it reflect
stakeholder needs?
How will you create
competitive advantage?
How will you need
to transform vour
business?
How will you measure
and communicate
success?
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6.
Challenges
and how to
overcome them
6.1 Long term strategy and materiality
A first challenge identified in order to create long term value creation and to manage long term risk to business models, is the integration
of sustainability into the strategy. Often, this is the responsibility of a dedicated sustainability team, which is smaller and has less influence
than than the financial department. Identifying the most material impact areas and what the company wants to stand for helps to ensure
that sustainability gets the priority it requires. Implementation strategies include explaining why this is the strategy, starting with quick
wins that give energy, and creating understanding. Recognizing that the path of each company is different is also key (EY, 2022; PwC, 2022).
6.2 Data collection
In order to determine the materiality (importance) of sustainability issues, data is critical. This creates both a challenge and an opportunity.
The challenge lies in the complexity of collecting and managing data for the company and its entire value chain. The opportunity is about
being able to transparently report performance and progress on creating value for society. However, this must be aligned with strategy;
reporting alone does not generate significant value. Most companies’ dashboards and Enterprise Resource Planning (ERP) models are
still adapting to sustainability and new competencies are required when not only dealing with financial data but also societal interests (
EY, 2022; PwC, 2022).
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6.3 SDGs
According to Martin Dubois, businesses try to capture more societal value by linking to the SDGs. “The goals are formulated on a global
level, so countries already have trouble translating that to the country level and then it is very difficult to translate them back to the
company. The SDGs are just not a measurement framework and they were never intended to be such”, he explains. Will Evision agrees,
stating that according to PwC research in 2019 50% of companies have selected priority SDGs, 19% of CEOs or chair statements
mentioned the SDGs, 27% say that they have embedded SDGs into business strategy and 23% of companies disclosed meaningful KPIs
and targets related to the SDGs. Clearly, more progress is still needed, and other frameworks and measurements can help.
“The goals are formulated on a global level, so countries
already have trouble translating that to the country level
and then it is very difficult to translate them back to the
company. The SDGs are just not a measurement framework
and they were never intended to be such”
Martin Dubois
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7.
Conclusion
All the frameworks and methodologies
presented and discussed acknowledged
that they are all working towards similar
goals and shared many key elements.
The task ahead is to use these models
and tools – together or separately -
to develop a coherent narrative and
practical applications for reshaping
value creation by business. It is a
challenge of historic significance
that will be necessary if we are to
meet the Sustainable Development
Goals and create a thriving future in
which we regenerate nature, society
and the economy.
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Selected bibliography
Emerson, J. (2003). The Blended Value Proposition: Integrating Social and Financial Returns. California Management review.
EY. (2022). Long-term value. Retrieved from www.ey.com/en_gl/long-term-value
Hart, S. L. (2003). Creating Sustainable Value. Academy of Management Perspectives, 56-67.
Phillips, R. (1996). Efficiency, Effectiveness, and Ethics: A Stakeholder View. In R. A. R. Edward Freeman, Human Action in Business (p. 17).
Porter, M., & Kramer, M. (2011). CreatingShared Value. Harvard Business Review.
PwC. (2022). Total Impact Measurement and Management. Retrieved from
www.pwc.com/gx/en/services/sustainability/total-impact-measurement-management.html
True Price Foundation. (2022). True Price. Retrieved from www.truepricefoundation.org/
Visser, W. (2022a). Discover the Six Steps of Integrated Value Management, Thriving Series - Part 6, 3BL Media, June 30.
Visser, W. (2022b). The Six Great Transitions to Regenerate Nature, Society and the Economy, Thriving Series - Part 5, 3BL Media, May 23.
Visser, W. (2022c). Thriving: The Breakthrough Movement to Regenerate Nature, Society and the Economy, New York: Fast Company Press.
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