How Value Creation is Measured

The most simplistic way to measure value creation is through Revenue. This measure ensures that the process of value undertaken wasn’t worthless, if someone is willing to pay for it.

Revenue is the measure of value creation — not profit. A company can create value without creating a profit, and many do. But they don’t do it for long.

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Why Value Creation is the Foundation of Business: How to define it, measure it, and manage it

medium.com

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A Precise Definition of Value Creation

Business begins with value creation. Because value creation is the starting point for all businesses, successful or not, it’s a fundamental concept to understand. Here’s what is to come in this collection of wisdom about value creation:

  • Definition of Value, and how it can be created
  • Evolution of value creation through history, and in the future
  • How value can be measured and managed

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As we look at the changes in the way our economy has created value in the past 100 years, we’ve shifted from a focus on huge mechanical production during the industrial revolution to more creative and customized production through the information age. Software and related services dominate more and more of value creation.

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A pattern of matter, energy, and/or information has economic value if the following three conditions are jointly met:

1) Irreversibility: All value-creating economic transformations and transactions are thermodynamically irreversible.

2) Entropy: All value-creating economic transformations and transactions reduce entropy locally within the economic system, while increasing entropy globally.

3) Fitness: All value-creating economic transformations and transactions produce artifacts and/or actions that are fit for human purposes.

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Value is created through work. This work could be mechanical (cutting a tree down and turning it into lumber) or creative (creating a logo or writing a paper). Not all work is value-creating (sisyphysian tasks like moving rocks from one place to another, then back).

The purpose of a business is to create value (through work), sell or trade it to customers, and capture some of that value as profit.

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A business model shift is a deliberate and systematic move toward more relevance and value for customers, and as a result growth of your organization. Business model shift can reflect bold moves into wholly new business models. 

But more often, shifts start as small moves inside an existing business model that evolve into entirely new ways of creating value and relevance.

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Business Model Shifts

Business Model Shifts

by Patrick van der Pijl

Good Pricing Strategy.

Pricing strategy helps you determine the price point at which you can maximize profits on sales of your products or services. Factors to be considered includes:

Costs: Overheads, production and distribution.

Competitors: Offerings and positioning strategies.

Customer: Target customer profile.

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6 Different Pricing Strategies: Which Is Right for Your Business?

quickbooks.intuit.com

Organizational Health

According to a decade long research, the health of an organization is based on alignment with a robust strategy, deep-rooted culture, and a clarity of vision.

The health of an organization can also be defined as the capacity or ability to deliver superior financial and operating performance.

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The hidden value of organizational health--and how to capture it

mckinsey.com