How to Optimize Sustainable Value Creation

October 13, 2022

We frequently use a phrase to describe the core purpose of companies as the quest to optimize sustainable value creation. What do we mean by this and how can you make this happen in your company? Let’s break it down:

What is value creation?

Value creation is a company’s reason for existence. To survive and thrive, every company must create/preserve value for stakeholders (customers, employees, suppliers, shareholders, communities and the environment). In turn, a company receives value from stakeholders in the form of continuing relationships and resource supplies. A company earns the right to continued access to these critical resources by meeting the expectations of its stakeholders. Corporate value, while often expressed in dollar terms, is ultimately dependent on and determined by the net perception and support of these partners.

To manage your company’s value creation system, we recommend using a value chain to map how the work being done by a company connects with the continuous multi-directional flow of value. A good map shows how value is created in individual work and processes as well as across the system. This kind of map is fundamental to being able to fully understand and manage value creation.

What makes value creation sustainable?

Sustainability is the use of resources in a way that does not deplete or damage the underlying resource. Sustainability thinking injects a longer-term view into shorter-term decisions. For a company, sustainable value creations is the use of its resources in a way that generates profit and performance today while ensuring that the company and its partners will survive and thrive tomorrow.

Sustainability is measured via metrics that are identified as material to the company and its partners. ESG is a catchall term for a subset of sustainability metrics related environmental, social and corporate governance factors. Attention to ESG has been accelerated due to capital market pressure to mitigate and capitalize on myriad environmental and social risks and opportunities.

To measure the sustainability of your company’s value creation, we recommend bringing integrated metrics—financial, operational and sustainability-focused—to corporate management and decision systems. Key areas where integrated metrics are critical include resource allocation, spending and capital investment decisions.

How can companies optimize sustainable value creation?

Optimization is the process of making something as good or effective as possible. It takes a systems view and accounts for multiple constraints and variables. The introduction of sustainability into business management adds a new level of complexity to the challenge of optimizing business performance.

A good way of seeing your company as a system is to think of it as a value creation system. A system is not just the sum of the parts; it is the product of the interaction of its parts. It is a group of components working together in concert for the benefit of the entire system. To optimize a system, one needs to optimize the components and their interactions. Here are the steps to managing your business like a sustainable value creation system:

  • Use a value chain structure to map your business as a value creation system
  • Use integrated metrics (financial, operational and sustainability-focused) to monitor and report on system performance
  • Use the map and integrated metrics to identify and prioritize opportunities for optimizing system performance in a way that maximizes sustainable value creation
  • Systematically optimize the value chain components in priority order

Want to put your money where your mouth is? Make sure that resource allocation and investment decisions can be modeled and measured by their impact on sustainable corporate value.

Deliver on the Promise

Sustainability and ESG represent a generational challenge and opportunity for all companies. Stepping up to this challenge requires fresh thinking. Want to explore this for yourself? Get started with the free Insights7 interactive demo and free account.

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