What Does Value Mean? – Understanding how It is created, maintained and destroyed

Overview

Value creation lies at the heart of business success, but it means different things to different stakeholders. This paper breaks down the concept of value, distinguishing between the creation of utility (use value) and the capture of profits (exchange value), offering a framework for analysing how value is created, maintained, or destroyed within a firm.

Stakeholder Perspectives on Value

• Customers seek the most utility for the least cost—value for money.
• Suppliers aim to maximise what they receive for the use value they provide.
• Employees (human input suppliers) contribute new value through their skills and knowledge.
• Investors view value as the return on capital invested.

The Firm’s Dual Role

The paper explains that firms simultaneously act as:

• Customers, aiming to optimise what they get from suppliers.
• Suppliers, aiming to capture maximum exchange value from customers.

This dual role supports the central purpose of delivering growing returns to investors.

Five Types of Organisational Activity

1. Exchange Value Capture – Delivering goods/services to generate revenue.
2. Use Value Capture – Efficiently acquiring inputs, especially human and inert resources.
3. Capital Creation – Investing in R&D, systems, and training for future value.
4. Maintenance Activities – Necessary operations (legal, finance) that don't generate value but are essential.
5. Value-Destroying Activities – Inefficiencies that contribute nothing and drain resources.

Implications for Strategy and RBV (Resource-Based View)

The paper highlights the difficulty of identifying value-creating resources within firms, especially when profits are reduced by maintenance or inefficiencies. It suggests internal and external benchmarking as tools for isolating activities that contribute to competitive advantage.

Conclusion

Value isn’t a single, uniform concept—it varies by stakeholder and role. By identifying and aligning value-creating activities and reducing value destruction, firms can better serve investors and maintain a sustainable competitive edge. The paper provides a lens through which organisations can examine their operations and reallocate resources to maximise long-term value.