What is Value Creation?

Without value creation, businesses wouldn't be in business at all. Think of value creation as the ground floor of every organization. As you create value (like the farmer turning seeds into crops), the elevator moves up. When it reaches the top floor, there are consumers waiting and ready to pay for the value created, which generates profits for the business. If there's no value creation, the elevator never leaves the ground floor and the customers look for value elsewhere.

As you can see, value is created from work. Think about it this way: many suppliers provides parts and components that go into creating the vehicle you drive. These parts alone don't hold much value to you, do they? But, when these resources are combined with the skill and work of employees at automobile manufacturing plants, they are transformed into a drivable vehicle. That car or truck provides value to you, so you purchase it. The auto manufacturer, in turn, receives the profits from you, the consumer.

The importance of value creation to both the business and its consumers should now be easy to recognize: Businesses need value creation because it provides financial well-being and keeps them competitive in the marketplace, and consumers need value creation because it provides the products and services we need in our daily lives.