Value Creation

Value Creation

Value Creation Jonathan Poland

Value creation refers to the process of creating outputs that have a higher value than the inputs used to produce them. This is the foundation of efficiency and productivity, as it allows organizations to generate more value from their resources. The following are illustrative examples of value creation.

Commodities

A farmer uses land, equipment, water, labour, sunlight and seeds to grow onions. This process creates value from resources.

Products

A firm manufactures eye glass frames on a production line. The eye glass frames have greater value on the market than the cost of inputs such capital, labor, energy and materials.

Services

A bank uses technology, labour and capital to offer mortgages to customers. This has value to customers as it allows them to pay for a property as they use it.

Processes

A customer support process takes customer issues and inquiries and uses technology and labor to resolve the issue or answer the question. This has value to the customer, so much so that a customer may only purchase products and services that offer customer support.

Machines

A machine in a job shop drills holes in metal. This is part of a value creation process that creates parts for high speed trains from materials.

Information Technology

A software service takes inputs such as data and computing resources to generate monthly customer invoices. This has value to a firm as they need to send customer’s invoices in order to collect revenue.

Work

A craftsperson uses labor and tools to create a canoe from wood.

Knowledge Work

A designer uses software to create a design for a chair. The design may have value as chairs with a useful and attractive design may command high demand on the market. Generally speaking, design is a significant factor in the perceived value of goods and services.

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