Value Added is a Relative Proposition

Business strategy is based on the concept of “value added”. If I can add value for a buyer, I may get a sale. It sounds so simple. And yet, it drives huge flows of capital  and is behind the enormous work of millions in our global economy.

But here is the weird thing. We really don’t know exactly how to predict what adds value over time. If we did know, there were be far fewer business failures. And because we do not know, we talk about risks in the market.

In the old days, this was simpler. Goods were in relatively scarce supply. Producing more and cheaper goods added value. But goods are scarce only in some places.  So in Zimbabwe, a young entrepreneur can do well producing simple things.

So how to measure value added in a setting where goods are not in scarce supply? In this setting, the relative value of goods depends on their connection to a story. If I believe in the need to do something, like climb a mountain, the relative value of mountain climbing gear for me goes up. If I believe in the value of reading a given book, the relative value of that book goes up.

I have identified two elements of value added – belief and implement. The two are interconnected. A stronger belief will lead to a greater need for implements. The best business strategies build stronger beliefs and better implements for the most important ones.

Remember that strategic thinking is what we do when we do not know the right answer. While we cannot know in advance which stories will emerge, we can become more sensitive to how people talk about their beliefs and how they realize them.


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