Does connecting the dots in value creation mean breaking down the silos?

15 July 2014 Written by 
Published in Integrated thinking

If stakeholders are remunerated regardless of the outcome of the value creation journey then it appears to be a risk-free ride.

Having first bite of the cherry, there is little incentive to take risk. Hunkering down in silos provides a strong sense of security.

Dominant players, due to peer pressure, may be forced to focus on unsustainable, short-term value creation to ward off competition.

“the pressure to generate strong short-term results had increased over the previous five years” (63%, as per McKinsey). An even larger percentage (79%) felt especially pressured to demonstrate strong financial performance over a period of just two years or less, and almost half (44%) said they use a time horizon of less than three years in setting strategy[1].

“They( companies ) continue to view value creation narrowly, optimizing short-term financial performance in a bubble while missing the most important customer needs and ignoring the broader influences that determine their longer-term success[2].”

Collectively these dominant players enjoy significant advantages assessing the capital market. It was postulated that the market can remain irrational longer than a rational investor can stay solvent[3]. Such dislocation of efficiency in the marketplace could potentially crowd out more deserving business models. Negative Externalities, in whichever form, are a cost to the society and if not addressed will in due course chip away the trust society has on the system. Morally, it is not sustainable for the society as resources are limited with demand ever increasing and insatiable.

“Stakeholders expect that the company has not profited at the expense of the environment, human rights, a lack of integrity or society.[4]

The first priority will be to break down silos while concurrently empowering stakeholders to participate in team engagement. This translates into greater transparency and accountability. With such a framework in place, risk of acts of material omission intentionally or otherwise can be largely eliminated and or reduced. This structure allows an organisation to focus on doing things that result in real gain in productivity, benefiting stakeholders from within and without. For a poor choice of its competitive position, be it product/service innovation, operational efficiency or customer intimacy, will result in value destruction scaring away capital providers in for the long haul.    

The devil is in the details, and at no time as before are corporate work processes and methodology more key in enabling teams to work together effectively with synergistic sustainable results. The good news is that technology such as the cloud-based Enterprise Social Network can be an enabler breaking down silos. By breaking down silos, behavioural evolution can occur and stakeholders can expect decision-makers to make better choices in strategy and execution for sustainable value creation.

With greater transparency, organisations are well aware their actions will come under close scrutiny of stakeholders and what is communicated to its stakeholders ( to see the connection in the value creation journey ) counts. For the discerning stakeholders, the most important thing in communication is to hear what isn't being said[5]. Need one say more?

In the next post, we will cover: Critical success factors in sustainable value creation.

 


[1] Blinded by the Short Term: How to Frustrate Sustainable Value Creation by Vincent Tophoff, Senior Technical Manager, IFAC - June 18, 2014

[2] Creating Shared Value by Michael E. Porter and Mark R. Kramer - January 2011

[3] The General Theory of Employment, Interest and Money by John Maynard Keynes - Economist

[4] Prof. Mervyn King champions integrated reporting at CA Sri Lanka SEC Corporate Directors Program launch - published : 12:01 am May 26, 2014

[5] Peter F. Drucker - Quotes

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