Value Creation Thinking

Value Creation Thinking: Review

Value Creation ThinkingWhile primarily concerned with explaining value creation thinking and the life-cycle valuation framework, the book also delves into context, specifically how Bartley Madden views evolved.

I find his work compelling, at least in part because he shares my interest in understanding the world from the bottom up, instead of top down. Additionally, he focuses attention on “how we know what we think we know,” which takes me back to my studies in the sociology of knowledge. I am less sure about his embrace of systems theory but he deploys that tool well in the context of analyzing firm performance.

Value Creation Thinking: On Capitalism

Madden deploys several quotable lines of thought.

  • “Capitalism trades war and mutual loss for markets and mutual gain.
  • “Whereas trade in small groups relies on shared cultural norms and reciprocity… Impersonal markets require adequate institutional rules of behavior in order to function properly… the public needs to trust that the system for determining financial success or failure is fair.”
  • “Unless we alter direction, we can expect even more complex laws and regulations, imposing a top-down ‘solution’ to a problem that needs less cronyism and more bottom-up, free-market dynamism.”
  • And he quotes Rajan and Zingales, “Capitalism’s biggest political enemies are not the firebrand trade unionists spewing vitriol against the system but the executives in pin-stripped suits who extol the virtues of competitive markets with every breath while attempting to extinguish them with every action.”
  • Madden’s view flips Milton Friedman. For Madden, maximizing shareholder value is a byproduct of developing a framework for solving problems, rather than the end-game. That makes all the difference.

Value Creation Thinking: Takeaways

The major takeaway of Value Creation Thinking for me is to stop focusing on earnings per share or business volume. Instead, plot economic returns and reinvestment rates to see if your firm is moving through high innovation or if returns are beginning to fade. Madden walks his readers though many examples and demonstrates ways to avoid fading returns on investment, such as 3M nurturing a knowledge-building culture.

Job one for Madden is creating a purpose-driven culture. “Strategy and execution are connected to both the firm’s knowledge-building culture and its ling-term life-cycle performance.” Strategy is not something only created by top management and boards. The best leaders involve all employees in systematically experimenting and learning, focused primarily on pleasing the customer and paying strict attention to their feedback.

Madden gets it; we are in a knowledge-based economy. Value creation involves the whole firm in win-win partnerships, using resources more efficiently. Getting maximum value from all resources, including human resources, is good for shareholders, employees, customers and society alike.

Value Creation Thinking: Explore Further

Value Creation Thinking at the Movies

Five Minutes on the Four Core Beliefs

35 Minutes on Reconstructing Your Worldview – get out the popcorn

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