Assignment 2: Discussion—Differences between Value and Returns
Evaluating the benefit an opportunity can provide is complex. When measuring an economic benefit, you must look at the real return, the nominal return, and the overall value. In many cases, a project might generate a negative return in the short term but may be of value in the long term. You may take on a project for its business, knowing that the project is a losing proposition but will compensate for this loss by bringing in a new project later that will generate a positive return, or future value. This assignment will illustrate this concept. Firms need to distinguish between value creation and the returns they obtain from their investments.
Locate an article from the Internet or the Argosy University online library resources that deals with firms distinguishing between value creation and the returns they obtain from their investments. You can consult sources such as the Wall Street Journal, Financial Times, Bloomberg Markets, the Economist, US News and World Report, and other publications for conducting this research.
On the basis of the selected article, address the following questions:
What are some of the strategies that firms engage in to create value?
What is the difference between adding value in the value chain and creating returns for shareholders?
Why does adding value to the firm and creating returns for shareholders in the short run and long run matter?
Over the past few years, the term value has changed and created reformed practices within the workplace or business. Though during this time, there are still many corporations that believe the current methods are still ideal when really new and updated methods could be more helpful in the short term. By doing this, they are “missing the most important customer needs and ignoring the broader influences that determine their longer-term success” (Porter, M. E., & Kramer, M. R. (2015, August)). To get out of this state of mind, corporations need to start building shared value. This means focusing on “creating economic value in a way that also creates value for society by addressing its needs and challenges” (Porter, M. E., & Kramer, M. R. (2015, August)). Some companies that have already began to transition to intersecting society and corporate performance are “GE, Google, IBM, Intel, Johnson & Johnson, Nestlé, Unilever, and Wal-Mart” (Porter, M. E., & Kramer, M. R. (2015, August)). But there are still some companies that need to make the move towards the next stage, in order for them to start creating value, there are many different strategies for them to engage in. Somethings they need to keep in mind of is that there needs to be a deeper understanding of public needs, this combined with the bases of the company’s productivity, will allow them to revisit what their mission was in the first place. The last thing they may want to keep in mind of, beside their own personal interest, they would need to have the “ability to collaborate across profit/nonprofit boundaries” (Porter, M. E., & Kramer, M. R. (2015, August)). This opens up the resources available to them and helps better assist societal needs.
To answer the question of adding value into the value chain, it is very possible, especially when “societal problems can create economic costs […] through enhanced resource utilization, process efficiency, and quality” (Porter, M. E., & Kramer, M. R. (2015, August)). One company that we can look at and has been adding value to their chain, is Walmart. This company mainly focused on packaging, but in doing so they have been emitting a large amount of greenhouse gases. When Walmart became aware of what they were doing they realized that something needed to change, they causing damage to both their cost and the environment. To take on both issues, Walmart began, “reducing its packaging and rerouting its trucks to cut 100 million miles from its delivery routes in 2009, saving $200 million even as it shipped more products” (Porter, M. E., & Kramer, M. R. (2015, August)). What this shows, is how a company became aware of a situation and to fix it they added value. Once they have done this they were able to save money and make an impact on the environment as well. While this an example of the affects for a company, let us take a look at how value would affect a stakeholder. The returns that shareholders obtain are the profits after the costs of production. The shareholders increased their returns because the cost of production went down. It is not always so easy to see the connection between value and returns.
As it could take years to fully understand the effects of creating value or returns, it is essential for businesses to look at the long-term. Businesses have to understand, “productivity and a growing awareness of the fallacy of short-term cost reductions” (Porter, M. E., & Kramer, M. R. (2015, August)). But sometimes it can be hard to get shareholders to be invested if the short-term benefits are not up to par with them. So it is important for businesses to look at both the short-term and long-term values. If the long-term becomes stronger than the short-term, this then has to be presented in a way that catches both the shareholders and investors.
Porter, M. E., & Kramer, M. R. (2015, August). Creating Shared Value. Retrieved March 02, 2018, from https://hbr.org/2011/01/the-big-idea-creating-shared-value
Kanter, R. M. (2014, November). How Great Companies Think Differently. Retrieved March 03, 2018, from https://hbr.org/2011/11/how-great-companies-think-differently
Reference for Business. (2018). ECONOMIC PROFIT. Retrieved March 03, 2018, from http://www.referenceforbusiness.com/encyclopedia/Eco-Ent/Economic-Profit.html
IBJ. (2018). Improving the Practice of Business. Retrieved March 03, 2018, from http://iveybusinessjournal.com/publication/values-driven-performance-seven-strategies-for-delivering-profits-with-principles/
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