In theory... Value

Emma De Vita's weekly look at management-speak

Value is one of those words managers love. They like adding it, extracting it and creating it. Most of us, however, associate value with Tesco's own-brand baked beans, fizzy pop and bread. So what does this nebulous term actually mean to those who move in management circles?

Whatever you do, don't confuse it with 'values' - an entirely different kettle of fish that relates to the beliefs and culture of a company. Value is a bit more concrete. It was defined by the 18th century Scottish economist Adam Smith (you'll find him on the new £20 note), who said that the value of a good or service is determined by the costs of production.

Successful organisations provide superior value to the marketplace. Managers particularly like it if staff can add value to services or products, and the more you can improve something while keeping costs low, the more profit margin you create. Businesses are forever adding value to everyday things. Used to buying your standard pint of semi-skimmed milk? Well, what if it's organic? Or filtered? Or ethical?

What about adding value to a service? Why not get an extra set of prints when you develop your digital photos? How about having them saved to a CD?

Things are slightly different for the third sector. Everything that a charity volunteer does adds value because volunteers give their time and energy for free. There is no greater value to be added. Sometimes, private sector managers wish they could extract a similar amount of value from their employees, but unfortunately they have to be paid. So 100 per cent value creation will never be achieved in business.

All that can really be hoped for is an efficient and effective 'value chain' (a term coined by management guru Michael Porter). In everyday life, this translates into every part of the organisation knowing what all the other parts are doing and how they work together. Common sense, really.

- Emma De Vita is a senior section editor on Management Today.

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