Companies tend to view themselves in the lens of adding value. They start with the theory that if they provide someone value, then they will exchange their money for what the company is offering. This view means that if we are a growing company it means we are adding value to the world. It’s a view that is deeply flawed as things are far more complicated than that. Add to it that value is an ambiguous term and your left questioning what a growing company actually represents.
Measuring Value
The value a company provides is tough to pin down. It is multi-faceted as a company can have many different impacts on the world. Generally value is viewed in terms of the consumer. That if a company has a service or product it must create value or no one would buy it. While from that view this is true, many other factors are at play when determining what value a company actually adds.
If a company is in a competitive field without much differentiators, does it really add value? If it disappeared overnight, would another company not simply fill the void? Competition in this sense is actually negative drag on value. If it is a company with no competitors, would people not be forced to buy it as they have no other choice? This leads to clarifying that we can only measure value on products or services that are simply wants and not needs. Needs would seek to be filled regardless, so while there is value here it is assumed value. Whether people can properly assign value to what they buy is where it becomes interesting. If this was the case, why do so many companies appeal to emotions? Is value not dictated by logic? If I let you smell the food, thus making you hungry, does that make the food more valuable? If I choose to make a limited supply for no other reason than to drive up the price, does the true value of the item really go up? Or is it simply an artificial rise in price and denotes nothing about the value.
The issue is we tend to consider price and value as one and the same. At some point this was true, but as time has gone on we have drifted away from this. We have created a world in which money is no longer tethered to value. As banking has grown more complex, the monetary system can be controlled more than it has in the past. The value a company creates is instead now a complex algorithm of many different factors. It is a holistic view of everything that the company effects. A business succeeding and failing can have little to do with the value they create and more to do with its ability to navigate the current climate. They can also leak value until they are more destructive than impactful. Businesses want you to believe they are adding value, not only inspire those within the company, but to also justify the things they do. Once you realize value and money are no longer tethered it can lead to startling discoveries, like how a lot of companies do not provide value to the world.
Impact Organizations
Value is vague and can be hard to measure. It is hard to imagine due to it being so ambiguous. It fails to convey exactly what companies can do. This is where impact comes in. Impact is defined as having a strong effect on someone or something. Impact is far more meaningful than simply providing value. It is a better indicator to measure a company with. Providing value is what people can do at an individual scale, but when it comes to large organizations the scale it has is what creates impact. It is the responsibility of the organization to take into account the impact that it has, both on the world and the people that it serves. For companies, the focus on impact can be primary or secondary.
A company must take in more money than it spends to be able to stay in business over the long term. Outside of this is the question of what is the primary motivator in making decisions for the company. For most companies the focus is on increasing revenue and eventually profits. This is what helps guide companies on what to do next. These companies can then choose to have a secondary focus on impact. Once they have made the decisions on making more money, they then focus on how the company can have a larger impact. While focusing on impact in any manner is good, when it is simply a secondary focus it can be lost by the never ending focus on increasing profits. The question becomes can a company increase profits without increasing impact? The answer is a very easy yes. The two don’t have to go in the same direction. Generally, when impact increases so do profits but when profits increases impact tends to decrease as that is where you are pulling the profits from. When a company makes impact as their primary motivator, they seek to increase the impact they have with the idea that it will take care of their secondary motivator of making a larger profit. There is, however, a third setup which I call an Impact Organization. This is where the company makes impact their only motivator. This means they have little motivation to make a profit as anything that leaves the company is impact they could have had. Outside of keeping the organization in business, an Impact Organization is focused on optimizing their business to have the highest overall impact they can have. The impact a company has is measured by what I call an Impact Differential. This is the difference between the companies impact and the revenue it brings in.
Impact Differentials
Measuring impact is difficult. An organization can have impact in many different areas depending on what it does. To simplify what areas an organization can have impact in, we can break it down into two categories which are people and environmental. Within those two categories, each can be divided into external and internal. For people, internal refers to the people you interact with while operating your organization; this can be employees, contractors or vendors you work with. External refers to anyone who interacts with your organization from the consumer side. For environmental, internal refers to the environment and community that is effected by operating your organization. External refers to the environment and community in regard to the effect that you have on them from actions you willingly take. The totality of both these categories is what make up an organizations impact. This is what to use when figuring out your impact differential.
The impact differential is determined by finding the difference between the impact you have and the revenue you bring in. For an Impact Organization, the goal is to have the highest possible differential while staying in business. The indicator uses revenue as opposed to profit because revenue is a better indicator on the monetary impact you have on those who interact with your organization. Profit can misrepresent this especially when a company is intentionally manipulating how much it profits. This indicator should guide an organization when deciding what steps to take next. Increasing revenue without increasing impact proportionally will lead to lowering your impact differential. While profit isn’t inherently bad, it generally comes at the cost of impact. This is more obvious as a company ages since it no longer grows its impact at the same rate, yet is pressured to increase profits every year. The impact differential should taken into account for all decisions at an organization. It is one that should be baked into its mission even if that means as a secondary motivator.
