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22.02.2021

Collaborative governance and value creation: what link?

5 key takeaways about value creation in the organisation

This article summarises the exchanges that took place on Thursday 4 February between Antoine Henry de Frahan and Laurent Ledoux on the subject of value creation within organisations. What is value? How to create it? For what purpose? How to organise it? So many questions that our two speakers tried to answer...

Related topics:

  • Collaborative governance

By: Marine Lhomel

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A response to the triple challenge of organisations

"Value creation is a fairly obvious notion, but beyond the slogan, what is it really all about? For whom is value created? What value are we talking about? How do we create it accordingly? I realised that there was a big gap between the discourse of value creation and the reflection on these questions, which maintains a certain vagueness. In working on these different questions, I came to the conclusion that value creation in the broad sense, when approached in a systemic way, is THE answer to the triple challenge of organisations: prosperity, sustainability and legitimacy", explains Antoine Henry de Frahan.

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In an organisation, the notion of value is often associated with monetary and shareholder aspects. Antoine Henry de Frahan conceives this approach, but he insists that value creation is not limited to finance. According to him, creating value goes beyond the creation of a profit because the organisation has a vested interest in identifying all the stakeholders that can benefit from the value created, not just its shareholders, investors and owners.

The challenge is to define how to concretely deliver value to all relevant stakeholders while optimising the incoming flow of value that these stakeholders create for the organisation.

"The company needs to capture the value that emanates from its various stakeholders. The systemic approach to value creation makes sense as it allows the organisation to move out of a system where the benefit of value creation is reserved for a single recipient. Giving primacy to a single actor, be it shareholders, employees or customers, to make them the exclusive beneficiary of the value created leads to a dead end. The challenge is to define how to concretely deliver value to all stakeholders involved while optimising the incoming flow of value that these stakeholders create for the organisation", describes Antoine Henry de Frahan.

Value vs. impact: what's the difference?

According to Laurent Ledoux, the notion of impact is less precise than that of value. First of all, the impact of an organisation or a leader on the environment or on the well-being of its customers and employees can be positive or negative. You can have an impact without creating value. For example, Trump has had a great impact on global geopolitics; it has destroyed a lot of value in different ways. What is at stake today is to ensure that value is created for all the stakeholders in the organisation, and to do this they must not only be included from the outset in the reflection on the notion of value, but also, and above all, they must be able to contribute, at their level, to the creation of this value.

"We are undergoing a paradigm shift. Yet this vision already existed in the 1960s and 1970s with managers who saw their role as reconciling the interests of shareholders, suppliers, employees and customers. With Milton Friedman's highly reductionist theories of managerial responsibility, organisations and companies focused exclusively on maximising shareholder value, which is a profound mistake. Of course, they should not be neglected, but they are one stakeholder among others. On the contrary, care must be taken to ensure that value is created by and for all stakeholders in the organisation. This is how I believe that organisations can have a positive societal impact and that the notions of impact and value come together", says Laurent Ledoux.

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Value, a totally subjective concept

According to Antoine Henry de Frahan, the notion of value encompasses two important parameters: one creates value when one makes things more useful and/or more enjoyable.

"Value is subjective and exists only in the minds of the people concerned. What creates the value of things is not the things themselves, but the way we look at them. Our view is influenced by our own belief system and culture. The only way to measure value is to ask the people concerned directly, while at the same time taking this subjectivity into account", he explains.

Going further in his explanation, Antoine Henry de Frahan distinguishes two key factors in the corporate culture that may or may not lead to value creation:

  • Behaviour. According to him, culture can be defined as a set of behaviours that are considered normal and that differ from one company to another. From this perspective, the organisation needs to clarify two things: on the one hand, it needs to clarify which behaviours are expected and which are considered non-compliant, and on the other hand, it needs to see how these behaviours create value or not.
  • Imagination. Language, images, stories are mental representations that human beings make. The future of the company is partly based on a set of mental representations shared, or not, by its stakeholders. These representations are just as much a part of the company's culture as are its behaviours.

We can therefore ask ourselves how does value, which is subjective, fit into the organisation's imagination?

In this respect, Antoine Henry de Frahan reminds us that it is in the organisation's interest to combine behaviour and imagination. By limiting itself to a benevolent (imaginary) discourse which, in practice (behaviours), does not change anything for employees, the organisation risks becoming a source of demotivation and, consequently, destroying value.

How to create a real corporate culture?

For Laurent Ledoux, collaborative governance is a means of creating the conditions in which value creation can be experienced on a daily basis by all those who contribute to it, and not only by those who think it should be.

"Everyone, at any time, can reflect on their work, their expertise, their experience and act accordingly to help create value for the organisation. The change of culture that accompanies the implementation of collaborative governance within the organisation will foster this process and thus the creation of value. A very good example of how collaborative governance can work in this direction is the invitation to leave meetings where one feels that one's time is being wasted without embarrassment. It allows employees to avoid meetings that they consider to be destructive of value for them and for the company because they are useless and time-consuming", says Laurent Ledoux.

Antoine Henry de Frahan, for his part, pointed out that it is important to make a clear distinction between values and value, which are very different principles.

"Many companies cut their wings by defining values too restrictively. It is all very well to make transparency, one of the values of the corporate culture, but discretion and confidentiality are just as useful and potentially value-generating. The idea here is not to choose between what appear to be polarities, but to take the best of each according to situations and needs", says Antoine Henry de Frahan.

Value, performance and competitiveness

How do companies measure performance today? By the value that has been created. The real question is: performing against what, to whom and for what purpose?

"There will always be companies that are competitive because they crush everyone. Others have understood that they can derive their competitive advantage in other ways, in the general interest. Indeed, who today still wants to work for firms that are ready to just about lead their market and generate maximum profit? Of course companies are competing, whether to attract customers, talent or investors, but they must take into account the fact that systemic added value has become one of the criteria for the choice of these different stakeholders. If companies persist in overplaying the competition card, they will soon face a problem of legitimacy and long-term sustainability. Their prosperity, for its part, may be assured, but for how long?" says Antoine Henry de Frahan.

For Laurent Ledoux, everything is linked; an organisation cannot say that it is going to be competitive under the pretext that it is betting everything on customers to the detriment of its employees or the environment.

"Increasing the well-being of its employees is one of the best ways for an organisation to have a positive impact, create value and be competitive, as the experience of many organisations and the book "Employees first, Customers second" by Vineet Nayar testify. This does not mean that the organisation should only focus on this, but that it should take it into account", he emphasises.

A collaborative organisation can condition value creation on two complementary levels:

  • Strategic, where the creation of value remains very conceptual and actually serves to give a direction to follow.
  • Operational, where it is then put into practice on a daily basis through the actions of each employee, but also through their more collective interactions.

How can financial partners be convinced of the benefits of extended value creation?

To answer this question, Laurent Ledoux evokes the commitment over time of the different stakeholders of the organisation.

"The company must find the right balance between the time it really needs to create societal value in the broadest sense and the time its financial partners are willing to wait to reap the benefits of their investment. Long-term value creation has unquestionably become a major challenge for all organisations", concludes Laurent Ledoux.

Watch the video (french)

[tb-youtube-iframe src="https://www.youtube.com/embed/ET00c5SKR_I"]

More info about Antoine Henry de Frahan's book Créer de la Valeur ou Disparaître.

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