Value Added – A Definition [FP]

Value Added, a Definition – Also Fundamental Principle 2

The Peter Principle provides the opportunity to identify a few necessary definitions before the really interesting principles can be introduced.  So, please bear with me for a few posts.

What happens in a “business,” or, to see that this should be able to be applied more broadly, in an “organization” (of 2 or more people) as it functions to make and keep a relationship with a customer?

Let me start with a dumb but workable example.  Would you rather pay $25K for a one ton pile of ore (dirt), or for a car?  I am trusting you picked the car, especially given the asking price.  Why?  Probably because a pile of dirt has very limited value or utility (it doesn’t “do” anything) and a car (to the right person) has a greater value (it “does” lots of things).  Given our cultural influences, we’d probably go with the car.

How did the “value” get there?  By Fundamental Principle 2:

Value is created and added in the particular transformation process performed by an organization, the process that transforms raw materials into finished goods and services.

We can chop up our example above into a number of transformations, as follows:

  • The ore in the ground in the mine – has only potential value
  • The ore delivered to a steel mill (by the mine) – has increased value of place
  • The ore converted to steel ingot (by the mill) – has increased value of specific material properties
  • The ingot converted to quarter panels (by the fabricator) – has increased value of form and function
  • The quarter panels (and other stuff) assembled into a car (by the manufacturer) – has increased value (to the purchaser) of utility, usability.

In each of these steps, “value” of some form and amount is added.  The “worth” of the “value added” is passed on, with associated costs, to the next customer but only if that customer feels (s)he is “getting his/her money’s worth” in the transaction (i.e., both parties benefit).  In this process, one business’ finished good can become another business’ raw material or component.

Have a job? Let me suggest you can profitably (lovely word) view yourself as a “business” having entered into an ongoing exchange with another person or organization (employer) in which you are asked to “add value” to a set of tasks in exchange for a salary and benefits.  You expect the salary and benefits to continue.   Surprise: Your employer expects your “value added” to keep coming.

If you know what your skills and talents are, which ones you enjoy doing, accepted a job to do them, and continue to do them well, you (and your employer) would probably consider you competent.  The Peter Principle doesn’t (yet) apply to you and you will probably eventually earn a promotion (especially if your “value added” is done with excellence).

On the other hand, …  Well, let’s just say that the employer doesn’t care if you know what your skills and talents are and which ones you enjoy, (s)he has only to observe that value isn’t being added at the expected level, and begin to consider you incompetent.  In which case The Peter Principle probably looms large in your future.

What can you do to prevent Incompetence Creep? A few humble suggestions for consideration:

  • Know what your skills and talents and interests are
  • Know which ones you have a passion about doing
  • Avoid the ones you don’t
  • Practice, practice, practice the ones you’re passionate about
  • Find a job doing them, and
  • Add new ones (we will come back to this later)
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About Jim Edmonds

I am a husband, father, mentor, who once was a chemist turned physicist turned marketer turned executive turned missionary turned professor. And survived it all.
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