The five principles characteristics of value:
Value is the core purpose of business; we have already seen that our current preconception of such a vital concept is misleading and distorts how we perceive just about every aspect of business and the economy. Just how far our preconceptions are distorted are confirmed when we clarify the five principles characteristics of value.
- Subjective, By definition, Subjective value is Subjective, unique to the individual. It is the buyer that places the value on the productive output. Taking one price at the point of sale takes little account of how different people value productive output. Most of current pricing is a best guess at an average taken from the seller’s perspective.
- Dynamic– the buyer’s perception of value is constantly changing according to the circumstances as they compare their expectations with reality. For example, a carpet might look good in the shop but if it exudes fluff or is difficult to clean it goes below expectations and the purchase is unlikely to repeated or recommended unlikely, however, this situation may change over time as the carpet appears hard wearing and retains its colors well.
- Transient– As you are constantly changing expectations due to new experience, something new is on the market, you learn about new capabilities or failings. The carpet may be perceived as great value until it is discovered the carpet can be purchased much cheaper at a nearby shop. Currently, little of these changes are taken account of with our present system
- Bi directional– As both parties in an interaction or a decision have expectations of output value is potentially created or destroyed on both sides of the interaction. In particular, people have expectations of how they are treated, if they are treated well (equal to or above their expectations) they will want to interact more, be willing to make concessions and be that much more likely to accommodate the other parties’ requests. Treat someone badly and the reverse is true.
Ubiquitos– Value is the excess over expectations, the directly proportional release of dopamine into the Nucleus accumbens (one of the brains reward centres). As we have expectations at just about every decision we make, we therefore have the potential to fulfil or exceed expectations That means value has the potential to be created every time we make a decision about our productive output. Value is being created everywhere yet our accounting and hence economics focuses on one small part of one small sector of our productive output.
If you agree with these characteristics of value, it is clear something needs to be done in the current assessment of value as most of its creation is being missed by then current system.
The size of the economy is based on the value created on just one moment in time, the point of sale. Open up the measurement of the creation of value to the key decisions made in the productive processed and there will be a massive increase in the size of the economy but as the expansion of the economy is directly in line with productive output effect.
However, in business, such as in life, all areas are creating value, whether it is the back office areas in a company, for example, the secretary who answered a phone call well, noticed its importance and is determined to inform with sense of urgency her line manager, creates value for the company; a delivery employee of electronics that in addition to delivering the merchandise, explains its operation or gives advice on its use, exceeds the expectations of a dispatch driver and, therefore, creates value for the company and whoever received the product.
Similarly, a teacher who encourages that child to develop her unique talents, creates value. Even more so considering that this student, now a pianist, doctor, engineer or writer, receives more remuneration than the one who trained him. Non-profit professions and activities, such as a Library, whose staff guided people by discovering exactly that book that inspired them, created great value for that reader and encouraged him to continue discovering literature.
If we apply the five value characteristics mentioned above, generating appreciation indicators for each worker, regardless of the area, not just front-line sales or management, could be rewarded according to their individual value generation, expanding the economy.
In this sense, imagine a world where all the medical personnel who have worked tirelessly to care for Covid patients, and who receive the same income with or without a pandemic, received an extra incentive for the great value created.
This is possible!!