High Performers v Value Creators

Not the same people.

Let’s get this right. Performing well does not mean you are creating value.

The converse is not true. Creating value does mean that you are performing well.

In short, high performance does not always result in high value creation.

Management/HR tools and practices are designed to reward or retain high performers. These are not designed to reward or retain high value creators.

While you are in the middle of your ‘SMART goal-setting’ season, you may want to pause and reflect on this sobering reality.

All employees, in all organizations, at each moment, are doing something. All this activity does not always create value. In fact, a lot of this activity is destroying value.

Every act of every employee, at any time, leads to one of these three outcomes:

• Value Creation

• Value Preservation

• Value Destruction

Yet, all employees are ‘performing’ all the time.

Companies that outperform their peers understand this reality well. That is why they focus on ‘Net Value Creation.’ They don’t confuse performance with value-creation. They identify, encourage, and retain high value creators.

What do these companies know?

• The time lapse between strategy and execution is collapsing dramatically. Mere achievement of SMART goals, set at the start of the year, are not enough to outperform the market.

• Choice of goals is way more important than making goals ‘specific,’ ‘measurable,’… etc.

• For key individuals and teams (STAR TVCs), it is better to provide ‘unmeasurable’ goals. If the strategic intent is clear, the scale of achievement will be determined by these teams and individuals. Invariably, their reach will be above and beyond the confines of SMART goals.

Let us explore the relationship between performance and value creation with the help of this diagram.

Most value destruction happens by well meaning people. Some value destruction happens by bad employees. But there is value destruction happening every day in every organization.

High performance on poor quality goals (Zone C) is the most common form of value destruction. A poor quality goal can still be SMART. It is poor quality because it is an outcome of a weak/bad business strategy. Think of it as running high speed in the wrong direction. Like a marathon runner running the route in the opposite direction.

Example: ‘Bring down attrition.’ A better goal may be, ‘Improve profit per employee.’ Another example: ‘Expand channel diversity.’ A better goal maybe, ‘Create new sources of higher value growth.’

Of course, not all goals are directionally wrong. But that does not mean that they are value accretive (Zone B).

Example: ‘Hire within TAT (Turnaround time).’ Such a goal preserves value. It does not create any additional value. Retail audits, ROI determination of marketing spend, most of the work of Finance Controllership are more such examples.

True value creation (Zone A) mostly comes from two sources.
Achievement of goals that advance a high quality business strategy.
Example: ‘Capture greater share of high-value, on-premise consumption.’ Or: ‘Convert a service into a platform.’

Even more potent value creation comes from individuals and teams that think and achieve beyond the aspirations of their company’s strategic intent. These people propose new pricing models, new sources of profit, application of new technology, new organization models and then go on to implement their own proposals.

Companies that outperform their peers maximize and expand their Zone A, actively minimize and contract Zone C, while keeping Zone B constant.

Teams and individuals who are in Zone A are talent gold. Often, they get rated on traditional performance rating formulas and get paid a ‘market price.’ They deliver beyond the confines of the current strategy but they get rewarded as per the confines of company policy.

Companies need to think beyond ‘market price’ for such value creators. Companies need to quantify the value of these teams and individuals with the rubric of ‘replacement value.’

Future newsletters will provide a framework for identifying these value-creators and quantifying their value to the company.

For now, I hope you will start recognizing the difference between high performance and value creation.