A Musing Bean
Ruminations on all things

Creating Business Value

Sunday, 27 July 2008 01:53 by amusingbean

Everyone wants to create value, but what is it, particularly in the context of business? If I sell one copy of a product for a profit of $30, I have clearly generated $30 of business value, but what if I solve a particularly hard engineering problem, or build a new feature?

Here is the definition of business value I use: Business value is a sustainable ability to generate profit for the business. More technically, it is the net-present-value of all future profits that result from an action or endeavor.

The key word in this definition is "sustainable". If an activity creates only a short-term ability to capture additional profits, then the value is commensurately limited. On the other hand, activities that allow long stretches of competitive advantage or increased profitability are worth a great deal.