How is value created?

Every business can be thought of as a “money machine.” On one end of this machine you have inputs; in between you have the value-added processes; and you have outputs on the other end. In the framework shown below, we have seven value-added processes – Design, Source, Make, Move, Store, Sell, and Service – which are the core processes that make up the “chain of value.” (This framework was developed by the Center for Intelligent Supply Networks at the University of Texas at Dallas.)

The seven core processes in the “money machine”

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What is the value triangle?

“Every business is the same inside” – Ram Charan

The concept of the value triangle was inspired by Ram Charan’s book, What The CEO Wants You To Know, in which he talks about the “universal language and laws that govern every business”, and how business acumen comes from understanding the fundamental “building blocks of money making.”

The value triangle is a visual metaphor for the three basic building blocks of any business system:

  • A customer who has a need (and the means to pay)
  • A product or service to fulfill that need.
  • A set of assets to perform the value-added or transformation

These three building blocks are universal across a variety of business models ranging from very simple (a lemonade stand) to complex (a multinational enterprise) to extremely complex systems (global economy.) What the value triangle shows is that they all have the same structure because the business system is based on these three fundamental or atomic elements. Continue reading