That brings me to another version of this 1+1 mystery. Over the last few years, just before the recession hit, ‘valuation’ was in vogue! Every new start up or even existing organisations started talking ‘Valuation’. Rather than creating value for the customer, valuation became the buzzword. But, how do valuations shoot up like this? I really did not understand this new game. This was, when someone mentioned ‘Sum of parts is greater than the Whole’. Now what does this mean?
And then, after a long phase of close to depression, I saw the picture. The ‘Bonding Energy’ should be contributed willingly by constituent particles only, towards efficiently aggregating together in the collective selfishness of “a) We build greater value for the customer together and/or b) We operate in a manner that our operations gain from each other a) To create value for the customers & b) To create return on investment for the owners (in that order)”. That is the key towards ‘Whole is greater than the Sum of Parts’!
No wonder when businesses get reduced to being seen as distinct particles, with no ‘Bonding Energy’, when they have no reason for being together in the first place, ‘Sum of parts will be higher than the Whole’. It is this irony, driven by ‘Valuation’ rather than ‘Value Creation’, compounded by greed and short term results that lead to businesses being managed as MF portfolios rather than with an approach of ‘organisation building’ and ‘value creation for the customer’.
That is one flaw that the famous BCG matrix can lead to. Businesses are seen as delinked, independent entities in this approach, without looking at the ‘synergistic’ or ‘complimentary’ roles they may actually be playing in the ‘dance’. This race for ‘Valuation’ rather than ‘Value Creation for Customer’ in some cases gets particularly pronounced in the ‘portfolio’ treatment and approach followed by some PEs. However, it is an area of caution only. Airtel and Max are cases where PE support, without losing track of customer value creation led to extremely positive results. Quick valuations and selling off of parts of organisations like cattle or treating multiple organisations as merely elements of a portfolio, can be obstacles in organisation building or in creating value for the customer or even for the owners. This can be dangerous at any stage in an organisation’s development, but sometimes quick valuations expected in early growth stage can ring a premature death knell for your business... delivering a ‘still born’.
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Source : IIPM Editorial, 2010.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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