How Commpanies Create Value
Companies create value by producing products and services for their customers. They keep focused on their production line with the aim of building efficiencies or adding automation. While they do that, they maintain their cost budgets. In other words, they produce more for the same buck. Additional value can be created, if the company aims to operate that more efficient production line with an even lower cost base. There are obviously limits for everything. Ideally the production gets more efficient and at lower costs. In such a favorable scenario, the company builds business value for the shareholders. While efficiency and cost are improved, this process is limited to the point, where the quality of the production output (the goods and services for the customers) would decrease. Processes can potentially be improved by introducing automation, wherever it makes economic sense (e.g. replacing humans with robots for always recurring processes, as we could witness in the automotive industry. In such a case, we achieve a double bonus in incremental value by saving the wages for the human and tripling the working time of the robots (they work 24/7). Ideally the company even increases the quality of output while doing the aforementioned interventions. Another way of adding further incremental value is through innovation. With an innovative new product or service the company may even manage to leapfrog the competition.