3.5 Adding Value

This is a process of combining resources to produce a finished product and using expertise skills and high-level techniques to create the most efficient products to meet the demand and needs of the end-user.

A business that intends to be in the market for a long period must have the resources to provide end products which will add the most value on a consistent basis.

This enables the business to increase its competitiveness and increase its stance as a market leader and force to be reckoned with. The brand becomes more prominent and recognised when customers are prepared to pay for it.

The creation of value is the core function of any business. It must be at the centre of how the business conducts its activities.

Consumers will compare products and tend to only buy those which satisfy their requirements; products can only achieve this in the consumers eye when they are seen to be of great value to the consumer.

Part of the process of adding value is to ensure that the end result, the goods and services, are efficiently produced. It must also be cost-effective.

Over time, it is normal for perceptions of value to be changed and shifts to take place. Since customers ultimately want the best products with the ultimate satisfaction, they will shift demands to other competitors based on price, quality and reliability among other issues.

Any business that intends to remain competitive must take the value adding factors above into consideration when producing products and services for their clients.

In doing so, relationships and networks need to be established with business partners that identify with and share common value adding principles. There needs to be greater automation and time management plus enhanced efficiency and cost reduction. In combination with each other, the business will be able to adopt to the changes in value demands of the market and sustain a profitable competitive position in the market.


Analysis of Value

Strategies and methods to increase the process of adding value need to be created by any business in order to derive the greatest level of value.

There is always a fierce and constant competition between rival companies which makes it imperative to constantly monitor how your current processes are performing and whether it is meeting the desired expectations.

Since competition can be on different aspects such as price, a consistent level of evaluation must be in place. This identifies new area where value needs to be created which were not previously obvious. For example, many banks now offer current accounts with additional extras like car breakdown cover and fraud insurance.

By thoroughly examining the areas of potential for adding value, the business will also identify whether or not it has to create external sources because internal resources cannot meet the demands of creating a high level of value. This is called outsourcing. It involves engaging the services of a contractor or supplier who can provide the resources or demands of present value-adding needs. It must be of a high quality and at the same time very cost-effective. Today, numerous business engage in outsourcing activities including distribution, customer services, production and many more.


Self-Assessment Questions

1. What are the differences between inputs and outputs? Explain their respective roles in transformation.

An Input refers to the 'material' that is first entered into the chain to be transformed to an output. An output is the finished product that will be consumed by the end-user. They play a major role in transformation as without the input, there would be no output. Starting with an input into the primary sector, it's transformed using various techniques and skill-sets which ultimately ends up as an output that will be consumed by the consumer.

2. The primary, secondary and tertiary sectors are interdependent and jointly produce optimum results for the business and the economy as a whole. Discuss.

This is true. The primary, secondary and tertiary sector are all dependent on each other to ensure a smooth flowing economy. For example, the primary sector would have no customers if the secondary sector didn't exist and buy their materials. This is also true for the secondary and tertiary sector. Furthermore, without the primary sector, there would be no use for the secondary and tertiary sector as they have no products coming up the chain. Ultimately, the failure of one sector would result in the failure of the others and respectively, the failure of the economic system.

3. Explain the importance for value adding for a business.

Value adding for a business is fundamental in terms of innovation and maintaining their competitive edge. Consumers are constantly looking for ways to save money and other factors while still maintaining the quality, through comparison. To illustrate, if a business has a steady client base that bring a lot of repeat business but this slowly starts to decline. The business is being subject to competitors adding more value than them and ultimately 'stealing' their customers. To counter this, the business could then look at adding some incentives for consumers in order to compete with the value of their competitors which will result in most of their client base sticking with them based on the value, and other factors such as an already established relationship.