Creating Business Value for Stakeholders

Have you ever wondered why consumers buy certain brand products? Why do investors invest in certain brands? Or why do employees choose to work for one company over another?

The answer to these questions is because there is value to the brand. These values ​​are useful for building a competitive spirit, a positive brand image, and can increase profits. Not only for brands, the value of a business is also very important for stakeholders.

Key Stakeholders in Business

Apart from stakeholders, you may have heard the word shareholders. While they sound similar, they are not the same thing.

Shareholders are shareholders or also known as shareholders in a company. Stakeholders are stakeholders who represent a larger audience. They are individuals or groups who can influence and be influenced by the company.

Within its scope, stakeholders have two categories, namely internal and external. Internal stakeholders operate within an organization so that they have a direct relationship with the company.

Stakeholders are directly affected by business activities, while their actions will affect the running of the organization. These internal stakeholders include the following parties:

• Employee

A collection of individuals employed by a company in exchange for compensation, in the form of wages.

• Business owner

The individual responsible for the financial and operational components of the business.

• Investors

Individuals or groups who invest capital in companies in return for long-term financial benefits.

External stakeholders operate outside the company, but are still affected by the actions of the organization itself. External stakeholders who have a role in a business include:

• Consumers who are buying business goods or services
• Suppliers are companies that sell raw materials needed to produce business goods or services

To achieve success, a business needs internal and external stakeholders, so the company should not focus on one party and ignore the others. Therefore, focus on maximizing both and ensuring long-term profitability.

What is Value in Business?

To attract investors and maximize company profits, business leaders can create value consistency. The values ​​referred to in a series of business processes are:

• Financial value which is the value of the company's profit report. This type of value is the return on capital provided by the investor.
• Perceived value, which is a subjective form of value and includes factors, such as willingness to pay for goods or services, and employee satisfaction with their work environment. Although it is difficult to determine a number on perceived value, all of them will have a direct impact on the company's financial value.

Creating Value For Stakeholders

Professor Mihir Desai of Harvard Business School explains that there are three sources of financial value creation:

1. Lower the cost of capital

A business must be able to overcome the discount rate, which is the interest rate used to discount future cash flows to return to their present value.

2. Keep slamming the cost of capital

One year's profit, will not produce long term value. Therefore, in order to succeed financially, a business must continually overcome discount or interest rates.

3. Growing

The more financial success a company achieves, the more value it creates.

To increase the value of goods or services, business leaders must ensure that they can fulfill their promises to consumers, so they must be able to create sustainable business strategies.

For example, companies can do branding that can motivate consumers to choose your company over others. The creation of value for stakeholders can be seen from two aspects, namely the market-to-book ratio and the value stick.

Creating Value with the Market-to-Book Ratio

To attract investors, brands must be able to create financial value by comparing interest rates, stock returns, and the cost of capital between a company's stock book and its market value in the capital market.

The market value is the equity value seen by investors. This ratio considers the relationship between two factors, namely book value and market value. Book value is the historical accounting value of the company's assets and equity. Meanwhile, market value is the current value of the company's assets and equity.

Creating Value with The Value Stick

Not only investors, other stakeholders such as consumers, employees, suppliers, and companies also need to build value. These values ​​can be built with a value stick, which is a representation of a value-based strategy consisting of four components:

1. Willingness to pay: the highest amount that consumers are willing to pay for a product or service.

2. Price: the amount that consumers have to pay for a product or service.

3. Costs: costs incurred to produce goods or services.

4. Willingness to sell: minimum suppliers who are willing to accept the raw materials needed to produce goods or services.

So business leaders must be able to create value that focuses on increasing customer satisfaction, employees, and supplier surplus.

On paper, creating value looks easy, but in reality the process of building it is quite difficult. Turnover, sustain success, and grow the business are challenging tasks and can only be achieved with a comprehensive understanding of financial principles.

Steps you can take to create business value are to hone your decision-making and financial skills. You can't create value without making a profit.

Stakeholders must be able to deal with dynamic situations and equip themselves with Strategic Business Analysis capabilities. Through this program, you can analyze various factors that lead to understanding, translating, and characterizing strategic issues to create value in accordance with the company's sustainability.