Defining Your Business's Success Using "Net Positive Value"

Here's an excerpt from the introduction to Generosity At Work that defines a concept that's critical for assessing the impact of your business. Let me know what you think!

Defining Net Positive Value

Self-centered businesses care whether their own bottom line is growing.  

Generous businesses care about their own growth at the same time as they care about the growth of their business network itself.

 

Generous businesses want to grow by creating "net positive value".

Net positive value is created when a group of businesses works together to create new sources of value and additional kinds of value while using or claiming for themselves less than they contribute. Any individual business can influence the network's net value by adding more value and/or taking less itself.

Generous businesses think about what they're taking, what they are contributing as they assess whether or not they are really, truly, growing.

In a network with net positive value, businesses are being generous themselves and helpful to each other. Business are growing, and so is the network.

What "Net Positive Value" means

The word ‘net’ does double duty in the concept of ‘net positive value’. It stands for the balance of inputs to outputs while also emphasizing the system's health instead of just the health of the individual business.

In accounting, the term ‘net’ means an entity's income minus cost of goods sold, expenses and taxes. It tells accountants whether profits are growing, or not. An entity has net positive, net neutral or net negative outcomes. The idea of "net" gain or loss can be used outside of financial accounting, to consider any kind of resource or value. It’s a way to understand, when it’s all said and done, whether the entity is growing, maintaining status quo, or declining in value.

When self-centered companies focus on their own growth, they think about net value the way accountants do.

They want to end up with more value than they had when they started, and more value than they burned through to get here. Indeed, that’s what competitive businesses are supposed to do— they are supposed to maximize the value they claim for themselves by efficiently using the least amount of resources necessary to create that value. They try to be efficient with their resources and aggressive with their pricing, so that the net effect of their efforts is a positive number on the bottom line.

But what’s good for the bottom line of the self-centered company can be bad for the net positive value of the group.

Consider what happened in 2002, when Walmart introduced an inventory management system powered by RFID tags. Walmart wanted to save money by shifting away from the labor-intensive process of taking inventory by hand. They also wanted to increase sales by eliminating out-of-stocks. Both goals could be addressed by the RFID system, and the savings generated for Walmart by this system would show up as increased profits. For Walmart.

Walmart mandated that every one of its product suppliers put these RFID tags onto their products — at the suppliers’ expense — before Walmart would accept shipments from them. Walmart wasn’t concerned with the impact of its mandate on the bottom line of anyone but itself.

Walmart could have put these tags on pallets of inventory once products arrived in its own warehouses, using Walmart’s own workers, equipment and time. Instead, Walmart used its power to push the costs of these RFID tags onto its suppliers. By aiming to reap the benefits of an RFID-managed system all for itself, Walmart decreased the net value (bottom line) of each and every supplier whose products Walmart sold in its stores. Worse still was that few if any suppliers were able to use this RFID technology to make their own internal systems more efficient.

The added expense of the RFID technology for the suppliers became the cost of doing business with Walmart.

If the costs to suppliers were about the same as the additional value Walmart received, then the overall impact on the network was neutral. More than a decade later, however, the jury’s still out on how much and even whether this move to RFID actually helped Walmart’s bottom line. We know that for many of Walmart’s suppliers, the shift to RFID damaged their bottom line for years.

A self-centered business might think that it is generating net positive value of the accounting kind, because it is taking and claiming more value than it spent. But from the big picture, there isn’t any net positive value created overall.

Business that take a network point of view (NetPOV), however, understand that looking at their individual balance of contributions and claims is not quite enough to evaluate their success. They need to consider the the network as a whole. When companies with a netPOV think about their growth, they pay attention to the outcome for the system. These businesses look beyond their own balance sheets to include in their calculations their effects on the businesses around them and on the network itself.

From the perspective of the individual business, the goal is to ‘claim’ as much as you can of the value you help to create.

Does your business introduce other businesses to your customers?
Then charge these businesses when you offer them your mailing list.

Does your business help customers understand an entire category of products?
Then, to every business in the industry, send a bill for p.r. ‘services rendered’.

Do other businesses adopt a software tool that your designers made?
Then charge them a subscription fee for every month that tool is in their service.

That’s how business is done. That’s how a self-centered company can ‘capture’ more of the value that it helps to create within a network.

But in these examples, as in so much of "business as usual", the value has been moved to the bottom line of one company right from the balance sheet of some other business. The impact is net neutral at best.

Generous business, because their are network-focused and concerned about all kinds of value, recognize that they need to assess the health of the whole network before they can tell whether or not the value they are claiming on their balance sheets is fundamentally new value.

New value, that didn’t exist before and that the generous business has helped to create, leads the network's value towards net positive.

That’s why the assessment of value at the level of the network is so important:

We can only tell if our business is growing in a sustainable way if it is contributing to the network's net value as well as our own.