In the current business environment that is dynamic and competitive, value creation has become a fundamental aim of every successful business. The emergence of the knowledge based economy has brought with it the quest to find new ways of maintaining the competitive advantage of organizations and industries. Successful businesses are increasingly recognizing just how instrumental value creation has become in spurring organizational growth and performance. Creating value for an organization’s clients, workers and investors, as well as other stakeholders that impact on the business both directly and indirectly has been and will remain the key priority to business owners. There is a need to understand an organization’s drivers to creating value in order to enable managers to focus the company’s talent and capital on the growth opportunities that are most profitable. For instance, if its customers value quality products, then those skills and processes that make it possible to produce quality products will be most valued by the organization.
Value creation in an organization has so many benefits i.e. when value is created to customers; it enables a company to sell more goods and services to the customers thus improving organizational performance. In addition, creating value for shareholders via increasing prices of stocks, leads to insured availability of capital investment in the future. According to Favaro (1998), traditional methods of assessing the performance of an organization are no longer adequate in this competitive knowledge based economy. Value creation in organizations is increasingly being driven by the intangible assets in companies such as people, knowledge, innovation and competencies among others.
Even if drivers of value creation vary from one organization to the other, some of the main types of intangible assets are innovation, technology, management capabilities, brand value, the relationship between an organization and is major stakeholders such clients, employees, community, suppliers, investors etc. corporate strategy helps to connect value creation to these intangible assets. Take note that, investments (i.e. research and development and training of employees etc.) aimed at enhancing intangible assets leads to indirect benefits rather than direct ones. Therefore, a company that is focused on creating value will have to adopt lasting views and align its resources towards achieving that goal (Favaro, 1998).
This project was aimed at analyzing creation of value at Denver International Airport in the light of its organizational competencies, knowledge resources, company processes and performance, employees, customers, investors, suppliers, regulators and community. To achieve the above aim, our group designed an analytical framework to help us in the value creation analysis. As will be discussed in the report, the framework we developed was instrumental in helping us analyze value creation at DIA.
a)Develop an analytical framework that will create value for all the stakeholders of the Denver International Airport.
b)Analyze value creation at Denver International Airport
In the current competitive business environment, value creation has become a fundamental aim of every business that aspires to succeed. Denver International Airport was ranked the 11th-busiest airport worldwide by passenger traffic having 20,608,318 passengers (Denver, 2011). Like in any other competitive business, the airport is also facing stiff competition from its close competitor airports such as Dallas International Airport, and Los Angeles International Airport. Through value creation for all it stakeholders, Denver International Airport will not only be able to achieve sustainable growth and profitability, but it will also have competitive advantage over its competitors.
Companies that have put Value Creation First
According to Favaro (1998), Lloyds Bank and the Coca Cola Company are some of the key companies that have invested on value creation in the past decade as a driver for their organizational growth and the results have been amazing. For instance, in the 1980s when Roberto Goizueta, the CEO of Coca Cola company at that time took office, the company was viewed as doing okay but a bit struggling, in a home market that was increasingly getting mature by the day. Though it had an increase in yearly revenue growth of 14% over the last decade, its profitability had been reduced significantly, when compare to its competitors. The decision made by its CEO at the global management conference marked the path towards the beaming success the company enjoys up to date. The organization decided to prioritize value creation, and since then the results have remarkable; as at 1997, the Coca Cola Company had nearly doubled its shares in the market to about 50% as well as almost tripling its return on equity just below 60%. These results have also been reiterated by Favaro (1998). Examples of value creation strategies which the company undertook include; increasing their investment on marketing, rapid expansion of new dometic markets as well as reducing participation on businesses dealing with non- beverages. The Company refers to its lucrative growth prospects as infinite, even as Doug Ivester, who is the successor to Roberto, continues to follow in his footsteps by putting value creation first above everything else.
Another company, Lloyds TSB, which was formerly known as Lloyd Bank has also invested in value creation. As at 1983, when Brian Pitman, became its Chief Executive Officer, the bank was the smallest among the four UK clearing banks at that time. At a board meeting with the Bank’s senior management, the CEO decided to put value creation in the company foremost. Just like in the case of Coca Cola, this marked the transformation of the Bank. Since that time, the bank has tripled its return on equity to more than 40% as per the 1997 records. In addition, the bank has emerged to be the biggest and quickest growing banks in the United Kingdom, if not globally (Favaro, 1998). The value creation strategies which were undertaken by the bank include; heavy investment on mortgage services and retail insurance and discriminatory participation in corporate banking among others. Currently, the bank is confident of its capability to maintain its profitable growth, and this has led to the bank declaring that after every three years, it will be doubling its value of shareholders. Only very few companies in the whole world have managed to achieve that goal for instance the Coca Cola Company. The above companies are examples of the most profitable, leading and fastest growing companies globally, because they decided to put value creation ahead of everything else as opposed to their growth or size.
Benefits of Value Creation
Value Creation Tells You Where and How to Grow
The identification of the appropriate strategies to be carried out to achieve maximum value creation necessitates that companies have the full knowledge and understanding of how, where and why value should be created in their companies and market (Favaro, 1998). For instance, because the Coca Cola Company was able to understand the value creation in the light of their business as well as the whole beverage system, they were able to discover that there was a major growth opportunity they were missing, and that led them to put more emphasis on value creation, which has resulted in their current sustainable profitability and growth.
Value Creation Increases Your Capacity to Grow
To constantly prioritize value creation involves perseverance, leadership skills and discipline. According to Favaro (1998), proper prioritization of value creation enables the managers of a company to know how and where to grow. For instance, they will be able to better invest the company’s capital, compared to competitor companies as well as to increase their talents to beat competition. Consequently, this has a huge impact on the company’s ability to achieve sustained profitable growth.
The methodology for the project involved research for materials such as journals and book for a suitable analytical framework that would enable us analyze the creation of value at Denver International Airport. The research was done both online and in the library. After, along but careful search we came up with the below framework;
Findings and Analysis
The competitive advantage of any company is greatly impacted by the way the company utilizes its knowledge resources. Knowledge resources form the basis of a company’s competences and directly impacts on its value creation and performance (Carlucci, Schiuma & Sole, 2008). At Denver International Airport, the skills, knowledge and experience of the employees is greatly valued. For instance, the airport’s designers, who designed the airport in such a way that it allows for free flow of aircrafts in and out of the airport without overlaps or queues with other airstrips. This has made DIA to be ranked among the most efficient landing fields worldwide.
Creating value to customers will enable a company to sell their products and services to their clients; increase their customer base, leading to more profits and improved company performance. At Denver International Airport, the customers value better customer service and satisfaction and the airport has been doing everything possible to deliver just that. This is evident in the award (Customer Cup) they received in February this year (2011), from the American Airlines as an honor for being among the 5 top airports which have provided improved services to customers. DIA was specifically honored for its noteworthy improvement in internal client satisfaction; i.e. the airport was rated 10/10 by the customers for improved handling of delayed flights and diversions (Denver, 2011).
The success is owed to the management and airport employees who work as a team in providing better communication and coordination to handle diverted and delayed flights effectively. Another effort aimed at improving customer satisfaction was the airports’ relocation of flights to Conccourse A, which has a backdrop display which is upgraded to give to the clients waiting at the gate, visual information on the latest happenings.
According to Carlucci, Schiuma and Sole (2008), no company can achieve much in creating value for its products and services without the creativity, commitment and the efforts of employees. Therefore acknowledging the hard work of the employees, appreciating their contribution and treating them well is vital in order to improve their morale. This is called value creation for employees and is aimed at motivating employees and boosting their morale in order to make them perform better. As already discussed in the literature review, some of the value creation strategies for employees include employee training, better salaries and treatment with respect among others. The success of Denver International Airport in delivering improved handling of flight diversions and delays would not have been possible without the help of their esteemed employees. Motivation of these employees is therefore required in order to continue giving their best to the airport, which in return enables Denver, to serve their customers better.
The airport has over two hundred and fifty employee teams working for it, and as a value creation strategy to its workers, the airport management emphasizes on collaboration and openness with its employees. The airport’s management work closely with their employees, and they encourage all their workers to be free to contribute ideas and solutions that will be instrumental in improving customer experience during travelling (Denver, 2011). This implies that Denver International Airport treats its employees with respect and values their input towards improving the airport’s performance. This in turn, makes the workers feel appreciated and valued by Denver, thus boosting their morale to work even harder for the organization. Besides, any employee who makes contributions to improve the airport’s performance earns bragging rights network within the network of the airport and, a party is prepared in his or her honor.
On the other hand, value creation for investors necessitates that companies deliver on capital. High returns mean that the business has a strong revenue growth, leading to huge profits being made. This requires the involvement of all stakeholders. By providing satisfactory services to customers, Denver International Airport has been able to attract more customers, who are willing to travel through that airport, hence their revenues have increased. Increase in revenues, results in increased returns on investments.
Besides, Denver International Airport has created value for its suppliers by maintaining a good working relationship and partnership with them over the years. Maintaining a good partnership with the supplier is vital for the survival of any business. An example of Denver International Airport’s suppliers is Marcel Boschung AG, based in Switzerland (Denver, 2011). The supplier supplies the airport with rapid changers, snowplows and sweeper blowers among others. The good relationship between the airport and the supplier has enabled them to work cordially together up to date.
Regulators and communities also form an important part of any business. Adhering to business regulations as well as being friendly with the communities around your business will enable any business to be at peace with regulators and communities, thus creating a conducive environment for a successful business to thrive. Denver International Airport has continually updated its technology to keep up with the demands that require regulatory modification. As a result, the airport has been able to work well with the regulators.
Value creation is very fundamental for every organization who aspires to succeed in the business world, for instance companies such as Coca Cola Company and Lloyds Bank who have emerged as the top most successful companies globally just because they decided to put value creation first. From the analysis of the project results, Denver International Airport was awarded with the Customer Cup for being among the five top airports for providing improved customer services, specifically, improved handling of delayed flights and diversions. This is a good start for the Airport. Denver should learn from successful companies such as Coca Cola, and fully embrace value creation as part of its organization in order to increase its profitability and sustain its growth.
It is not surprising to see many contemporary businesses developing value creation as part of their strategies to build their core businesses. The old approach where organizations focused on tangible assets as the core to successful business development is all gone, and we should brace ourselves to witness businesses develop more unlikely strategies like building careers of their committed employees to enhance soft skills such as customer service. It is therefore important for Denver International Airport to continue with its research and development to ensure it identifies new areas that need improvement. This will enable them to remain competitive in the growing competitive market.