Creating Shareholder Value

Abstract

Creating Value for shareholders in a globalizing World

Value has been described as anything that satisfies the needs and requirements of organizational stakeholders. The organization can only satisfy its shareholders by developing strategies that will maximize the value of the firm over its life-span. The strategies that an organization must use to create value for its shareholders have change due to the globalization of the marketplace and the introduction of foreign competition. Creating value in such a global marketplace is vital for the survival of the organization and has now become a multifaceted endeavor. Yet, in spite of its complexity, many organizations have found different ways to create value in a very competitive marketplace by manipulating a wide verity of competences. These competences have changed immensely over-time due to the globalization of the business world, and now present the new hurdle of developing new competences to sustain the goal of continued value of the organization. The paper seeks to examine how organizations develop new competences to create value in a globalizing world for its shareholders.

Introduction:

The goal of countless corporations around the world is to create value for their shareholders in the most profitable ways possible. This is done by organizational management developing proficiency within their respected industries that result in competitive advantages in the form of “harmonizing complex streams of technology and work activity” (1990, C.K. Prahalad and Gary Hamel) This allows organizations to offer end users of their products superior benefits or greater value, develop methods not easily imitated by competition, and create greater value for its shareholders. In general, creating a relatively unique characteristic within the organization that will grant greater opportunities over rivals within the marketplace and produce above average returns. In the past, organizations have been able to create such unique characteristics by packaging a number of proficiencies and technologies that have enabled organizations to offer a precise gain to its customers, and in the process creating more value for shareholders. The goal of these organizations is to maintain a continuous stream of value for its shareholders, but this task has become much more difficult since the introduction of globalization. Globalization has torn down the old marketplace entry barriers such as economy of scale, and now present major threat to those organizations that remain using much older and out dated competency models. Many of the older competency models suffer from over-engineering (The National Strategy to Secure Cyberspace, 2003) in the hopes of gaining an advantage within the marketplace to create value for shareholders, but in reality showing down the core operations within the organization and overwhelming management. This is the case for the many organizations that are losing value, rather than producing value for shareholders. These are the same organizations that once believed that globalization was their enemy, but know are hoping to catch up with other organizations that realized the potential of globalization by re-engineering competency models that have been successful in the past. Organizations that are producing value for their shareholders are developing and implementing new competency models and is taking advantage of globalization. These shareholder value generating organization develop new competencies on an ongoing basis, and have become conscious to the constant need to develop such competencies to create greater value for the organizations shareholders.

One of the original goals of our research was to obtain generally-accepted applications, theories, and models of originations using competency models to create value for shareholders. We discovered that there is no one generally excepted model, but many different models used in diverse in their respective industries. We researched many different value creation models, but narrowed our focus on six main organizations that would present the most diverse examples of how organizations are hoping to create value by using competency models. These models range from theories to actual models that are being applied by global organizations. The past research done on this topic has focused more on the area of pure value creation, and has neglected the importance of how competencies play a major part in value creation. Also, very little research has been done to answer the question how competences can help organizations create value for shareholders in a world that continues to grow smaller in terms of technology and business. This led our research out of the box of exploring general models and into investigating models of competencies in organizations such as the World Health Organization for example. Once our research is complete on this topic we will be able to craft a competency model of our own that would best fit an organization focused on generating value for its shareholders.

Business and Competency Model Literature Review

This section represent an overview of competency modeling literature and methodologies that will endow the reader with a greater understanding of the definitions, processes, and uses of competencies and competency theory. Prior to discussing the process of competency models in operation or theory, we feel it is necessary to first define what is meant by “competency” and why competencies are important to organizations that hope to create value for shareholders in a globalizing world.

Definition of Competency

The term “competency” can be defined as having the capability to do something well, usually measured against an industry average that is acquired through experience research or training(R). Another definition describes from a strictly business point of view suggest that a competency is something that a firm can do well and that will provide consumers benefits, not be easy for other firms to copy, and can be leveraged widely over many products and markets ( Hamel and Prahalad 1990)

Importance of Competencies

Competencies have many benefits for organization hoping to create more value for their shareholders. Competencies assist in combining organization goals and resources into one

Strategic direction. Competencies are needed to help organizations maintain a solid footing within their respected industries and assist in the development of competitive advantages.

Competency