Executive Summary
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Cultural perspectives and respect for differences are important in a global economy. “Value” is viewed in different ways in different economies and cultures.
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The forms of capital include human, tangible, and financial. Human capital divides into physical and mind capital. We are living in the era of mind capital.
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A holistic view of an economy and an operating company allows one to recognize the origin of value in a competitive environment.
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Analysts and decision-makers benefit from thinking in terms of the opportunity costs of capital and the implications of employing capital.
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The economic returns of capital are very distinct from returns on capital.
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Invested capital, flowing capital, idle capital, and opportunities related to these variables are core to decisions that seek to create value.
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Idle human capital in an organization becomes lost capital with each passing minute.
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Lost capital represents an unfavorable, and even potentially disastrous, event for a company and for society.
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Value creation is consistent with the wise use of resources. Thus it provides an important perspective for executives who live in a world that is giving increased attention to the use of resources in the context of social responsibility, sustainability, and environmental concerns.
Introduction
This article focuses on the creation of value by a company or organization. We assume a competitive environment in the sense that the end user of a product or service has the right to buy or not to buy, to use or not to use a product or service. Although the discussion and examples focus on value creation in terms of economic measures—for example, an increase in share price—we recognize that other important measures of value exist. Quality of life is one such indicator—and even this measure varies with culture and circumstance. Such cultural differences and perspectives are important and should command our respect. At the end of the article, we will assert that at the local level competitive environments do allow individuals to make choices, determine what is of value, and subsequently influence the use of resources and the rewards or punishments for the use or misuse of those resources.
Forms of Capital
Capital has three forms: tangible, financial, and human. Human capital has two forms: physical capital, and mind capital. We live in an era of mind capital—with mind capital offering profound opportunities.
Employing capital wisely leads to the creation of value. The unwise use of capital destroys value. The creation of value accrues to the firm or organization and to society. The destruction of value takes from the organization and from society.
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