The initial public offering for Facebook brought the topic of business valuation to the forefront. Facebook’s stock price immediately dropped when analysts lowered projections of growth and revenue forecasts, calling into question the value of the company. And the stock price continues to slide.
Value creation is the raison d’être of any business entity. How do you accurately assess the value of a company? What dimensions are the most important for determining company value? How do you calculate a company’s long-term prospects for success?
Many analysts use a broad definition of value creation, and they include in it the calculation financial factors (e.g. financial statement analysis, cash flow, profit), internal capabilities (e.g. ability to innovate, leadership, people, brand reputation, customer base) and future potential of the company (e.g. growth, revenue forecasts, risk assessment).
Similar assessments can be made of the value created by employees. Analysts often cite Mutar Kent, the CEO of Coca-Cola, as a leader who has created significant value for the company. Under his leadership, the stock has risen over 50%. As importantly, Kent set the foundation for future growth and relevance by creating a culture that emphasizes collaboration, innovation, and global expansion.
Whether a front-line employee or a senior leader, you should ask: “What is the value you create for your company?”
Similar to company valuation, we use many dimensions to gauge the value created by an employee. Results and goal accomplishment are clearly important in the eyes of many within organizations.
But, the value created by employees also includes internal capabilities such as expertise, helpfulness to others, vigilance on behalf of the company’s interests, engagement, ability to inspire esprit de corps among others, innovation, customer service, ability to build trust, leadership, and positive change facilitation.
Capabilities related to employees’ future value, such as leadership potential, ability to change and learning agility, are also important.
Additionally, certain behaviors often detract from your perceived value. Specifically, employees need to consider whether they are costing the company money as a result of an inability to develop new skills in response to a changing environment, an inability to form good relationships with co-workers and customers, or a propensity to engage in unethical or destructive behaviors. These become your liabilities.
Researchers have shown that costs associated with training, coaching, facilitation, employee morale issues, and potential lawsuits due to negative behaviors are high.
An executive within a consulting firm shared that one of her employees was simply brilliant and an expert in systems design. But he lacked interpersonal skills, rejected calls for diversity among employees, and alienated teammates by screaming at them. Ultimately, the executive deemed the employee’s liabilities to be greater than any assets he brought to the company.
Assess the total picture
In any situation, you should ask what assets and liabilities you bring. The value created by these assets (or lost because of any liabilities) will vary with the culture and needs of the company. And your value may actually change over time within the same company. Not all companies view assets similarly, nor do they view liabilities in the same way.
Additionally, most people keep track of and over-emphasize, the importance of their own assets and downplay, or ignore, their liabilities. Such a strategy is dangerous because you may not realize the negative impact of your liabilities on the value you hoped to create. Research also indicates that supervisors more easily recall negative behaviors than positive behaviors. As a result, others within an organization may put more emphasis on or recall your liabilities more than you do.
Many might say that some of these factors occurred with Facebook. The company and analysts underestimated the liability and risk associated with projected growth and its impact on the company. And, now consumers will long remember the falling stock price over the positive assets of the company.
As you move throughout your career, ask yourself, “What is the impact I bring?” Because at the end of the day, success within a company is really about the value you create and defines your raison d’être within an organization.
Christine M. Riordan, Ph.D., is dean and professor of management at the internationally ranked Daniels College of Business at the University of Denver. She runs an $85 million operation and leads a global network of more than 36,000 faculty, staff, students and alumni. Connect with her on FaceBook and LinkedIn.