Added value: Definition + The 3 important axes to develop it
When we hear “added value“, several ways to approach it can come to mind:
- 🔢 #1 The calculation of value added in accounting. (of a business).
- 📞 #2 The value added to a product or service. (tangible or intangible).
- 👩🏿🤝🧑🏻 #3 The value added in human resources (internal).
Nowadays, value proposition is no longer simply related to a pragmatic calculation, as we realized that the wealth of a company is much broader. The purpose of this article is to take a 360° tour on what is added value and how to approach and measure it in these 3 different contexts.
What is added value in simple business?
When we look for definitions of value proposition online, we always come across the good old accountant’s hyper pragmatic calculation. 🤓 While we’ll get to that definition in a few moments, I think there’s a real lack of perspective on what we find online. So let me be a little clearer. Added value isn’t just quantifiable numbers, it’s:
The ability of a company – or an individual – to generate resources.
In other words, to be able to bring added value, whether it is financial, human or corresponds to a product or a service offered. Example: I bought a waterproof phone. Its added value is its waterproofness. The added value that marketing will emphasize is its ability to be immersed in water.
How is added value calculated?
So here, the complexity of the question is to know how to calculate the added value(s) you are interested in and to take on the subject from different angles. What source of added value do you want to measure? In this article we will look ar all the necessary calculations, their realizations, their advantages and their limits.
How is the added value shared in the market?
From the global point of view of a company, the added value is divided into two categories.
- The added value of the products and/or services developed on the market.
- The human added value of the different people working in the design, production and promotion departments.
#1 Added Value in accounting
In accounting, the added value (AV) is an economic indicator that measures the wealth created by an economic agent (company, organization…) during a production period.
The formula of the added value in accounting
The calculation is very simple:
Added value (VA) = Commercial margin + Production for the year – Consumption for the year from third parties.
What is value added services and activities?
🍤 Let’s break it down a bit to help you see it more clearly:
- 🍎 Commercial margin: if you buy apples from a producer for 0.20 cents per unit and sell them in your store for €1 per unit, then your margin is 80 cents.
- 🍏 Production for the year: the total goods and services produced in a year. So, all the apples sold over the period you want to analyze.
- 🚛 Consumption for the year from third parties: These are all the external goods and services that the company consumed and paid to third parties. (in our example: delivery costs for apples, charges paid to suppliers…).
How do you generate added value?
To generate added value in accounting, you need to have thought through your market. You have to make sure that the margin corresponds to market trends and is not too small. To put it simply, there are two trends:
- Low margin = large volume of production, focused on the quantity produced. You will hve to produce and sell a lot for the business value to flourish. Example: white socks. 🧦
- High margin = small production volume, but focused on product quality. You’re going to have to focus on product value-added and content marketing to make the consumer understand the benefits. Example: a high-end watch. ⌚
Of course, there are nuances in there, and I’ll help you understand them a little bit below. 👇
Why is value added a better measure of production?
Quite simply, because it is the most comprehensive. If you only calculate margin, you’re not taking into account outside expenses.
If you only calculate the turnover (sales price x quantities sold), you have no idea of either the margin or the expenses. I don’t advise leaving everything and swearing by the VA, but you can’t ignore it either.
#2 Added Value of your company
There is a quantifiable AV (in accounting) and a determined added value (that of your company, i.e. your products and your teams). It is this second angle that we will now discuss.
What is the add value of your company?
The added value of your company, from a global point of view, is what you bring to the market that is different. What is your added value? There are several ways to define a company’s brand identity, the most famous being Kapferer’s identity prism. It sounds very academic, but in reality it’s useful for all.
If you don’t identify the value you want to bring to the market, what makes up that value, and how you want consumers to perceive you, what you’re offering will be unclear, and if it’s unclear, it won’t sell. 💨
Kapferer’s identity prism for defining your value in the marketplace
You can retrieve this image to make your own prism. It’s about identifying who you are in the market and what you bring to the table to differentiate yourself.
Kapferer Prism Example
Here is an example of how to set up the Prism on Waalaxy.
You can find many examples online like the identity prism of Perrier or Coca-cola which are very well known.
Actually, I created this one just for self-promotion, but hey, it will still serve you well 😉 Reading this you quickly understand what Waalaxy brings and what its competitors don’t.
Découvrir Waalaxy 🪐
Derive your competitive advantages and your AV from this prism
Your value is the resources you bring. A product that helps with LinkedIn prospecting like Waalaxy brings efficiency, results, growth, reduction of thankless tasks. What are your values? What do you bring?
- The richness of your product in general.
- The value of your product against competitors (competitive advantage).
Now, if we compare Waalaxy to other products on the market:
You will then have to find these 2 points on your example in order to support these advantages during your communication actions.
What are value adding products?
A product with high added value is a product that brings significant wealth to the person who uses it. When I talk about wealth, I mean it in the broadest sense and not only economically: saving time, improving quality of life, health benefits. There are two types of products. (again, this is a caricature).
- The essential product.
- The gadget product. (non-essential).
The Covid era made many companies remember how non-essential their product was. 😂 The product that is essential to the health of your business, like the management CRM, the internet connection… its vendors that you are naturally going to want the best quality for. Without them, you can’t work.
Non-essential products are those that will improve your working conditions a little, they are comfort tools. They will certainly improve your performance, but will not be the main reason for the success or failure of your business. Well, an essential product, by definition, brings a strong added value to your activity.
Ability to create resources.
Determine, prove and communicate a VA
Just because you have a non-essential tool doesn’t mean it doesn’t add value, you just need to learn how to determine it, prove it and communicate it.
- ❓ What is the value my product brings to my customers? > Identify all the benefits of my product or service.
- 🔍 How do I provide evidence that this value is real? > Conduct studies, tests, feedbacks, product demos…
- 📳 How to transmit this information to my target, my prospects, my customers? Complete the Kapferer Prism > identify the brand identity and focus on its differentiation > communicate via social networks, advertising, digital Ads.
#3 Internal added value
Now we move on to the third and final way to talk about added value. The human value. That is, what you as an individual will bring to an organization. For this, we will see that there are two angles from which to look:
- The added value that you will bring as a person.
- The added value sought by a recruiter to hire a person or a manager to create a team.
It’s about human value in both cases, but from the point of view of the person who hires, and then from the point of view of the person who is hired.
How to develop added value internally?
Here again, I’m going to talk about a technique as old as the hills. The goal is not to reproduce this business strategy identically, but rather to understand the advantages of this process. This is a skills chart. This chart, although it seems a bit radical, still has a lot to teach us about human relations and teamwork.
This chart is usually used in hiring. We evaluate the different skills of the candidates and we look at the ones that are the most complementary to the team he/she will be associated with. It is therefore a question of organizing the distribution of the added value.
Except that this is a step that many recruiters forget. It is crucial to know the added value of an entire team before creating a job description. When the values are complementary, it’s called “shared value-added or co creation of values.” That means, everything works like a well-oiled engine.⚙
Everyone can do some of the work, no one is in a state of flux, everyone can take a coffee break. ☕
So here you’ve got an imbreakable value chain.
Learning more about Agile scrum method. 👀
How do you identify value-added profiles?
It is often said that the best people leave first, this is also the case in the recruitment world. Of course there are exceptions, but those exceptions don’t stay available for very long either. It’s kind of like an apartment well below market price. 🤩
Well then, these apartments, how do you find them?
Oh, and on LinkedIn.
No, more seriously. There are lots of ways to find candidates: on job boards or attending events like job fairs, but LinkedIn remains the most comprehensive and effective source for employment.
Read the guide on how to conduct a good search on LinkedIn. 👀
How to hire high value-added profiles?
The added value of the company starts with the employees. It even starts with the employees, because they are the first in the production chain.
Without a developer, there is no application.
To increase the added value of a company, you have to focus on the employees FIRST. This is exactly what Waalaxy does. Violette has prepared a Webinar on the benefits that we offer that make a difference:
Among the list, several tips for improving to create perceived value:
- Compensation of employees.
- Share of wealth redistributed,
- Well-being in the company.
What does it mean to bring value to a company?
If you are an employee or a job seeker, you are probably wondering how you can be useful to the company. In any case, just by asking yourself this question, you have the right attitude. To do this you’ll need to:
- 🌟 Know your values: make a list of your knowledge and skills, learn to identify them and know how to defend them. (Fact + concrete example + what allows you to measure the results).
- For example: I am an experienced writer, I have written more than 200 articles for Waalaxy, as I speak there are 100+ thousand visitors per month on the blog.
- 🏨 Know the business needs: what skills will create profits for the company? Don’t focus here on what you know how to do, think broader.
- ✅ Identify areas of improvement you can contribute to: wealth creation is a collaborative effort between the company and the employees. If you see where you can contribute to a value added activity, present it!
- 👨🏫 Train yourself. It’s super important to identify the skills you want to develop and the skills the company will need tomorrow. Really use HR support to bridge the gap between what you need and what you can bring.
How to prove your added value?
Here, we are getting closer to social selling.
What value do you think you can add?
I’m going to repeat myself, but the best method for convincing people dates from Aristotle, and is still relevant today.
- Ethnos: it’s your ability to be assertive.
- Logos: it’s knowing how to argue.
- Pathos: Knowing how to prove that you have value.
I will add an important point:
- Knowing how to differentiate yourself.
If you need a little confidence boost, there’s a video here that I really like that works for developing simple techniques. 👀
FAQ: Why added value is important for a business?
By what means can you measure the value you add? There are different ratios, depending on the value you want to measure: human, or financial.
Financial ratios (accountability)
There are other ratios to understand the good health of the company.
- Calculation in relation to net income: Net income/Sales. (Is it profitable?).
- Calculation in relation to EBITDA : Gross value operating surplus (GOE) / Sales.
- The global net working capital (GNWC) is calculated as follows: Permanent capital (top of liabilities) – fixed assets.
- The working capital requirement (WCR) is calculated as follows Current assets – Current liabilities.
Learn more about these ratios. 👀 As a reminder, the calculation of the AV is:
Added Value (AV) = Sales margin + Production for the year – Consumption for the year from third parties.
Now, in order to calculate the added value brought by the employees, we must try to understand health of the company on the human aspect.
- Turnover rate: Do people stay with the company? It is more difficult to create value if skills are not developed over the medium/long term.
- Absenteeism rate: The more employees are absent, the more they are demotivated by their work. (except for serious personal reasons of course). As a reminder, motivation is one of the pillars of human AV contribution, without motivation, there can be no professional development and creativity.
- Supervision rate: Do we need to supervise our teams a lot? If the answer is no, this can be a very good indicator of autonomy.
- Evolution of the wage in relation to the turnover.
- External rate: Is there a lack of internal skills to develop certain activities?
- Breakdown of contract types: The passage of an intern into a permanent contract is a good indicator of internal value as well.
The bottom line is that you know everything about added value, here is the complete guide to make the most of LinkedIn (company, recruiter or candidate).