Value and Value Creation

The word ‘value’ is challenging for engineers because it has several related meanings.

First the mathematical meaning. ‘Value’ denotes a number associated with a variable, for example x=2.72. It can also denote a numeric value in a spreadsheet cell resulting from calculations.

Next, we speak of “human values”, usually positive or desirable attributes such as honesty, humility and loyalty.

We can also appreciate “value systems” such as a money-oriented system of values, or a religious or humanist system of values that influence human behaviour. Many organisations espouse their own values, though aligning individual actions can often be problematic.

For this discussion, ‘value’ is a measure of the extent beneficial or useful, often associated with a monetary value. Thus, we talk about the “face value” of a currency note or the “value of a house”.

“Value creation” implies activity that results in something valuable, beneficial or useful. Human values and value systems only arise from long and complex socialisation within a community, and a mathematical values exist through definitions.

Most discussions on value in business centre on the notion of “exchange-value”. This is usually an amount of money exchanged in return for a service, or artefact, or the entitlement to a service or to acquire an artefact at some future time.

The notion of value extends beyond a simple monetary exchange, however.

If we think about the motivation behind a decision to spend money, or to work to gain something, we encounter the pleasurable anticipation of acquiring something valuable. It might be the future entitlement to a service or possession of an object. It could also be gaining peace of mind, a feeling of security, through entitlement to protection from something unpleasant. For example, people pay taxes to their government in return for security: protection against the possibility of destructive behaviour by other people, disease, or loss of their property. Philosophers refer to this notion as “use-value”, the emotional pleasure experience associated with the acquisition.

Value creation, therefore, denotes activity that results in services or artefacts that can be enjoyed by people.

Since this emotional pleasure lies at the root of value creation, “use-value” is subjective: everyone will experience the service or artefact differently, and enjoyment will depend on circumstances. The unpleasant anticipation of feeling thirsty when walking outside on a hot day motivates people to exchange money for bottled water they can carry with them. The apparent “use-value” is heightened if, for example, there are no other water sources or known providers nearby, even though the quality and quantity of water in a bottle is precisely known.

There is another consequence from understanding the emotional basis of value: value creation depends as much on the user as the creator. In other words, value is co-created. For example, the use-value of the bottled water is probably greater if the water slakes one’s thirst on a hot day, than if the water is used to wet some sand in order to create a sand sculpture, or poured onto a shrivelled weed.

The extent to which a person can anticipate a specific pleasure or pain, or understand another person’s second-hand description, also influences use-value.

Finally, a person’s perception of use-value can motivate a decision to buy or sell in exchange for an amount of money, revealing an exchange-value. Since every person sees it differently, with an unconsciously different potential exchange-value, their response in any given situation is unpredictable.

Understanding notions of value creation takes us into the realm of subjective experiences and all the different ways that people anticipate these experiences. Then we can begin to appreciate the various ways that value can be created by engineers for their clients and humanity.

Yes, it’s difficult at first. Many engineers yearn for fixed objective truths, and shy away from fuzzy subjective emotions. However, our research shows that engineers who understand value creation enjoy more respect and far more rewarding careers, both intrinsic enjoyment and financial benefits.

The next post will start revealing how engineers create value through their work.

Post Script

If you are fluent in a language other than English, I would appreciate your comments on how these ideas are represented in other languages or cultures.