Saying that strategy is about creating value is about as unhelpful as saying strategic thinking is about "doing the right thing". It's no more than a platitude.
It is much easier to see value creation as a metric. For example, shareholder value increased by 400%.
Just for the record, we understand the value creation concept. We get it.
What we see are the very real difficulties caused by such a narrow definition of strategy.
Value Creation as Strategy Marginalizes Other Activities
The first issue we see with defining strategy as value creation is that it marginalizes all other activities of the organization.
Value creation is essentially about marketing; the defining of a compelling value proposition to a chosen target market.
The approach was made popular in the 1960's by Bruce Henderson's enormously successful consulting firm, Boston Consulting Group, the first management consulting firm to hold itself out as "strategy consultants". Then Dr. Porter came along in the late 1980's and further blessed strategy as being only about value creation and competitive advantage.
The trouble is that this trivializes all other activities of the organization.
If "strategy" is only about marketing, then the remaining activities are not "strategy". They are reduced to a grab bag of less important activities usually listed as process, structure, technology, risk, people, mission, and growth.
Value Creation doesn't Explain Organization Design
Thinking strategy is just about value creation and marketing doesn't explain organization design.
Dr. Chandler told us in 1962 in his book, Strategy and Structure, that structure follows strategy.
Everyone agrees that the first step in organization design is to decide on what needs doing and choices of action, namely strategies.
Then those strategies can be staffed with the appropriate personnel.
It is not easy to understand how to do that when strategy is defined as being about value creation.
Value Creation is Different for Nonprofits & the Public Sector
Value creation is different for nonprofit and public sector organizations.
This is because these organizations don't need to develop a value proposition. It is already embedded in the legislation or charter that created the organization.
Taxpayers and donors can get quite annoyed when they see their hard-earned dollars and donations being used for "marketing" instead of "communicating" relevant information to the organization's relevant users and clients.
Think about it. The IRS doesn't need to market. Its mandate gives it a monopoly on collecting taxes and enforcing tax law. It needs to communicate relevant information about tax law and compliance, not market itself.
Moreover, those nonprofits that become focused on trying to develop value propositions and competitive advantage as strategy are usually the same ones that forget to review the mandate that created them. As a result, they end up wandering away from their mandate, a condition known as "mission creep". See: 7 steps to warding off (mission) creep by Patty Hasselbring
Strategy is a dynamic system; not a concept
We think the biggest issue with believing value creation is strategy is that it prevents any opportunity to see strategy as a dynamic system of activities to be managed in any organization.
We all know organizations are dynamic systems. They are dynamic because of changing choices of action, our definition of strategy. Therefore, strategy must be an interconnected, dynamic system.
This, by the way, was how Henri Fayol saw strategy on the first page of General and Industrial Management, arguably the first book ever written on the new discipline of strategic management emerging in the 20th century as a consequence of industrialization.
Fayol identified six strategies (he called them activities) that he felt had to be managed in any organization: Finance Management Organization Management, Production (also known as Service Delivery or Manufacturing depending on what the organization does), Risk, R&D/technology, and Marketing/Sales (sometimes called communications in nonprofits and public sector organizations).
Drucker identified 2 more strategies in The Practice of Management: Growth and Business Definition (which Drucker called "mission").
These 8 strategies are common to all for-profit, nonprofit, and public sector organizations.
The Power of Strategy as a System v. Value Creation
There is real power is seeing strategy as a system rather than as simply being about value creation.
The 8 strategies are the basis of all organization design. There are now companies that have a "Chief" for every one of them, from the Chief Financial Officer right through to Chief Risk Officer and Chief Growth Officer.
The 8 strategies are the basis of the curriculum for every business school.
The 8 strategies are the basis of the strategic plan and are the strategies that should be the focus of strategic plan monitoring by the board of directors and executive management.
The 8 strategy framework enables boards and management to prioritize strategy, something that cannot be done when "strategy" is one thing.
The 8 strategy framework enables boards and management to test the impact of decisions on one strategy on the other seven, something else that cannot be done when strategy is defined as one thing.
The 8 strategy framework enables construction of business models for each of the 8 strategies as well as combinations of them. For us, business models show how strategies (choices of action under our control) relate to external factors outside our control. At this point in time, too many business modeling methodologies are focused solely on developing a value proposition for the marketing strategy.
So what happens to the concept of value creation? The answer is simple. It is still very much the quest of the marketing/sales strategy. But marketing is just one strategy of 8 that need to be managed in any organization. Start thinking about the other seven and about strategy as a dynamic system.
For more on strategy as a system, see The Alpha Strategies: Understanding Strategy, Risk, and Values in Any Organization