Business value

In management, business value is an informal term that includes all forms of value that determine the health and well-being of the firm in the long run. Business value expands concept of value of the firm beyond economic value (also known as economic profit, economic value added, and shareholder value) to include other forms of value such as employee value, customer value, supplier value, channel partner value, alliance partner value, managerial value, and societal value. Many of these forms of value are not directly measured in monetary terms.

Business value often embraces intangible assets not necessarily attributable to any stakeholder group. Examples include intellectual capital and a firm's business model. The balanced scorecard methodology is one of the most popular methods for measuring and managing business value.

The concept of business value aligned with the theory that a firm is best viewed as a network of relationships both internal and external. These networks are sometimes called a value network or value chain. Each node in the network could be a stakeholder group, a resource, an organization, end-consumers, interest groups, regulators, or the environment itself. In a value network, value creation is viewed as a collaborative, creative, synergistic process rather than purely mechanistic or a result of command-and-control.

If the firm is viewed as a network of value creating entities, then the question becomes how does each node in the network contribute to overall firm performance and how does it behave and respond to its own interests. When the nodes are independent organizations (e.g., suppliers) or agents (e.g., customers), it is assumed that the firm is seeking a cooperative, win-win relationship where all parties receive value. Even when nodes in the network are not fully independent (e.g., employees), it is assumed that incentives are important and that those incentives go beyond direct financial compensation.

While it would be very desirable to translate all forms of business value to a single economic measure (e.g., discounted cash flow), many practitioners and theorists believe this is either not feasible or theoretically impossible. Therefore, advocates of business value believe that the best approach is to measure and manage multiple forms of value as they apply to each stakeholder group.

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