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Value creation vs value capture

  • By Alan Knott-Craig
  • December 2, 2012

Michael Jordaan recently told me of a Harvard Business Review article where the author distinguishes between businesses that create value versus businesses that capture value. For example, Google is extremely good at creating value, but not so good at capturing value when one considers the value it brings to the world (organizing all the world’s information is pretty damn valuable!)


Telco’s, on the other hand, are excellent at capturing value. For example, AT&T was the biggest capex spender in the USA last year… you can’t spend that much cash unless you are making lots of profits!


That got me thinking. How do we foster businesses in South Africa (and Africa) that both create and capture value?


Its no secret that SA’s economic future is entirely dependent on out-innovating the rest of the world. And since unemployment is one of the biggest challenges facing the country, our economic future is synonymous with our political-and-everything-else future!


That means we need to be producing highly educated professionals, and we need to create an environment that is conducive to creativity. Not easy, I know, but if we do this then I think we can innovate our way to economic greatness.


But of course, the cognitive dissonance I have with this thinking is that I know, deep down, that an innovation economy will not create jobs for everyone. In many ways, it may destroy jobs… and whilst innovation is imperative so that we don’t take the workforces of Asia head-on, its also imperative that we create jobs for everyone, not just the university graduates.


And that’s where Michael’s article clicked for me. Traditional blue-collar industries capture value. Telcos are in fact more blue collar than white collar in that its not so much about innovation, as opposed to building a physical network and making sure it works!


Therefore, not only do blue-collar industries create jobs for the masses, they also capture value, and that’s where the real money is… Boring old bricks and mortar businesses. Google is sexy, but it won’t save the world from unemployment, nor does it capture a significant percentage of the value it creates.


For our country to succeed, we need to make it a place for both the inventor and the factory worker. Both the creativity of Capetonians and the work ethic of Joburgers.


Ironically, considering he was the source of this post, Michael and his team have managed to achieve this at FNB over the past few years. Banking is as traditional a business as you’ll find (and is an excellent vehicle for capturing value,) but the injection of world leading innovation is allowing FNB to create value as well.


If we want to capture value, we must actually make stuff, not just make ideas.


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