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10

Transcendental Value Creation: Not business as usual

C onsidering the magnitude of change in the shifting economic environment and the unpreceden-

ted weight of social awareness in recons- tructing the market space, it is reasonable to assume that we are witnessing a quali-tative transformation of capitalism in the twenty first century.

Structuralist theories of the last centu-ry defined business strategies within the boundaries of the known market space confined to a strict tradeoff between cost and value. Companies compete for value in a zero-sum game within the existing mar-ket structure wherein gain for one company is ultimately achieved at the loss of another. Profitability is, therefore, subject to a com-pany’s competitive advantage in capturing wealth and market share instead of crea- ting wealth and demand. On the other hand, Reconstructionist strategic theories propose that a company can endogenously create value by shifting focus from the supply point of view to the demand point of view to create new demand by reconstruct-ing the existing market boundaries.

Reconstructing market boundaries with value innovation

Uber’s business model is a recent example of a Reconstructionist value innovation strategy. The online transportation network company presently has services available in 58 countries and 300 cities worldwide. Con-sidering the substantial increase in its 2015 gross bookings, from US$1.5 billion in Q1 to US$2.13 billion in Q2, the company seems to have reached an astonishing quarterly growth rate of approximately 40%.

While the company is arguably the most valuable venture capital-backed private company in the world today, it currently faces regulatory challenges across the globe. But beyond regulatory hurdles however, the company’s biggest challenge is sustained growth in view of newly emerged competition. The company’s busi-

CEO Report talks to Reza Dari, CEO of Global Investment Bank about his view on the shifting economic environment and the need for a deeper strategic vision beyond conventional quantitative analysis.

ness strategy focused on value creation by achieving a temporary monopoly in a pre-viously unknown market space, which will gradually but inevitably transform into an increasingly competitive landscape creating a more challenging environment for sus-tained organizational growth. This is the point in time where the focus of business strategy necessarily shifts from value cre-ation to sustainability.

From rapid growth to sustained growth

Collectively centered on a common purpose – quantitative value extraction – conven-tional business strategies of the past and present have played a significant role in the rapid growth of the global wealth and economy. According to the most recent report published by the Boston Consulting Group, global private wealth grew by nearly 8% in 2014 to US$156 trillion and is estimated to reach US$200 trillion by 2018. However, the exponential expansion of global wealth over the last few decades has been accompanied by a perpetual cycle of economic anxiety and financial crisis driving an expanding gap between market overdevelopment and social un-derdevelopment, which undermines the very notion of growth and sustainability.

Today, the prospects of economic and so-cial development in Africa, Asia, and Latin America are faced with challenges related to extreme poverty, climate change and wealth redistribution. At the same time, developed countries and other wealthy nations also struggle with structural and social challenges in view of declining stan-dards of living. We are now living in a time when 1 in 9 people in the world are hungry and more than a billion people live in ex-treme poverty.

Common sense suggests that qualitative social development and prosperity in the impoverished communities around the world present tremendous opportunity for

future economic growth, which can help achieve a more sustainable corporate land-scape and global economy. This is a highly potential market space capable of expand-ing the existing market boundaries over the long-term, yet it has gone largely unex-plored as it does not resonate with today’s corporate culture of commerce focused on short-term bottom line performance.

Lack of purpose and qualitative value within the conventional strategic theories of the past and present is perhaps the greatest obstacle standing in the way of sustained quantitative growth and social prosperity. Consequently, the existing economic envi-ronment is now faced with an underlying disruption in the consumption and invest-ment behavior of a new generation of con-sumers and key actors growing increasingly mindful of purpose and sustainability while becoming increasingly skeptical of the tra-ditional culture of commerce.

Transcending market boundaries with transcendental value creation

If we expand our view of the shifting eco-nomic environment in search of sustain-ability, it becomes evident that we need to excavate a much deeper strategic vision ca-pable of elevating the notion of value above and beyond the conventional quantitative analysis.

Transcendental Value Creation seeks to expand the quantitative nature of existing strategic theories. It holds the view that the best unit of analysis for sustained value creation is neither the company nor the market; rather it is the company’s strategic ability to innovate and create qualitative value for all its stakeholders to achieve quantitative value for its shareholders. Key actors and stakeholders in the emerging economic paradigm are actively searching for a deeper and more subjective dimen-sion of capitalism. This in my view is the new unexplored frontier of an uncontested and boundless market space.

G LOBAL INVE STME NT BANK

11

Reza Dari, CEO of Global Investment Bank.

Global Investment Bank Limited (GIB) is a company limited by shares incorporated in the Dubai International Financial Centre and regulated by the Dubai Financial Services Authority (DFSA). GIB provides services only to Professional Clients and Market Counter- Parties as defined by the DFSA.

G LOBAL INVE STME NT BANK

Transcendental Value Creation pro-poses that a company can transcend the structural boundaries of market space by simultaneously pursuing quantitative eco-nomic value and qualitative social value. Instead of intensive market competition, Transcendental Value Creation advocates for cooperation to align social stakeholders around creating shared values capable of transcending conventional market seg-mentation. It argues that especially in a market environment where supply exceeds demand, a company must create new and previously unknown markets by creating shared value utility around social commo- nalities instead of consumer differences. The strategy aims at raising quantitative value for the market and creating qualita-tive value for society at the same time. This will eventually but naturally erode com-peting features or products that are less valued by the new market.

Transcendental Value Creation denotes sustained quantitative value extraction from qualitative value creation. It is the stra-tegic approach of creating value through alignment of interests around the notion of equitable growth and shared social prosper-ity reflecting the interdependent nature of today’s global society.

“Transcendental Value Creation denotes sustained quantitative

value extraction from quali-tative value creation. It is the strategic approach of creating

value through alignment of interests around the notion of equitable growth and shared

social prosperity reflecting the interdependent nature

of today’s global society.”