The discussion continues about how the concept of value keeps expanding. How issues and issue management, key capability areas for influence functions, relate to value. How issues can be categorized into four types depending on nature of their impact. How value can be estimated for key issues using a simple calculation that does not have to be exact, but can still be immensely useful.
One of the key six pillars of Radical Influence is Value Management. Gautam is one of founding voices on the topic of value creation. He is also the founder/editor of the Journal of Creating Value. A mentor at the Creating Value Alliance, co-chair of two global conferences on creating value, The International Conference on Creating Value for the Future of AI and Society in Kobe, Japan and the conference on Creating and Destroying Value for Society for Business.
In this series, Rick Ferraro Founder of the Radical Influence Network has a conversation with Gautam Mahajan, Founder of the Journal of Value Creation and the global Creating Value Alliance at the university level about what value is, how the concept has evolved, and how it now includes stakeholder-based issues in addition to it products and services for customers. Finally, they discuss their projections for the future of the field. This series is useful to executives and practitioners alike. If you touch topics that can affect corporate reputation, this series provides critical concepts and pragmatic advice to guide your key decisions.
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In this episode of the podcast, we continue the conversation with Gathaum Mahajan, Author of eight books on customer value.
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Founder of the Journal of Creating Value Leader of the value creating value alliance.
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In the prior session we covered several chapters trying to explain the history of the evolution of value and its concept.
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We started with the legacy of Milton Friedman describing that value is really for shareholders.
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We then discussed a big chapter related to customer value as the cat path to creating enterprise value.
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We then added additional stakeholders.
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Even then, Michael Porter weighed in later on with his concept of shared value, with an explicit focus on communities.
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More recently, the notion of stakeholder capitalism as distinct from shareholder based capitalism has been taking hold.
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It defines five types of capitalism.
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Three, we know about pretty clearly financial, human and intellectual capital, But adds two more.
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One for social capital and natural capital, referring to the environment.
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So Gathaum, I'm wondering if you see agree with that concept of how these chapters have evolved or if you see it somewhat differently in terms of the way Value has continually expanded its definition and focus and this seems to be a major trend for the concept of value.
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Do you have any thoughts on this?
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Yeah, thank you rick.
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And it's good to talk to you again.
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what I wanted to say was that in actual practice a stakeholder capitalism encompasses customers because you it's part of a customers are part of the stakeholders and of course you mentioned human resources, you're mentioned shareholders.
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You mentioned society and the environment.
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And then we also have to create value for the partners and we have to create value for all of the people that are associated with the with the company.
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Now, what has happened is that when I talk to people about value creation they assume that value creation is marketing.
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And Phil Kotler wrote that marketing is all about creating value for customers and the shareholders and which is exactly what we're saying.
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Unfortunately people when they think about value, do not think about value for yourself, value for your family, value in society, value in in doing things in philosophy or psychology or in health and in a variety of different fields and they feel that value is something that is married do business.
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Now when when they look at business there again as I said earlier I think of marketing and here you have come in with the radical system of looking at a whole bunch of things that are outside of the natural purview of marketing.
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What should be part of marketing and part of business which has to do with issues which had to do with functions and businesses that are considered staff functions like legal like communications like room, you know issue management, firefighting and all of that.
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Unfortunately firefighting is associated with issues and in fact businesses spend an inordinate amount of time in firefighting and taking care of issues whether they're external issues or internal issues.
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And what I'm trying to say is that if you really want to create value, you have to examine these issues from a different viewpoint and say, how can I ensure that these issues do not happen again?
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How do I make sure that I am on top of things and I'm doing things in such a good way, in such a valuable way that these issues no longer keep coming up and rather than firefighting and things of that sort.
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So, so basically I wanted to say that and reply to your a question of whether I wanted to add something more.
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I think that's a really interesting concept that good.
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and this was this relates to issues in the fact that they are going to always arise.
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Because some of them come from public sentiment in public sentiment changes, right?
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So company needs to be responsive to that.
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It's a dynamic world.
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They need to adjust to the new expectations and if they don't, they end up having quote issues.
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And good issue management is really a way to focus or to prevent having to go into crisis management mode.
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That's the key thing about the long term process.
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So rick that it takes me from issue management, which we want to come back to in a second or to also how do you influence the thinking of the, of the customer thinking of this society in terms of what you're doing and what value you're creating and rather than just what you call yesterday greenwashing or what we call value washing.
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So I think to to explain this further, there's no one better than you rick.
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So what makes the influence functions so special?
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Well what's interesting is that they face this common are constantly changing View from from stakeholders and the public.
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So it is always changing.
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That's number one.
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it's heavily dependent on reputation which is often more subjective than objective and qualitative and quantitative.
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So it's difficult to describe.
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It presents a unique challenge to ex communicating to executive leaders.
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It's one thing for the head of production to say, we're gonna make 100,000 widgets next year and that's a totally different thing for a head of public affairs and government affairs to say these are the five issues we're gonna put most of our energy on.
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And it all of a sudden becomes a very qualitative discussion and that nature makes the influence functions have a unique challenge.
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I'm glad you you you said this rick because there is a lot of stuff in business which is qualitative, customer value is qualitative.
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I mean it's what's in the mind of the customer, how he's thinking which side of the bed he got out of and things of that sort and and and the second part of it is that creating value just like influence has to do with mindsets and how do you really change mindsets?
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How do you get people to think about creating value rather than firefighting?
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So a mindset is part of all of this, particularly when we're talking about qualitative functions and with respect to mindset, some people think all crisis these are equal, well they're not necessarily, that's the case, you can kind of understand that, but the same is true with issues.
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Some issues are much more longer term or much more impactful than others.
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And so what we found is is that, and we know that executives are very comfortable making estimates so you can base it all on estimates.
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But coming to a pseudo qualitative quantitative description of issues allows you to show which ones are the big ones and which ones are the smaller ones.
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And it helps executives allocate resources and mental energy in terms of what they're going to manage heavily.
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So what we do is we take all issues and they can impact the company in terms of its its profit, its strategic future strategic accomplishment of its strategic plan or its reputation.
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It's usually one of those three things that really drive where issues have the impact, how they affect the company and with respect to those related to profit, where there is an identifiable thing and no, notably laws are not predictable, You can't predict which way legislators are going to vote.
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So, so this is a new additional factor that makes these issues a little more complex.
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But what we have found is we say the issues can affect the company, its profit in one of four ways.
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Either it affects revenue or cost or it's a risk.
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In other words, it's gonna hurt revenue and raise costs or it's an opportunity to do the reverse.
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So you now have four categories and all issues will at least the component you can, you decompose every issue into its impact in those four areas.
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And just going through that mental exercise helps you characterize the portfolio of companies of issues that accompany faces.
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And two companies could be exact direct competitors and they may fe they may have a different issue set.
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Okay, there's gonna be some overlap and that's what they usually deal with in their trade association, right?
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, but there, there everyone is going to have a unique issue set and having an understanding of that and its relation to, the business strategy is going to ultimately improve the probability that you're going to be successful at that business strategy.
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So breaking it down and actually looking at it so that a pseudo quan quan quantitative discussion can lead to the very rich qualitative discussion is what is the state of the art today?
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Some companies actually have very detailed processes where they quantify every issue, but that is not the norm and I'm not advocating that is best practice, It fits in certain situations, this is really a fit for purpose world in this and you, you do, you learn by doing in terms of characterizing your issue portfolio.
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Now, the other concept in that is that it's not that hard to calculate these profit impacts and it's really so basically what's called a baseline times of delta kind of calculation.
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So you say, what is this issue is going to affect this portion of our revenue or this portion of our costs?
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And we can quantify it roughly from how much we spent on it last year is good enough, you know, and say, well, is this going to affect it by 5% or by 50%?
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And the really good example of this is new tax legislation.
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Tax legislation says we're gonna tax this kind of capital good or this kind of revenue and we're going to tax that this percentage.
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And you can actually make calculations.
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So the roots of this being able to characterize these risks and opportunities for a company has emerged from the tax world.
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And now, if you just soften it a little bit and say, well, we're just going to make an estimate or an accountant would call it imputed value.
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We're gonna do an imputed value calculation, You can now see the where the boulders are and where the gravel is in terms of this portfolio and know where to spend your energy and you know some people are totally happy doing that by seat of the pants.
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And in other cases it makes a little bit more sense to actually do a couple calculations to really see where things might be tight and complicated, yep.
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So you know rick you're making very good points and I just want to go relate these points back to some of the things that we're working on.
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number one I think issue managers influence managers have to be able to look at the various items on their portfolio and say which one will create the most value and for whom.
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So what they have to start thinking about is if I start to spend money and energy and resources on solving this issue.
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What value will I create for my customer or society or whatever we were looking at and then they have to come back and say what value will society create for me when I've done all of this And they've got to make an estimation of what is really worthwhile for them to do as a business unit.
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But the 2nd 2nd part of it is even even more interesting because when they start to look at influence and they start to look at issues they really have to look at, how do we avoid these from coming up over and over again.
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A very classic example that everyone can relate to is complaint management and issues management for customers.
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And I've I've written a book called customer value starvation can kill which really talks about not taking care of these issues and and trying to just solve them on a case by case basis and there are so many issues that that occur for customers that are not taken care of.
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But there is a solution is found.
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I you know, I I broke my elbow and I'm now in an argument with a company called Data A.
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Which is my insurance company and they're asking for trivial stuff and I've already sent it to one group of people.
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The there's another group of people that's asking for the same information as far as I'm concerned I'm dealing with one set of people and and so it's aggravation and the question is if it's happening for me it's probably happening for a lot of other people.
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But finally I used a little influence and everyone's starting to fall in line.
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But this problem will occur for everyone and it's a waste of time for them.
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It's a waste of value for them.
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It's a waste of value and time for me.
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But we keep doing it.
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So I think these are things that you have to take into account and issue management and influence management.
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Yes, I think it's what's you know you originally started all this discussion with the definition of value is very amorphous and as means a lot of different things to a lot of different people and it's complicated and I'm concluding that the term issues falls in the very similar category and you experience a process issue and rick, that's why you, you know, people have to understand and perhaps you can explain this, why are issues so important for the influence functions?
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How how does all of this relate to value creation?
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Do do issue managers influence managers think in terms of value creation?
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Well, what's interesting is that, I think they do conceptually but not in a very differentiated way.
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So this is it's it's a matter of the grains of the scale of the differentiation that you make.
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Some would just say there's there's big in their small issues and they wouldn't care what kind of issue.
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it would if a process issue is very different than a total company behavior or a legal issue, right?
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They're, they're, they're different.
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So having a sense of the breakdown by type of issue and the size and relative impact and the nature of that impact, that's what you've pointed out, it's not just about only about profit, it's okay, this issue affects us big and profit, but you know what, there's totally these two issues side by side and you have equal profit impact.
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one may affect a stakeholder in such a way that you need to act on that.
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And the other one is a stakeholder.
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That's pretty minor and you don't need to act.
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And so being able to unpeeled enough layers of the onion to be able to make these differentiations is what I see, being glazed over and there is a significant opportunity for just a little bit more effort with a huge return that will save people's you know, busy lives and to be much more value impactful by being able to make these differentiations.
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So they spend time on the most valuable issues because they've spent enough time to be able to differentiate them.
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That's that's my thesis.
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And and then and then, you know, and you know, you said this in a different way, but I'm glad you you have said that, but you also need to characterize the value dynamics and impact of all the significant public policy or social issues facing a company.
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I think I just want to profess this question by one of the point and that is I don't think governments, I don't think society and and the environmental pundits think all of the time in terms of value creation, they they think about their issues and we've got to get this issue out there and get people to work on it special just driven special interest.
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And so I think you radical influence, need to influence these people also, and that's why this question of characterizing value dynamics and the impact on public policy or social issues is very important.
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That's what we're working on and hopefully we'll make a dent in it.
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Okay, so I think we're soon running out of time here and I just want to get I still have a couple of questions can you, can you make me understand how public policy issue can create a financial impact and create value?
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Well, it was that it's that the revenue and the cost impact is generally what what will affect financial value there?
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And indirectly it could affect some of the other like intellectual capital that that kind of thing.
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It's the stakeholder analysis that together gives you the ability to say what is the social or environmental impact?
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And so it's it's a combination of thinking about relative value combined with issue identification and an issue management process that actually is connected to your strategic planning process which is connected then to a stakeholder analysis process.
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And if you do all three, you're going to be in a much better position to achieve quote radical influence, meaningful influence and be that that you know, and generate value.
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And these functions public affairs, they always have a hard time describing the value that they create.
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And and then as as an addition to the previous question.
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How far do you think rich people go with calculating the value impact of issues?
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is this a well developed science?
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How can radical influence and ourselves work together in making this well developed science and getting people to think in terms of issues in terms of of influence, in terms of value simultaneously.
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So I think this is a nascent field in its in the broad conception components have been around for some time.
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you know, the head of tax has been calculating the potential tax impact of of a new tax bill before the legislature for many, many years.
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So that's a well developed aspect.
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But in terms of marrying these components and connecting it into the into the business itself to drive strategic thinking is really where the opportunity is and that's why radical influence network has several call them pillars value management is one of the pillars.
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Issue Management is one of the Pillars, Right?
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And business partnership is another pillar where it is the ability to understand a business enough to understand the public and social and other external influences on it to be able to advise the leaders how to react to that.
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And it's that interaction that creates partnership that you're both trying to drive the business in the right direction and do the right thing while being, you know, reasonably informed about what's going on in the public arena.
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And it's that ability is a multi dimensional capability.
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It's one of the more complex things for a company to get good at.
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It's not just optimize a single process that runs through three departments that's processed by re engineering.
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That's very simple.
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This is a lot more complex.
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This is at a strategic level and its capability oriented and and I agree if the mindset isn't right, the capability will not come, but it also needs structure to and brick, You mentioned a couple of things.
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One was that the tax people, the finance people can come to grips very soon with changes in taxes are things of that sort because the thought process of companies is how how how will this impact our cost, what do we have to do to solve this?
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But that thought process does not extend or until very recently has not extended to society and the environment and all of that kind of stuff.
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And so what what you're talking about is very important.
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And the fact that value management is one of your pillars is great.
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But the real fact of the matter is all of your pillars are intertwined.
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I mean you can't just look at each of these pillars and isolation and that I think the thing that eventually should bind all of them together is the creation of value and the avoidance of destruction of value.
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I agree, I agree.
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So I think we are a time.
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but we will have another session and on that one just to give a little teaser we're gonna be discussing, where we think value thinking is likely to evolve to where we see changes.
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What does the future look like?
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We'll be back for the one more session.
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Thank you Gathaum.
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Looking forward to the next session.
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Thank you rick.
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Great, Great session.