Opinion Creating value Dr Nima Sarmadi, Chair of the Board at Petro Contract Navigators, considers the difference between outputs and outcomes and the more inclusive value of the latter Dr Nima Sarmadi To gain a better understanding of the significance and position of outcomes, I think it might be fruitful to have a closer look at the interrelation and interconnection between assets, business model, stakeholders, outputs and outcomes. Assets, as stocks of value, feed as inputs to an organisations business model, which is a system for transferring or transforming inputs through an organisations business activities into outputs and outcomes that aim to fulfil its strategic purposes via value creation for its corresponding stakeholders. Outputs are the key products or services that an organisation produces or delivers, aimed mainly at a targeted, narrow set of stakeholders (customers/consumers). Outcomes are the internal and external either intended or not positive and negative consequences for the assets as a result of the organisations business activities and outputs, which can reasonably be expected to significantly affect a broader set of individuals or groups such as beneficiaries and stakeholders. Positive and negative outcomes Designing infrastructure (or any product or service) to sustain economic growth, human life, national security and the environment are instances of planning with the vision to support equitable societies and to prioritise outcome over output The description and implications of outcomes might include both internal consequences (eg, employee morale, organisational reputation, revenue and cash flows) and external ones (eg, customer satisfaction, tax payments, brand loyalty, and social and environmental effects), while outputs are predominantly outward orientated. It also might consist of positive outcomes and negative ones that result in a net increase or decrease in the asset balance (ie, financial, physical/manufactured, intellectual, human, social and relational, natural) and thereby create or erode value, respectively. The automotive industry illustrates the distinction between outputs and outcomes, the importance of a balanced consideration of them both, and why the outcomes matter most. Take the example of a manufacturer that produces internal combustion engine cars as its core output. One can enumerate a couple of outcomes from different viewpoints of various stakeholders. Outcomes from an organisations business model perspective might take the form of increased sales, profit, market share, enhanced reputation, better community links, customer satisfaction, decline or enhancement of natural environment, and so on. For its shareholders, outcomes might be dividends and capital gains. The outcomes for consumers might be mobility, comfort, safety, reliability, status, etc. For employees, it might be job creation, wages and benefits, profit sharing, professional development, and so on. For the suppliers, we can assume outcomes are payment for their goods and services, and support for their local community. For the local communities where the manufacturer is based, outcomes might be provision of infrastructure, education, healthcare, conservation, quality of life, and, for government, tax revenue and GDP contribution. Classification from another angle shows the distinction between outputs and outcomes. Positive outcomes might include increases in financial asset (through profits to the manufacturer and supply chain partners, shareholder dividends and local tax contributions) or enhanced social and relationship asset (through improved brand and reputation, for instance, underpinned by satisfied customers and a commitment to quality and innovation). Negative outcomes might include adverse consequences for natural assets (through product-related fossil fuel depletion and air quality reduction) or reduced social and relationship asset (through the influence of product-related environmental and health concerns). Meeting needs and expectations It is evident that outcomes matter since they are connected to the value generated and that in turn is linked to stakeholders (beneficiaries) needs and expectations. Outcomes are closely related to real values generated that in turn have something to do with purpose/vision. In the physical asset management community, as IAM President Christian Roberts identifies, the term shovel-ready in contrast to shovel-worthy projects addresses the distinction between output and outcome, respectively. We should not just be thinking about building/ providing something because we can (output view), but because it gives purpose and some level of value to our community (outcome view). Building an infrastructure that is sustainable, resilient and supports social equity for communities means focusing on outcomes that add long-term value to the fabric of society. Further thoughts on shovelworthy projects can be found in this Mott Macdonald article by Mark Enzer. Designing infrastructure or any product/service to sustain economic growth, human life, national security and the environment are instances of planning with the vision to support equitable societies and to prioritise outcome over output. Themes and theories Nima Sarmadi holds a PhD and mixes theoretical endeavour in engineering with practical expertise in energy sector project management and field supervision. He has received the MIAM title from the IAM because of his work. He has collaborated as a Senior Algorithm Engineer and a Chief System Designer with an international team of telecommunication experts who developed wireless communication at ST Microelectronics and Ericsson. With more than 17 years experience in infrastructure development, he co-founded Petro Contract Navigators Co in 2018. This management consultancy firm focuses on providing professional services in asset management and critical infrastructure development in which he supports clients in sustaining value generation, optimising their stakeholders value delivery, and developing their capabilities. There are a few themes related to value creation and, consequently, its manifestation: outcomes. First, outcomes shape and are affected by the forces of the external environment. Although outcomes from an organisations business model/activity should be normally planned and intended, not all outcomes can be predicted because of the non-linear interaction of the wide range of internal and external factors on which an organisation depends for value creation. Unintended outcomes from the business model may therefore manifest themselves in the short, medium or long term, and may be positive or negative with internal or external consequences. Second, outcomes take place over multiple timeframes and are not always stable and predictable since value creation in the short or medium term has the potential to enhance, dilute or deny the potential for creation of value in the future. Third, outcome assessment and consequently respective value creation takes place within the context in which the organisation operates and on which it depends. This is down to the fact that value is created by organisations from a wide range of interactions, activities, relationships, causes and effects. Those interactions take place in the market, regulatory, societal and natural/environmental context. The interactions occur between the organisation and its consumers, employees, stakeholders, regulators, suppliers and others operating in the context within which an organisation conducts business activities. The context is also affected by natural, environmental and planetary limits. Fourth, in outcome assessment and hence that of the value creation, financial value or asset is relevant, but is not the only value or asset to consider. Value creation extends beyond benefits directly associated with financial asset accretion. Fifth, as value is created not only for its agent organisation but for others, outcome also has multiple stakeholders and can be seen from different perspectives. Last, but far from least, it is really noteworthy to emphasise that a holistic or comprehensive approach that covers the multifaceted nature of value creation is very important since overall outcome (reflecting net or balance of value generated) matters. For those interested in reading more about this topic I highly recommend the International Integrated Reporting Council background paper on Value Creation. The stakeholder theory attributed to Edward Freeman in the 1980s says the objective of organisations should be to augment the greater good for the many and to create as much value as possible for multiple stakeholders as a serious view to value creation. It is still a challenge to find how and to make traceable explicit (practical) connections between big insights such as outcome matters and our day-to-day actions, activities, habits and priorities.