Submerged Value Is The Majority Of Value
Traditional Accounting sees the tip of the iceberg. We calculate the millions hidden beneath the surface.
The "Zero" Dollar Mistake
For decades, executives have known sustainability had value, but because intangibles are hard to measure, in management accounting they are often assigned the only value they cannot possibly have—Zero.
When companies focus only on visible metrics like energy savings, they miss the 80% of value that drives the company forward. We call this Submerged Value.
It isn’t just a nice add-on that rounds up the project’s visible benefits. Usually, it’s the majority of the project’s value.
Case Study: Hospitality Industry
The Expectation Gap
We quantified the value of a major hospitality corporation’s sustainability efforts. The gap between management’s expected value and reality was 100x.
CORE™ Framework
The Science Based Framework That Delivers Value
Customers
Preference, Price Sensitivity, Margin, Lifetime, & Vocality
Operations
Cost Savings, Innovation, Asset Productivity, & Speed
Risk
Vulnerability, Resilience, Responsiveness, & Foresight
Employees
Recruitment, Retention, Engagement, Productivity, & Vocality
The CORE™ framework surfaces submerged value across the value chain. Through causal modeling of the systemic and behavioral changes resulting from sustainability activities, the real financial impact can be calculated.
Whether it is our InVEST™ model of customers or our Talent model of acquisition and retention of employees, each CORE™ segment is backed by rigorous scientific research, augmented with Valutus’ proprietary experimental data.
InVEST™ Model
Quantifying Your Customers Response to Sustainability
How is sustainability driving customer revenue? The Valutus InVEST™ financial valuation model, backed by extensive scientific research and Valutus’ own half a million + proprietary data points across four continents, quantifies changes in your customers’ buying behavior caused by your sustainability activities.
For example, one well-known manufacturing company in a very competitive market was spending a lot of effort trying to break into accounts that were loyal to its competitors. It was time and resource intensive, and the success rate was low. However, when they began leading the sales discussions with their most sustainable offerings it made a big difference. Talking about their sustainable products got them in the door and converted some previously untouchable accounts to customers—even when they didn’t end up buying the sustainable product that had started the conversation.
An increase in your customers’ awareness of your sustainability activities can impact revenue in many ways, including:
Market Share: 10-point rise in awareness (10% to 20%) results in a 3 pt preference gain, worth $20m
Loyalty: 10-point rise in awareness (10% to 20%) results in a 1 month increase in customer lifetime, worth $5m
Operations Models
Finding The Hidden Synergies In Your Operations
Quantifying submerged savings lurking in operational efficiency projects. Because operations differ dramatically between companies, Valutus’ financial operations models are built to reflect each company’s specific opportunities. Regardless of the uniqueness, each model is grounded in science, guided by our systems approach, and informed by almost three decades of experience. Our formula is to follow the physics. The savings are there, it is knowing where to look.
Think of the savings from waste reduction. The obvious saving is not having to pay for disposal—but that’s typically not a lot of money; landfill fees are around $60-$80 per ton. Then there are the savings because you don’t have to buy it to begin with. But if you follow the physics, you will also find you don’t have to move it, store it, process it, insure it and incur over a dozen other associated costs. These are real tangible costs—generally missed unless you consider the entire system.
Changes in your operational efficiency can have systemic impacts on OpEx, for example:
- Initial Cost Saving: Process water recycling results in a 35% reduction in water purification costs, worth $4m
- Additional Cost Savings: Process water recycling coupled with system flow changes that lower heating and cooling requirements reducing energy costs by 12%, worth $4m
Risk Models
Quantifying Submerged Risk Exposure Up And Down The Value Chain
Changing conditions affect the risks a company faces and how vulnerable it is to them.
The Valutus V Model provides a unique foundation for risk analysis and quantification. It identifies seven key elements that affect how vulnerable a company is, including velocity, variability, volume, visibility, validity, vitality, and variety. By quantifying these elements of vulnerability, we identify the “risk premium” in your operations.
Consider velocity. If circumstances are changing faster than a company can adapt, that increases vulnerability. However, a company that more agile than its competitors is less vulnerable to changes in the external environment, creating a virtuous feedback loop that delivers quantifiable advantages.
Another example, variety. A company that depends on a wide variety of inputs, all of which are required, is more vulnerable to supply disruptions. Conversely, a company that can use a variety of different inputs to make it products is less vulnerable if one of them is disrupted.
Surfacing of your climate related risks can insure against supply chain disruptions, including:
Submerged Risk: Disruption of 20% of supply chain transportation from drought, worth $75m
Exposure Reduction: Increased visibility climate risks lowers exposure to expediting risk by 20%, worth $15m
Talent Model
Quantifying How Sustainability Impacts Talent
Surface the submerged value from your Talent. The Valutus Talent valuation model, like its InVEST™ model, is grounded in scientific research and formalizes the causal relationship between sustainability programs and how they affected employee attitudes and retention as well as lowering talent acquisition costs.
Consider what happens when a person leaves your organization and must be replaced. Employee candidate awareness of your sustainability programs results in better candidate fit with your organization, increasing top-candidate hiring yields and reducing new-hire premiums.
Now consider what happens when that new employee starts working. It is understood that they will be less productive at the beginning. But they do not work in a vacuum, they will call IT and ask their coworkers how to fill out requisition forms or ask for any of the hundreds of other bits of cultural knowledge that are necessary to do their job but aren’t covered in the new hire briefings. And all that will lower their co-workers’ productivity—a submerged cost of attrition.
Increased awareness of company sustainability activities reduces talent related expenses in may ways, including:
Employee Attraction: Increased candidate awareness reduced time-to-hire by 15% and increased top-candidate yield by 5-points, worth $7m
Employee Engagement: A 10-point increase in employee engagement results in a 2-point increase in productivity, worth $7m
- Attrition: A 20-point increase in employee awareness results in a 1-point drop in attrition rate, worth $10m
Need To Dig Deeper?
Customer Science™
Actionable Data Not Theoretical Research
How does sustainability influence your customer’s sensitivity to price changes? Our Customer Science™ methodology answers that question. Using a form of discrete choice conjoint analysis with choice psychology and hedonic pricing overlays we construct and run experiments to measure revealed preference. The number of experiments is determined by the level of statistical significance required and the number of permutations being tested. Customer Science™ delivers actionable data that you can use to make marketing decisions now.
