The difference between value extraction and value creation

Value creation is the process of generating value using resources and work from new products or
services. Its target is also to enable employers, customers, workers, and stakeholders to benefit from this
process. However, value extraction is when a company generates more value or profit from a resource
without making it more valuable for the customer. For example, price manipulation and cost cutting
measures are some techniques that companies can use to extract value, and this can sometimes harm
stakeholders. Considering these differences, value extraction prioritizes profit and generating value form
a resource, while value creation focuses on generating value as well as benefiting stake holders, workers
and comsumers, reinforcing innovation and sustainability.

To what extent is profit a good indicator of the value that businesses create?

Profit can indicate the success of a business to some extent since it mostly measures financial gain,
which can show its efficiency to operate but it doesn’t indicate many important aspects of a company´s
value creation. Things such as any benefits or weaknesses outside finance can´t be accounted for
example, if a company is receiving high profit but at the same time is harming a community or the
environment. Profit is a short-term indicator of value creation because it doesn’t focus on long-term
development or reinforcing sustainable practices. Increasing financial gain doesn’t necessarily indicate
good quality of the product that is being manufactured and sold, which can be a disadvantage for the
costumer and for the company in the long-term.