What Is Value-Add? – Graham Mailhot

Canadian MoneyTHUNDER BAY – We all know that the economy in Thunder Bay, and Northwestern Ontario for that matter, has to change. This is particularly true of what we would consider to be “traditional industries” or mature markets. This is where the discussion can get interesting.

Differences in demographics, backgrounds (both professional and educational), needs, wants and agendas all lead to varying opinions and visions as to how our economy should change and where and how capital gets allocated.

Anecdotally speaking I still sense polarizing opinions as to how these economic changes should take place. I get the feeling that some people are still holding on to the status quo while others want a drastic change in the other direction.

One thing which is clear is that there is no “best route” to achieving economic change. Any path(s) we take are going to inevitably include growing pains and compromise. As is typical though I think what is going to ultimately be the most successful path forward will be the one that lies somewhere in the middle. In building a sustainable, competitive knowledge based economy we need to maximize, not ignore existing assets.

While we struggle through this change two phrases seem to be a part of every conversation, “value-add” and “knowledge based economy”. The problem is I’m not sure if we have a good understanding of what these terms actually mean and how to put the theory behind them into practice in order to create a more competitive and sustainable economy for our region. This begs the question then, just what is “value-add”? Is it merely a derivative of a raw material, an enhancement made somewhere in the production process? Why is this so important to transforming our economy and how do we use it to create competitive sustainable jobs?

It is easy to get caught up in an argument of semantics but what I think we need to focus on is how and where the “value” in this phrase actually comes from.

I’m not sure how taking a commodity and converting it to another commodity, with no change in business models or value propositions, adds any true value. Wonderful enhancements can be made along the production process to raw materials but if the company ends up bankrupt what sort of value have we actually derived. We need to break free from the continuous cycles of bubbles and consumption we seem to be perpetually stuck in.

If we are serious about value creation in our economy we need to completely re-think how and why we do business. This can be difficult in a region in which we continually see a list of the usual suspects making poor, short-sighted decisions. The actual mechanics of value creation in economic development help insulate us from these rollercoaster cycles by focusing on concentrations of interconnected firms and supporting or coordinating organizations which have synergies and create efficiencies between one another. The value created is in the new business models and value networks which are formed as a result of these firms being located in a similar geographic area.

The company’s profit materially from the presence of powerful “externalities” and “spillovers” that bring them important competitive advantages, ranging from the presence of a specialized workforce to supplier specialization and the exchange of leading edge knowledge via research and development. Development of this nature can be done independent of government policy so it won’t fall prey to partisan agendas. Businesses who decide to locate here from outside the region have more incentive to stay because their long term profitability is linked to the regions complementary organizations and the mutual benefits these companies derive from their proximity to one another.

If Thunder Bay is ever serious about getting away from our boom and bust cycles we need to start taking a longer term focus to development in all areas of our economy, and utilize a more realistic way to think about the economy and development efforts so as to put both on a more productive footing.

We need to focus our policymaking and funding allocations to the more grounded, day-to-day interactions by which real companies in real places complete transactions, share technologies, develop innovations, start new businesses—and yes, create jobs and locate workers.

We need to get away from this model of being colonized from external companies in which our livelihoods are at the mercy of consumption and bubbles and the capital investment of foreign firms with no affinity to the region.

There is no question this is difficult as it requires tremendous patience and the collaboration of many organizations, some who are even competitors. One thing is for certain, simply throwing myopic, patchwork solutions at poorly defined problems isn’t going to lead to true value creation and prosperity. We need to stop focusing on what is going to garner short term headlines and start making intelligent decisions focused on sustainable 21st century business practices which will lead to true value creation for our city and region.

Graham Mailhot

Northwestern Ontario Innovation Centre
The Innovation Centre acts as a pivotal player in growing Northwestern Ontario’s innovation capacity. We offer support to innovative entrepreneurs, businesses, and community projects in the region of Northwestern Ontario. In addition, the Centre seeks out new approaches to improve, enhance and invigorate a commercialization system in our region. By encouraging ongoing cooperation between business, education and government, the Centre is a driving force to improve economic vitality.

Located in Thunder Bay on Lakehead University campus, the Centre prides itself on creating linkages, engaging entrepreneurs, supporting management, training people, accessing markets, developing and implementing businesses plans, sourcing financing and building success!