On the first day of my Finance class in college the professor posed the question to the class, "what is the function of management in a company?"
After about 5 minutes of unsuccessful guesses from the class, the professor gave us the 'answer'... the function of management is to create value for the shareholders. In Finance, shareholder value is a purely quantitative metric, so the idea of value creation is a function of financial statements and in the world of Finance they take it a step further and quantify it every way you can imagine: stock market charts and M&A (mergers & acquisitions) activity is rooted in value and even more importantly, the perception of value.
Business takes place when both parties perceive it as a good deal.
Later in college, I wrote a comprehensive research paper on the events leading to the financial meltdown in late 2008. Since everything in that paper had to be cited appropriately, I actually needed to dig into page after page of information to get to the root of the problem. When it was all said and done, I was left with an overwhelming understanding of value and how crazy things get when there's too large a gap between inherent value and perceived value.
The industry term for that gap between inherent value and perceived value is called a bubble.
Major economic downturns often take place in the aftermath of a bubble bursting. That is to say, right after the market has finally realized it was placing too high a value on something.
So how can we make sure we create actual value and not perceived value?
It comes down to maximizing the number of win/win transactions and minimizing the number of zero-sum transactions.
Zero-Sum games are situations in which one player's gains are balanced by another player's losses.
There's no point in deliberately creating zero-sum outcomes. Listening to the other party's needs and being honest about your own needs lends itself to ethical (and efficient) business. Another professor of mine loved a gem of a concept with our class
Business takes place at the speed of trust
The United States has established itself as one of the most trust-worthy business ecosystems in the World. I'm not saying everyone is honest, but it's sure easy to verify in a few phone calls whether someone is a hard-worker who doesn't take shortcuts or a faker trying to make a quick buck.
We need more of the first, over time I'm confident we'll see less of the second.