Management will create wealth for shareholders only if it delivers financial performance in excess of current expectations, or if it convinces the capital markets that it has the ability to do so.

It is difficult to exceed expectations without either injecting new ideas or adopting a new and higher value strategy. The wealth creation cycle begins with creativity and innovation.

The key to wealth creation is innovation. Ultimately, all wealth creation stems from the successful implementation of higher value strategies developed from new ideas.

While measured in the capital markets, shareholder wealth is created in the product markets by using innovative thinking to develop products or devise services that provide greater value for customers.

When priced appropriately, these higher value products and services will generate additional revenue. If they are delivered efficiently, the increased revenue will translate into higher profits and ultimately into an increase in cash flow and economic profits to shareholders.

While cost management is important, it is rare to find a situation in which stand-alone cost reduction is the only course of action available to management to enhance shareholder wealth. It is equally rare to find a situation in which a lower cost structure leading to lower prices is the only way to enhance value for customers.

There is a fundamental relationship between the creation of customer value and the creation of shareholder wealth. To create wealth for shareholders, companies must first create value for their customers. They must then deliver that value efficiently.

The key to wealth creation is innovation. Ultimately, all wealth creation stems from the successful implementation of higher value strategies developed from new ideas, not simply from the adoption of value-based measurement and incentive schemes.