Why a Theory of Value Management Is Needed
Economics has developed a rigorous formal language for money, prices, markets, and transactions. It provides powerful tools for analyzing external exchanges between agents and for explaining outcomes at the market level.
However, modern organizations operate largely outside this formal economic language.
Inside organizations, decisions are made long before any market transaction occurs. Resources are allocated, priorities are set, risks are taken, and capabilities are built. These decisions determine whether value will eventually be created, destroyed, or transformed, yet they are made without a formal, shared language of value.
As a result, organizations rely on proxies: metrics, KPIs, budgets, and narratives. While useful locally, these instruments fail to provide a coherent way to compare fundamentally different initiatives or to reason about value at the system level.
The Theory of Value Management addresses this gap.
It proposes a conceptual foundation for understanding, comparing, and managing value within complex systems, particularly organizations, platforms, and socio-technical structures.
Scope of the Theory
The Theory of Value Management focuses on value prior to and independent of market realization.
It does not attempt to replace classical economic theory. Instead, it complements it by addressing domains where traditional economics offers limited formalization:
- value creation before market exchange
- internal organizational systems
- coordination and transformation costs
- risk, delay, and structural degradation
- long-term capability building
The theory is concerned with how value flows, changes form, accumulates, or degrades inside complex systems, not merely with final financial outcomes.
Core Assumptions
The theory rests on several foundational assumptions:
- Value exists as a systemic property, not only as a market price.
- Value can be created, transformed, and destroyed within a system.
- Losses of value are often active processes, not passive absences.
- Decisions within organizations shape value long before it is observable externally.
- Without formalization, value becomes subjective and political.
These assumptions shift the focus of analysis from outcomes to processes and structures.
Fundamental Concepts
Value
In the context of Value Management Theory, value is defined as:
The potential of a system, within a given value system, to improve its ability to achieve its objectives through a change in state.
This definition emphasizes:
- potential rather than immediate outcomes
- system-level impact rather than local performance
- directionality rather than absolute measurement
Value is not limited to financial gain. It may represent growth potential, resilience, adaptability, trust, optionality, or risk reduction.
Anti-Value
Anti-value is an explicit and necessary concept within the theory.
Anti-value is defined as:
An active negative contribution that reduces a system’s ability to achieve its objectives.
Examples include:
- delay and waiting
- rework and technical debt
- accumulated risk
- coordination overhead
- architectural degradation
Anti-value is not the absence of value. It is a measurable force that accumulates and interacts with value over time.
Value aggregation is meaningful only within or across explicitly modeled value systems. Without such modeling, aggregation becomes arbitrary and politically driven.
Value Flows
Value does not exist statically. It moves through systems.
A value flow represents the movement and transformation of value across time, components, and decision points within a system.
Value flows may:
- increase
- degrade
- change form
- be partially lost
Understanding value as a flow allows analysis beyond isolated initiatives or outcomes.
Value Converters
A value converter is any element within a system that transforms value.
Examples include:
- teams
- processes
- technologies
- platforms
- governance mechanisms
Converters accept value in one form and produce value in another, often with loss or amplification.
This concept provides a foundation for modeling complex organizational structures.
Value Aggregation
For decisions to be comparable, value must be aggregated.
Aggregation does not imply precision. It implies:
- normalization
- comparability
- the ability to reason across heterogeneous initiatives
Without aggregation, prioritization becomes narrative-driven rather than analytical.
Value Systems
Value does not exist in isolation.
In complex systems, value is always defined, interpreted, and evaluated within a value system. A value system provides the context that determines what is considered valuable, how value is recognized, and how trade-offs are made.
The Theory of Value Management therefore treats value not as a universal scalar, but as an element embedded in one or more value systems.
Definition of a Value System
A value system is defined as:
A coherent set of assumptions, priorities, and transformation rules that governs how value is created, interpreted, and evaluated within a bounded context.
A value system defines:
- what counts as value
- what constitutes loss or anti-value
- acceptable trade-offs
- time horizons for evaluation
- tolerance for uncertainty and risk
Value systems may exist at different levels of scale and abstraction.
Multiplicity of Value Systems
Real organizations are not governed by a single value system.
They contain multiple coexisting value systems, such as:
- organizational value systems
- departmental or functional value systems
- product or platform value systems
- individual or role-based value systems
- regulatory or societal value systems
Each system may apply different criteria for what is valuable and what is acceptable loss.
This multiplicity is not a failure of alignment.
It is a structural property of complex systems.
Interaction Between Value Systems
Value systems do not operate independently.
They interact through value exchanges and transformations, which may:
- amplify value
- transform value into different forms
- neutralize value
- generate anti-value
Interactions between value systems are often:
- asymmetric
- non-linear
- delayed in time
The Theory of Value Management treats these interactions as first-class analytical objects, rather than as secondary effects of organizational behavior.
Boundaries and Interfaces
Each value system has boundaries.
Boundaries define:
- what is considered internal
- what is considered external
- how value crosses from one system to another
The interfaces between value systems are critical points where:
- assumptions clash
- value may be distorted
- anti-value is frequently introduced
Many systemic failures originate not within value systems themselves, but at their interfaces.
Incompatibility of Value Systems
A central insight of the theory is that value systems may be structurally incompatible.
Incompatibility may arise due to:
- different optimization criteria
- different time horizons
- different definitions of success
- different tolerance for uncertainty
Without formal representation, incompatibility leads to:
- political prioritization
- implicit trade-offs
- negotiation-driven decision-making
- accumulation of hidden anti-value
Aggregation Across Value Systems
One of the core challenges in value management is aggregation across heterogeneous value systems.
The Theory of Value Management does not assume that value systems can be perfectly unified.
Instead, it seeks:
- partial normalization
- explicit translation rules
- controlled aggregation
Aggregation is always a modeling decision, not a discovery of objective truth.
Axioms of Value Management
The theory proposes several axioms that hold across complex systems:
- Local optimization of value does not guarantee global value.
- Anti-value accumulates over time if not explicitly addressed.
- Value that is evaluated across incompatible value systems without formal translation generates anti-value.
- Unmeasured value becomes political value.
- Value that cannot be compared cannot be prioritized rationally.
- Flows of value matter more than isolated results.
These axioms explain persistent patterns observed in organizations, such as prioritization conflicts, chronic technical debt, and decision paralysis.
Relationship to Economic Theory
The Theory of Value Management extends several established economic domains:
- Institutional economics, by addressing internal organizational structures
- Transaction cost economics, by formalizing non-market losses
- Complexity economics, by modeling non-linear value interactions
- Organizational economics, by introducing operational value abstraction
Rather than redefining markets, the theory provides a missing internal layer between organizational decision-making and market outcomes.
Æilus as a Formalization
Æilus is one possible formalization of the Theory of Value Management.
It introduces:
- a measurable value currency
- explicit representation of value flows
- formal treatment of anti-value
- aggregation mechanisms for comparison
Æilus should be understood as an implementation of the theory, not the theory itself.
Other formalizations may emerge over time.
From Theory to Practice
The purpose of the Theory of Value Management is not abstraction for its own sake.
By providing a formal language of value, the theory enables:
- clearer prioritization
- reduced organizational friction
- more transparent trade-offs
- better long-term decision-making
Practice validates theory. Theory clarifies practice.
An Open Discipline
The Theory of Value Management is intentionally open.
It invites:
- critique
- alternative models
- empirical validation
- independent formalizations
Its success will not be measured by adoption of a single framework, but by whether it becomes a shared language for reasoning about value in complex systems.
Closing Perspective
Modern organizations are among the most complex systems humans have created. Managing them without a formal understanding of value is increasingly unsustainable.
Just as accounting provided a language for money, the Theory of Value Management seeks to provide a language for value.
Not to replace economics, but to complete it.