What did you think when you read this title “Corporate Value Creation?” If you’re like most business people, your mind went to the financial valuation of a company. That’s pretty normal, we’re used to thinking in dollars and cents. That’s why most advice about building value in a company focuses on improving the financials. That’s the right question in theory but dangerously wrong in practice.
Why is it dangerous to focus unduly on financials? Because financials are trailing indicators of how well a company is doing. And an exclusively financial focus can lead to good short-term decisions that damage your value in the medium- to long-term. And corporate value is about the longer term. For example, you might be tempted to maximize revenues to customers who won’t stay with you. You might avoid an investment in the systems that will help you expand your sales to the optimal customers. You might cut costs that degrade your ability to scale. You might strain your relationships with your suppliers and introduce risk to your supply chain. You might push your employees to a breaking point (or cut their positions) and lose critical knowledge and diminish your capabilities.
What are the right questions? They are questions that start with the end in mind. To plan for corporate value creation, you need to answer three questions at the same time in a balanced way:
- How can we create value for our customers?
- How can we maintain/build the value of our organization?
- How can we create value for our external stakeholders?
The answers to these questions identify your business operating system. This system recognized that o build enduring realizable financial value, you first have to create value for your customers, your organization and the stakeholders you rely on to make it all happen:
- Start by breaking them down into more specific categories.
- Set your strategy by identifying the expectations and needs related to each of these components in the coming 3-5 years.
- Identify KPIs that will help you track success in meeting these needs and expectations
- Plot out the processes and resources that support this successful execution
- Connect the resource map to the financial general ledger to identify the cost of the value being created
Once this is all in place, it’s easier to tell the story of value creation, both internally and externally. And it’s easier to prioritize and improve the system every day, every month and every year. By starting with the right questions, the system improves, the organization becomes more scalable and the value of the company grows over time.
About Insights7
Help your clients link strategy with execution in a unified platform to boost performance today and company value tomorrow. Easily create a complete model of the company’s operations. Convene teams in the platform to prioritize and improve daily operations. Build and implement projects to drive growth and innovation. Move to trusted advisor status faster and get the first call for new projects. Feel free to message me here on XPX or connect with me on LinkedIn to schedule a brief introductory call.
