Business Value

“If you aim at nothing you will probably hit it!” 

 – Zig Ziglar, American Author & Motivational Guru

Don’t be fooled by value; it is much more complicated than it seems. There are many dimensions to value, including customer value, profit, return on invested capital, cash flow, KPIs, synergies, goals, and competitive advantage. Value is truly a multi-dimensional equation. You don’t have to look too far to understand the interplays; you’ve probably seen it yourself. I’ve often seen short-term decisions to improve profits only destroy customer value and the company’s long-term value. General Motors decided not to replace a faulty ignition part that cost ~90 cents. The defective part was allegedly responsible for 13 deaths and billions of dollars in costs and damage to the brand. I’ve seen private equity firms suck the cash out of business, not reinvesting the appropriate amount of capital back into the business, only to see competitors leapfrog the business and take substantial market share. I’ve worked with CEOs who focus on increasing short-term cash flow by increasing pricing and decreasing inventory, which ended up simply turning off customers, leading to rapid declines in sales.

There is a delicate interplay when trying to increase value within a company. As a strategic leader, it is critical to understand the various forms of value, how they interact, and, ultimately, how strategic actions can create or destroy value.

In this section, I’ll cover the top value tools and concepts, including:

1. Customer Value
If you want to grow a company, figure out how to grow customer value more than the competition. Customer value is at the essence of business model strategy and strategic leaders are constantly trying to grow the emotional and rational benefits of the customer value equation.

2. Sustainable Competitive Advantage
While it is hard to create sustainable competitive advantage, if you know the sources and strategies to develop it, you can develop strategies to tap into the best competitive moat for your business model. We even include a free template to get you started on your sustainable competitive advantage strategy.

3. FCF and ROIC
While profit is what most people believe is the type of value investors are looking for it is actually free cash flow and return on invested capital. Learn the basics of what drives FCF and ROIC and how to create real investor value.

4. Profit Trees
Understanding all the different ways you can improve a business’ profit will show you the strategic options and possibilities ahead of you to drive profit. Download your free profit tree to start customizing one that will drive value for your business.

5. Synergies
Often an untapped source of value, synergies and the value created through them are at the core of strategy, strategic planning, and M&A. If you understand the sources of synergies and how to tap into them, you’ll create more business value from your strategies.

6. SMART Goals
Strategic leaders take the time to think through their goals and make them SMART (Specific, Measurable, Achievable, Relevant, and Time-bound). We even through in a free worksheet to get you started.

7. Key Performance Indicators – KPIs
You can’t improve what you don’t measure, so make sure you are measuring the right things with your key performance indicators (KPIs). We include a KPI worksheet to get you strategically thinking about the value you and your team are trying to drive.

8. Balanced Scorecard
Every company needs the high-level orientation of a balanced scorecard to ensure they are creating financial value, value for their customers, value from processes, and organizational value.

9. OKRs – Objectives and Key Results
The go-to methodology for translating goals into objectives into key results into actions. Companies that use OKRs drive a envious pace of positive change in their organization.

10. Net Promoter
The easiest way to understand the value you are creating for your customers and employees is to ask the simple net promoter question of “How likely are you to recommend our company/product/service to your friends and colleagues?” Understand the ins and outs of utilizing net promoter scores.

11. Mission Statements
If you want everyone in an organization to make decisions focused on creating value for the business, you better have a strong and pervasive mission statement.

12. Core Values
The core values of a business are the foundation for interactions between employees, customers, and partners. If you get them right and employees are values-driven, the organization will thrive, and the company will be a great place to work.

Just like all of the sections on this site, you can pick and choose a topic or if you want a nice overview of a section read the topics in order.

 Learn more about Joe Newsum, the author of all this free content and a McKinsey Alum. I provide a suite of coaching and training services to realize the potential in you, your team, and your business. Learn more about me and my coaching philosophy.
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