4. Value Creation
Enterprise
Value
Organic InorganicCost
Today
Are you wondering how can I grow enterprise value?
Future
Strategic Planning Perspective
Strategies are focused on delivering
increased enterprise value. In the strategic
planning environment that is often
translated into earnings per share and
expected stock price.
The traditional knobs that receive the most
focus include Cost Optimization, Organic
and Inorganic growth.
Yet there are other value creators …
5. The role of Intangibles
The Enterprise Value is a function
of more than earnings per share.
Brand is an example of additional
intangible value that can represent
more than 50% of total enterprise
value.
The value of intangibles has been growing. Who is managing your intangible value?
6. Price Earnings Ratios
Market Price Earnings multiples
also affect enterprise value.
It raises and lowers the water for
all boats and is somewhat beyond
senior management’s control, but
still very real.
The question is how to keep your
PE somewhat independent of the
broader markets.
Source: http://www.multpl.com
Mean
Do you track the correlation between your PE ratio and the market’s?
7. Enterprise Wide Activities that add to Enterprise Value
There are a number of enterprise wide activities that do not register well in our accounting systems.
Which activities are the most important for your company?
Employee
Engagement
Innovation
SustainabilityDesign
Brand
Strategy
Development
(DfX)
Enterprise
Value
These activities are known to
increase enterprise value
though the exact link and
analytics have not been
clearly defined yet.
The fact that our accounting
systems account for these
activities poorly does not
help.
Risk
Business
Model
8. Brand Value
ECONOMICVALUE
Generic
Functional
Emotional
Inspirational
Religions
Charities
Personal Care Products
Cosmetics
Fashion Clothing
Automotive
Financial Services
Technology Products
Chemicals
Utilities / Energy
Social Select Organizations
Extract
Commodities
Make
Goods
Deliver
Services
Stage
Experiences
Given the significant role that
intangible value has on enterprise
value, brand positioning is a key
driver.
The value gap between a
functional and social brand can be
significant, though not all
enterprises will be able to deliver
on a social brand.
Do you know your brand’s positioning? What are you aspiring for?
9. Innovation
Innovation allows an organization to
take on and manage risk. Enterprises
make a profit when they take on risk.
But not all types of innovation will
lead to an increase in enterprise value
at all times.
It is important to align innovation type
with lifecycle of the business, trends
in the broader ecosystem, company
strategy and business model.
Risk
Return
*Business
Model
*Brand
*Product
System
*Enabling
Processes
*Core
Processes
*Product
Performance
*Network
*Structure
*Channel
*Services
*Customer
Experiences
Product
Architecture
Disruption
Factor
Source: *Doblin Innovation types, Bruce Starcher
Do you know how know how your innovation is contributing to changes in your enterprise value?
10. Risk
Expected Risk Cost $
=
Σ (Magnitude * Frequency)
Risk is a complex topic that has a real
impact on enterprise value and
earnings. Managers are
fundamentally hired to dynamically
manage risk, ensuring that returns are
optimized with risks.
Superior management of risk will lead
to superior enterprise value and
returns in the long term.
Integrating risk in decision making at all levels of the organization will yield superior decisions and
greater enterprise value. Where have you integrated risk management?
11. Strategy Development
Business Model
Business Context
Strategy Development
Strategic Planning
Strategy Execution
Many organizations focus on strategic planning and strategy
execution but fail to adequately address strategy development.
Strategic Planning asks the question: What set of strategies do I
need to articulate to deliver on commitments to shareholders?
How do I ensure that the organization is aligned around those
strategies?
Strategy Development asks the question: Given the business
context and the business model, how do I identify profitable
segments to pursue in the short and long term? Where do I
continue pushing and where do I need to evolve / change the
current course of action?
Strategy development is an activity that identifies potential sources of value and solutions to capture that value.
12. Sustainability activity impact on enterprise value
Enterprise Value =
Revenue Increased competitive position
Access to markets
Win bids
Increased loyalty
Retain business
− Cost Increased efficiencies
Less material
Less waste
Lower energy use
+ Brand Increased brand equity
Consumer perception
Emotional connection
+ Employees Increased employee engagement
Increased productivity
Retention
Hiring
− Financing Lower cost of capital
Access to SRI funds
Pass financial institution filter
− Risk Lower risk
Supplier risk
Product risk
Facility risk
Regulatory risk
Competitive risk
Reputational risk
A focus on sustainability can grow enterprise value, driven by a number of factors. Is your sustainability
program contributing to your Enterprise Value?
Many enterprises have sustainability
programs though they are viewed as
a cost and a means to feel good.
The reality is that sustainability
activities can have a very positive
impact on enterprise value AND a
very positive impact on society.
13. One study done in 2004 quantified the impact of design on
stock market performance. The 63 companies studied as
effective users of design outperformed the FTSE 100 Index
companies by 200%. The big question is how?
Design is an enterprise asset, a method and approach to
solve problems, one where solutions exist at the
intersection of people, technology and business.
Design also focuses on delivering experiences to customers
and well designed experiences have significantly higher
customer value than products and services.
Design
Enterprise Value =
+ Revenue
Increased competitive position
Price premiums (relative to non-design)
Superior experience, products,
services, support, …
− Cost Increased efficiencies
Design for Manufacturing
Design for Supply Chain
Design for Service
…
+ Brand Increased brand equity
Consumer perception
Emotional connection
+ Employees
Increased employee
engagement
Total Employee Experience
− Financing Lower cost of capital Lower risk reduces cost of capital
− Risk Lower risk
Supplier risk
Product risk
Regulatory risk
Competitive risk
Reputational risk
Given the right context, Design alone has boosted Enterprise Value significantly
14. Employee Engagement
Customer SatisfactionEmployee Engagement Profit
+ 10% + 6% + 2%
More companies are using “cost of the workforce” metrics
to make business decisions where a lower cost of the
workforce is better.
Employee engagement has been shown to increase
customer satisfaction, leading to increasing profits.
Gallup, among others, have a set of questions that help
management understand what is important to employee
engagement.
The Q12 Index
1) Do you know what is expected of you at work?
2) Do you have the materials and equipment to do your
work right?
3) At work, do you have the opportunity to do what you do
best every day?
4) In the last seven days, have you received recognition or
praise for doing good work?
5) Does your supervisor, or someone at work, seem to care
about you as a person?
6) Is there someone at work who encourages your
development?
7) At work, do your opinions seem to count?
8) Does the mission/purpose of your company make you feel
your job is important?
9) Are your associates (fellow employees) committed to
doing quality work?
10) Do you have a best friend at work?
11) In the last six months, has someone at work talked to
you about your progress?
12) In the last year, have you had opportunities to learn and
grow?
Source: The Gallup organization
In a knowledge and learning based environment, do you see your employees as key to your enterprise value?
15. Business Model
Market
Value
($B)
Outsource
Chip/OS
to Intel & MSFT
Entered PC
Market
Stand alone
software
Services
Technology
Components
76 78 80 82 84 86 88 90 92 94 96 98
Value Inflow Value Outflow Value Stability
Continued focus on
Mainframes
Managing your business model and
business model innovation will lead to
significant changes in the enterprise
value.
Good decisions can lead to significant
value inflows and misalignments with
the marketplace lead to value erosion.
Do you know how to manage and
innovate your business model?
IBM as an example of the impact of business model decisions on enterprise value.
Have you evaluated your decisions?
16. Enterprise Value Creation
Enterprise
Value
Do you look at multiple lenses to gain insight on how to grow enterprise value? Do you know how to
integrate all these perspectives into a mutually reinforcing set of activities and strategies?
Strategic Planning Perspective Activity Perspective
AND
Organic InorganicCost
Today
Future
Employee
Engagement
Innovation
SustainabilityDesign
Brand
Strategy
Development
(DfX)
Risk
Business
Model
17. Where do you want to go?
Growing
sideways
Declining Expanding AcceleratingDecelerating
Enterprise
Value
We have been helping companies grow enterprise value for over 10 years