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Growing Enterprise Value


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Growing Enterprise Value

  1. 1. Growing Enterprise Value
  2. 2. Growing sidewaysDeclining ExpandingWhat company would you like to lead?What company are you leading?AcceleratingDeceleratingEnterpriseValue
  3. 3. DellAppleMicrosoftIBMSource: WikinvestEnterprise ValueEvery company has a unique story. Growing Enterprise Value requires unique solutions.
  4. 4. Value CreationEnterpriseValueOrganic InorganicCostTodayAre you wondering how can I grow enterprise value?FutureStrategic Planning PerspectiveStrategies are focused on deliveringincreased enterprise value. In the strategicplanning environment that is oftentranslated into earnings per share andexpected stock price.The traditional knobs that receive the mostfocus include Cost Optimization, Organicand Inorganic growth.Yet there are other value creators …
  5. 5. The role of IntangiblesThe Enterprise Value is a functionof more than earnings per share.Brand is an example of additionalintangible value that can representmore than 50% of total enterprisevalue.The value of intangibles has been growing. Who is managing your intangible value?
  6. 6. Price Earnings RatiosMarket Price Earnings multiplesalso affect enterprise value.It raises and lowers the water forall boats and is somewhat beyondsenior management’s control, butstill very real.The question is how to keep yourPE somewhat independent of thebroader markets.Source: http://www.multpl.comMeanDo you track the correlation between your PE ratio and the market’s?
  7. 7. Enterprise Wide Activities that add to Enterprise ValueThere 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?EmployeeEngagementInnovationSustainabilityDesignBrandStrategyDevelopment(DfX)EnterpriseValueThese activities are known toincrease enterprise valuethough the exact link andanalytics have not beenclearly defined yet.The fact that our accountingsystems account for theseactivities poorly does nothelp.RiskBusinessModel
  8. 8. Brand ValueECONOMICVALUEGenericFunctionalEmotionalInspirationalReligionsCharitiesPersonal Care ProductsCosmeticsFashion ClothingAutomotiveFinancial ServicesTechnology ProductsChemicalsUtilities / EnergySocial Select OrganizationsExtractCommoditiesMakeGoodsDeliverServicesStageExperiencesGiven the significant role thatintangible value has on enterprisevalue, brand positioning is a keydriver.The value gap between afunctional and social brand can besignificant, though not allenterprises will be able to deliveron a social brand.Do you know your brand’s positioning? What are you aspiring for?
  9. 9. InnovationInnovation allows an organization totake on and manage risk. Enterprisesmake a profit when they take on risk.But not all types of innovation willlead to an increase in enterprise valueat all times.It is important to align innovation typewith lifecycle of the business, trendsin the broader ecosystem, companystrategy and business model.RiskReturn*BusinessModel*Brand*ProductSystem*EnablingProcesses*CoreProcesses*ProductPerformance*Network*Structure*Channel*Services*CustomerExperiencesProductArchitectureDisruptionFactorSource: *Doblin Innovation types, Bruce StarcherDo you know how know how your innovation is contributing to changes in your enterprise value?
  10. 10. RiskExpected Risk Cost $=Σ (Magnitude * Frequency)Risk is a complex topic that has a realimpact on enterprise value andearnings. Managers arefundamentally hired to dynamicallymanage risk, ensuring that returns areoptimized with risks.Superior management of risk will leadto superior enterprise value andreturns in the long term.Integrating risk in decision making at all levels of the organization will yield superior decisions andgreater enterprise value. Where have you integrated risk management?
  11. 11. Strategy DevelopmentBusiness ModelBusiness ContextStrategy DevelopmentStrategic PlanningStrategy ExecutionMany organizations focus on strategic planning and strategyexecution but fail to adequately address strategy development.Strategic Planning asks the question: What set of strategies do Ineed to articulate to deliver on commitments to shareholders?How do I ensure that the organization is aligned around thosestrategies?Strategy Development asks the question: Given the businesscontext and the business model, how do I identify profitablesegments to pursue in the short and long term? Where do Icontinue pushing and where do I need to evolve / change thecurrent course of action?Strategy development is an activity that identifies potential sources of value and solutions to capture that value.
  12. 12. Sustainability activity impact on enterprise valueEnterprise Value =Revenue Increased competitive positionAccess to marketsWin bidsIncreased loyaltyRetain business− Cost Increased efficienciesLess materialLess wasteLower energy use+ Brand Increased brand equityConsumer perceptionEmotional connection+ Employees Increased employee engagementIncreased productivityRetentionHiring− Financing Lower cost of capitalAccess to SRI fundsPass financial institution filter− Risk Lower riskSupplier riskProduct riskFacility riskRegulatory riskCompetitive riskReputational riskA focus on sustainability can grow enterprise value, driven by a number of factors. Is your sustainabilityprogram contributing to your Enterprise Value?Many enterprises have sustainabilityprograms though they are viewed asa cost and a means to feel good.The reality is that sustainabilityactivities can have a very positiveimpact on enterprise value AND avery positive impact on society.
  13. 13. One study done in 2004 quantified the impact of design onstock market performance. The 63 companies studied aseffective users of design outperformed the FTSE 100 Indexcompanies by 200%. The big question is how?Design is an enterprise asset, a method and approach tosolve problems, one where solutions exist at theintersection of people, technology and business.Design also focuses on delivering experiences to customersand well designed experiences have significantly highercustomer value than products and services.DesignEnterprise Value =+ RevenueIncreased competitive positionPrice premiums (relative to non-design)Superior experience, products,services, support, …− Cost Increased efficienciesDesign for ManufacturingDesign for Supply ChainDesign for Service…+ Brand Increased brand equityConsumer perceptionEmotional connection+ EmployeesIncreased employeeengagementTotal Employee Experience− Financing Lower cost of capital Lower risk reduces cost of capital− Risk Lower riskSupplier riskProduct riskRegulatory riskCompetitive riskReputational riskGiven the right context, Design alone has boosted Enterprise Value significantly
  14. 14. Employee EngagementCustomer SatisfactionEmployee Engagement Profit+ 10% + 6% + 2%More companies are using “cost of the workforce” metricsto make business decisions where a lower cost of theworkforce is better.Employee engagement has been shown to increasecustomer satisfaction, leading to increasing profits.Gallup, among others, have a set of questions that helpmanagement understand what is important to employeeengagement.The Q12 Index1) Do you know what is expected of you at work?2) Do you have the materials and equipment to do yourwork right?3) At work, do you have the opportunity to do what you dobest every day?4) In the last seven days, have you received recognition orpraise for doing good work?5) Does your supervisor, or someone at work, seem to careabout you as a person?6) Is there someone at work who encourages yourdevelopment?7) At work, do your opinions seem to count?8) Does the mission/purpose of your company make you feelyour job is important?9) Are your associates (fellow employees) committed todoing quality work?10) Do you have a best friend at work?11) In the last six months, has someone at work talked toyou about your progress?12) In the last year, have you had opportunities to learn andgrow?Source: The Gallup organizationIn a knowledge and learning based environment, do you see your employees as key to your enterprise value?
  15. 15. Business ModelMarketValue($B)OutsourceChip/OSto Intel & MSFTEntered PCMarketStand alonesoftwareServicesTechnologyComponents76 78 80 82 84 86 88 90 92 94 96 98Value Inflow Value Outflow Value StabilityContinued focus onMainframesManaging your business model andbusiness model innovation will lead tosignificant changes in the enterprisevalue.Good decisions can lead to significantvalue inflows and misalignments withthe marketplace lead to value erosion.Do you know how to manage andinnovate your business model?IBM as an example of the impact of business model decisions on enterprise value.Have you evaluated your decisions?
  16. 16. Enterprise Value CreationEnterpriseValueDo you look at multiple lenses to gain insight on how to grow enterprise value? Do you know how tointegrate all these perspectives into a mutually reinforcing set of activities and strategies?Strategic Planning Perspective Activity PerspectiveANDOrganic InorganicCostTodayFutureEmployeeEngagementInnovationSustainabilityDesignBrandStrategyDevelopment(DfX)RiskBusinessModel
  17. 17. Where do you want to go?GrowingsidewaysDeclining Expanding AcceleratingDeceleratingEnterpriseValueWe have been helping companies grow enterprise value for over 10 years
  18. 18. Bruce StarcherManaging DirectorStarcher Group LLCOffice: 708 406 9460email: bruce@starchergroup.comweb: