Growing Enterprise Value

Growing sidewaysDeclining Expanding

What company would you like to lead?

What company are you leading?

AcceleratingDecelerating

EnterpriseValue

Dell

Apple

Microsoft

IBM

Source: Wikinvest

Enterprise ValueEvery company has a unique story. Growing Enterprise Value requires unique solutions.

Value Creation

EnterpriseValue

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 …

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?

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?

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?

EmployeeEngagement

Innovation

SustainabilityDesign

Brand

StrategyDevelopment

(DfX)

EnterpriseValue

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

BusinessModel

Brand Value

ECON

OM

IC VALUE

Generic

Functional

Emotional

Inspirational ReligionsCharities

Personal Care ProductsCosmeticsFashion Clothing

AutomotiveFinancial ServicesTechnology ProductsChemicals

Utilities / Energy

Social Select Organizations

Extract Commodities

MakeGoods

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?

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

DisruptionFactor

Source: *Doblin Innovation types, Bruce Starcher

Do you know how know how your innovation is contributing to changes in your enterprise value?

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?

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.

Sustainability activity impact on enterprise value

Enterprise Value =

Revenue Increased competitive positionAccess to marketsWin bidsIncreased loyaltyRetain business

− Cost Increased efficienciesLess materialLess wasteLower energy use

+ Brand Increased brand equity Consumer perceptionEmotional connection

+ Employees Increased employee engagementIncreased productivityRetentionHiring

− Financing Lower cost of capital Access to SRI fundsPass financial institution filter

− Risk Lower risk

Supplier riskProduct riskFacility riskRegulatory riskCompetitive riskReputational 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.

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 positionPrice premiums (relative to non-design)

Superior experience, products, services, support, …

− Cost Increased efficienciesDesign for ManufacturingDesign for Supply ChainDesign for Service…

+ Brand Increased brand equity Consumer perceptionEmotional connection

+ Employees Increased employee engagement

Total Employee Experience

− Financing Lower cost of capital Lower risk reduces cost of capital

− Risk Lower riskSupplier riskProduct riskRegulatory riskCompetitive riskReputational risk

Given the right context, Design alone has boosted Enterprise Value significantly

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 Index1) 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?

Business Model

MarketValue

($B)

OutsourceChip/OSto Intel & MSFT

Entered PCMarket

Stand alonesoftware

ServicesTechnologyComponents

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?

Enterprise Value Creation

EnterpriseValue

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

EmployeeEngagement

Innovation

SustainabilityDesign

Brand

StrategyDevelopment

(DfX)

Risk

BusinessModel

Where do you want to go?

Growing sideways

Declining Expanding AcceleratingDecelerating

EnterpriseValue

We have been helping companies grow enterprise value for over 10 years

Bruce StarcherManaging DirectorStarcher Group LLC

Office: 708 406 9460email: bruce@starchergroup.com

web: www.starchergroup.com