You’re ready to start investing again in growth initiatives but your management team is at odds over what to do next. Building a value model will help train everyone's focus on your growth goals.
Jump start your business with a new value model.
Most of us spent the past few years doing more with less. For many businesses, it was a question of survival. And now, finally, you’re ready to start investing again in growth initiatives.
Or are you? Are you pulling traditional growth levers but no longer getting the results you expect? Is your management team at odds over what to do next? Are too many conflicting projects and initiatives competing for scarce resources?
If these issues are inhibiting your business, it may be time to revisit your “value model.”
The value model is a framework to help you understand how the four main drivers of business value—employees, internal capabilities, customers and financial performance—interrelate in a way that creates or destroys business value.
Think about it: Your employees’ skills, behaviors and culture affect your ability to execute key processes and deliver products and services, which determine how and where you serve customers, which drives your current and future financial performance. Together, these drivers define the total value of your business.
A deep understanding of your value model can guide both strategic and day-to-day decisions. These drivers, however, aren’t static. Fundamental shifts to any one of them—brought on by a lengthy recession, perhaps—can have a significant impact on the other drivers and your overall business value.
So how do you re-align your business around a new value model? There are three main steps:
No. 1: Identify the current value model
You can’t set a goal for value growth without fully understanding your starting point. Identify your current model by defining the characteristics of your core value drivers: employees, internal capabilities, customers and financial performance. Develop a fact-based view of how each value driver contributes to the overall value of your business, and align your management team around it.
A shared, fact-based understanding of the current value model will support a credible assessment of the intrinsic value of the company, which is your starting point for value growth.
No. 2: Establish your value growth objectives and goal
Set an explicit and well-defined goal for value growth, including a timeframe. For a private company or business unit, for example, the goal may be to double your value every X years.
Regardless of the goal, be specific about the language you use to ensure everyone understands and agrees with it. For example, what does “sustainable” mean? How will that goal be measured or observed? How and when will you know if you’re achieving or falling short of the goal?
You may have to modify your initial goal as the rest of the value model is developed. At the end of the day, you want an aggressive but realistic goal and timeframe around which all constituents are aligned.
No. 3: Build the value model required to meet your goal
With the goal for value growth as a starting point, work through your value drivers to determine the model you need to achieve the goal. Begin by answering these questions:
What financial performance and expectations are required to meet the goal?
What customer markets and competitive positions will drive the required financial performance?
What internal assets, processes and capabilities do we need to achieve the desired market positions?
What people development, skills and culture are required to execute these capabilities?
Differences between the new value model and your current one will help you identify the investment choices you need to make to close the gaps.
Building a value model is a powerful exercise to align senior management, the board, employees and investors around your growth goals and the strategies for achieving them. Management teams need to diligently measure and monitor their business’s value drivers and adjust them as needed to ensure that the value model continues to deliver on growth objectives.
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KARL STARK AND BILL STEWART are managing directors and co-founders of Avondale, a strategic advisory firm focused on growing companies. Avondale, based in Chicago, is a high-growth company itself and is a two-time Inc. 500 honoree. @karlstark