A perfect storm of global trends is converging on organisations the world over. Companies are grappling with inflation, the rise of artificial intelligence and digital technologies, changing labour trends and consumer expectations, sustainability, and a volatile socio-political landscape – to name but a few.
These shifting circumstances are creating new expectations from customers, employees, and shareholders, whilst making it increasingly difficult for organisations to deliver on their promises to all of these stakeholders. In such a complex environment, traditional approaches are no longer enough for driving sustained value.
Now more than ever, companies need to take a more holistic approach to value creation, one that balances short-term financial performance with long-term impact on value in terms of customers, talent and sustainability. By doing so, organisations can achieve their immediate targets while shaping sustainable shareholder value and a business that’s fit for the future.
Financial metrics matter, but they’re only one part of a much bigger picture
When the going gets tough, companies typically home in on the traditional markers of financial value – costs, growth and cash flow. But focusing solely on the financials tends to provide a limited, snapshot-in-time view of value. It might improve return on investment for a specific time period, but after the initial gains peter out, a company might find itself right back at square one. Examples of this could be reducing expensive customer acquisition costs, pausing investments in digital platforms that improve customer experience, reducing bonus pools or removing training budgets that reward top talent for all the hard work. While all these levers support an improved in-year position, they limit future growth, because the company hasn’t made the necessary investments in its assets.
If an organisation wants to set itself up for lasting success, it can’t simply tackle the bottom line in isolation. It needs a more holistic approach, where every decision is assessed through a multidimensional lens that accounts for both the short-term financial implications and long-term impact on value in terms of customers, talent and sustainability.
At the end of the day, it still comes down to delivering value. But nowadays the definition of value has become much broader. It includes a wider range of stakeholders – not just shareholders, but employees, customers and the wider community – who care more than ever about non-financial metrics such as social justice, diversity, equity and inclusion (DEI) and sustainability. For instance, customers increasingly expect companies to commit to values consistent with civic and environmental responsibility. Progress towards these objectives might not always be reflected in the near-term bottom line, but it can build the reputation and customer loyalty that sustains a brand in the long term.
Similarly, while large-scale layoffs by tech and media giants have dominated headlines of late, the global market for talent remains highly competitive. Companies might have the talent they need to deliver shareholder value today, but unless they prioritize employee retention and development, they could find themselves without the skills they need to adapt to new technologies like AI and build a foundation for long-term value.
To thrive today and remain relevant tomorrow, organisations should consider a different approach to enterprise value creation.
Successful enterprise value creation focuses on increasing the resilience of a company’s cost base, allowing the business to invest in capabilities that unlock new value, innovate new ways of operating sustainably, develop the next generation of leaders and ultimately exceed customer expectations.
At Baringa, we believe that this differentiated approach rests on six key pillars.
- Start with strategy and a compelling purpose. Organisations must understand why they’re embarking on an enterprise value creation programme in the first place, and how it enables their broader business strategy. This will be the North Star that guide the business’ efforts and allows it to clearly communicate their importance, helping to get everyone on board to drive change that lasts.
- Take an enterprise-wide view. Effective value creation goes far beyond a single function – it spans the end-to-end value chain. Considering the entire enterprise allows the business to maximize the efficiency of transformation efforts, capture more value and account for complex interdependencies across functions. Without this wider focus, organisations risk turning their enterprise value creation programme into a giant game of whack-a-mole. A company might succeed, for example, in reducing the cost of it’s technology development team, only to realise later that a shortage of quality technology developers means they cannot make time critical updates to their customer platforms.
- Follow finance forensically. It’s important to establish clear cost and headcount baselines, as well as analyse cost and revenue levers where appropriate. This will help the business to build a deeper understanding of how each opportunity might impact financial performance, so interventions can be made successfully.
- Deliver with your people, not to them. If an organisation decides to bring in consultants to help define and deliver an enterprise value creation strategy, the business must be equipped to maintain that momentum once the initial engagement ends. This means making sure employees at every level understand why change is needed, developing practices that align everyone to the company’s goals and embedding the capabilities required to identify and sustain future value creation initiatives.
- Align to your sustainability goals. Keep the ‘triple bottom line’ in mind to consider how each value lever will impact people, planet and profit. By understanding how sustainability goals and profit levers overlap, a company can shape a better picture of the impact its decisions have on all stakeholders, as well as the full value – not just financial – that the business realises from them.
- Support the full lifecycle. A solid enterprise value creation programme should do more than simply provide a diagnostic ‘red flag’ report. Rather, it should create an ecosystem around change to ensure a successful execution and benefit realisation. This includes thinking through the full implementation and re-investment lifecycle and introducing implementation enablers from the outset, so the company can quickly pivot from diagnostic into delivering outcomes. For example, an organisation that cuts costs, but doesn't apply the same due diligence to reinvesting those savings, will limit its ability to deliver value over the long term.
We put these six pillars at the heart of enterprise value creation efforts with Baringa clients – but they’re not meant to be a one-size-fits-all approach. Every company will have different motivations and goals, and will need to prioritize different elements based on their individual scenarios.
Whatever route you take to get there, a holistic approach to enterprise value creation will enable you to create greater value for all stakeholders and position the business for sustainable growth. By limiting yourself to a legacy view, that focuses solely on financial factors, you risk leaving valuable opportunities on the table and damaging your organisation’s long-term growth prospects.
If you’d like to learn more about how Baringa can help address your unique value and growth objectives, please do not hesitate to get in touch with us. Our team of SMEs is dedicated to helping companies unlock their full potential and create sustainable value for all stakeholders.
