Management SummaryStern Stewart Research // Volume 47
It’s earnings season and each day brings multiple new press releases. Is your company among the many companies that are announcing revised strategies for creating shareholder value in 2010 and beyond? If so, how does the new strategy differ from the past? Are you targeting new markets, revising your approach to existing markets or optimizing processes? Have you realigned your organization or modified your incentive compensation plans to execute the new approach?
We believe a renewed focus on value is good news and we applaud companies on this list. What is troubling, however, is that despite all the shareholder rhetoric, both past and present, so many companies come up short and fail to create sustainable value. How is your strategy going to avoid the pitfalls of those that have gone before you as well as your own past mistakes?
In our work with clients across all industries, we find that the most common failings toward this goal are along two dimensions: first, corporate or business unit strategy is not aligned with maximizing value; second, companies lack the organizational capabilities required to execute and deliver long-term value. Without a shared belief that maximizing value is paramount and a clear understanding of what drives value, success will be difficult to achieve no matter how good the strategy or how strong the organization. Here are four questions to ask yourself in order to gauge your company’s value awareness and to determine whether your strategy is truly on the path to long-term value creation and whether you have the necessary capabilities to deliver:
1. How well does your leadership team and organization truly understand value?
2. Does the company as a whole and each of the businesses have a strategic roadmap that is expressed in value terms and determined to be value accretive?
3. Are your management processes aligned with long-term value and are they consistent with the strategy?
4. Does your incentive system encourage and reward value creation?
Creating value is an ongoing process that begins with very manageable steps. For those companies that are deliberate and resolute in their pursuit of value, dramatic gains can be achieved.
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