Buyers and investors in companies are buying or investing in the potential for future growth, not only in sales, but more importantly, growth in earnings, or more precisely EBITDA. They assess the organization for predictability of future earnings as part of their business valuation.
Ensuring the future becomes reality results not only from keen insight and excellence in execution, but also from overcoming any barriers to improved earnings and maximizing the valuation of the company. Essential actions to overcome the barriers to growth include:
- Aligning the organization to the Valuation Driven Strategy plan
- Reducing management team dysfunction inhibiting the performance of the team
- Defining competencies and behaviors critical to the strategy
Companies that achieve their growth goals establish processes and practices that embed each of these actions into the day to day activities of the organization. They recognize that the path to maximizing the valuation of the company, increasing shareholder wealth and improving stakeholder value drives precisely through those three actions.
Aligning the organization to the plan
Alert presidents & CEO’s know that an organization may agree with and understand the Valuation Driven Strategy plan but still not be aligned to it. There may be significant engagement with the need for the strategies and actions, while unspoken concern exists as to the path to the goal, the timing, and the roles and responsibilities of those charged with execution.
Alignment requires “adjustment of parts in relation to each other”. It is not uncommon for the Valuation Driven Strategy process to unconsciously limit input, minimize visibility of ideas and fail to resolve differences within the management team. These situations prevent development of the best tactics and priorities for the business and create risk that the management team does not agree on the actions, roles, and responsibilities. The Strategy may sit on a shelf.
Achieving an actionable plan and an aligned team requires participation that is broad but efficient; collaboration and consensus created by building on the best elements from many perspectives, experiences and capabilities, and agreement achieved through debate, dialog and resolution of differences. Incorporating these elements provides tactics and targets representing the best thinking of the business, and agreement around the goals, path, actions, and responsibilities.
The Management Team Effectiveness is one of the key Valuation Drivers in the Invest-Ability Index™. Scoring high on that dimension is critical to future buyers and investors as they look at ownership transition and the predictability of future earnings that come with a strong and effective management team.
Next post: Part 2.