Real Solutions

" There is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle, than to initiate a new order of things." - Machiavelli

Like most senior managers, owners or CEOs, most of your potential wealth is tied up in stock or stock options. Unless the company's value is growing faster than the weighted opportunity cost of capital you probably are losing value and certainly will be unable to cash in on what you believed to be a million dollar opportunity.

So here is the multimillion dollar question, "Why Isn't My Company Growing Faster and What Can I Do to Make Sure That It Will"?

However, a larger question looms. "How Does My Company Get Its Share of the New Wealth Being Created in Our Served Markets"?

Has the company has scheduled implementation of value creation techniques however, prior to its integration, more pressing issues must be addressed.

Maybe sales revenue is down and the focus must be to get more business and maintain prices. Maybe R&D is delivering products that are missing the promised date and manufacturing is having problems meeting R&D's cost estimate. Maybe the competition is stealing your best engineer or sales reps, and there are product problems with both customers and sales reps complaining.

Does this sound familiar? How does a company ever find the time to deal with truly important issues if it is always putting out fires? These problems are not unrelated to value creation. In fact, if any of these problems cause the company to miss its financial objectives, the company may be destroying value. If the myriad of everyday problems is wagging the dog and destroying value, what can be done? The answer is managing for value.

If a company is truly intent on managing for value, it is important to have a thorough understanding of what really drives value in the company.

Let's look at the first questions again. "How do I manage for value and make sure my company growth exceeds the weighted opportunity cost of capital"?

Fortunately, there are financial management tools that can help you measure whether your efforts are really building business value. To make the good news even better, you can also use these tools to identify those operational improvements that will have the highest impact on increasing business value, and implement an incentive plan that encourages all employees to behave like owners.

The tools measure Economic Value Added. Here is a source for EVA tools and other financial and economic metrics to help you manage for value from Stern Business School Professor Aswath Damodaran

Effective implementation of these tools will allow your company to become world class and maximize the wealth of the shareholders (yourself included).

Ecconomic Value Added.pdf

Ever seen anything more confusing? How do you make sense of those metrics? Now you know what to measure. But how?

In managing for value creation, the company must focus and integrate its business's strategy, its day to day operations, its systems, its processes, its performance measures and incentive systems so the wealth of shareholders is the business's underlying guiding beacon.

"Where do we start"? "How do we translate these value measures into more easily understood terms and establish simple, value-based financial targets?" "In essence, what simple expressions of operating performance link to stock price?" "How can we integrate these concepts into our process for developing strategic and operating plans?" "What financial measures should we focus on to determine progress toward value creation?" "What about strategy? Shouldn't we have an integrated strategic plan to determine the prioritization and emphasis for specific financial drivers? "Who should manage this process?"

What about the overiding second question? "How can my company be sure that they are getting a share of the new wealth being created in our served markets"?

"What business are you in?" "Have you segmented those markets?" "Which segments can you play in and win?" What does the future look like in those segments? What are the obstacles you will encounter? What are the super critical tasks the company must accomplish to win? Why specifically those tasks? How will you execute them? What skills are needed to implement them? How much will it cost? How long will it take?

 "Then what"?

Caplix Partners has been managing these processes and their implementation both as operating managers and as consultants in public and private companies and have helped companies create hundreds of millions of dollars in shareholder value.

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