Driving value creation
Value creation is a word that’s used a lot, but what does it mean? Creating value - customer, consumer and financial. When a company buys a business, they focus on value creation. The business case assumes that there is value to create.
Value can be created by pulling either strategic or operational levers:
Mergers and Acquisitions: Buy-and-build deals are where a Private Equity firm buys a company and aims to enhances that platform through add-on acquisitions.
Strategic Pricing: Strategic pricing incorporates best pricing practices and ensures that your pricing strategies, analytics and processes complement your business strategy. A product’s price is based on the value to the customer, or on competitive strategy, rather than on the cost of production. By creating strategic pricing policies, analytics, and processes, you can directly capture customer value and translate to shareholder value.
Distribution Strategy: Distribution strategy is a plan to make a product or a service available to the target customers through its supply chain - to make sure the it can reach the maximum potential customers at minimal or optimal distribution costs. A good distribution strategy can maximise your revenue and profits.
Geographic Expansion: With access to new markets, a business has the potential to build a new customer base.
Product Strategy: A product strategy outlines the desired outcomes to be achieved by the product including the end-to-end vision, and how it supports the company’s strategic objectives. The product strategy is brought to life through the product road map and can be used to support any tactical decisions that the company needs to make.
Product Innovation: Product innovation represents a new way of solving a problem a high number of consumers have:
There are no products on the market that address the problem statement - unexplored market spaces could potentially generate high profits or;
There may be other products on the market that address the problem but in a different way to your innovative solution
Digital Transformation: Digital transformation is the use of technology — software enabled, connected, transactions, and interactions, across all areas of a business. The goal of digital transformation is disrupting existing business models, improving customer experience, and creating operational efficiency to drive economic value creation.
Customer Segmentation: the benefits of customer segmentation include focus, competitiveness, expansion, retention, communications effectiveness and profitability.
Aftermarket Service Strategy: The concept of aftermarket service is as important as sales, the saying “it takes years to build a reputation but just moments to ruin it” addresses the importance of keeping a customer happy and satisfied. Aftermarket service does not generate any revenue for the company, but it increases the goodwill in the market and amongst the customers.
Data Strategy: Data strategy is a central, integrated concept that articulates how data will enable and inspire business strategy.
Pricing Optimisation: Price optimisation is the practice of using data from customers and the market to find the most effective price point for a product or service that maximizes value for customers and sales or profit for the company.
Sales Force Effectiveness: Sales force effectiveness is driven by the decisions, processes, systems and programmes that sales leaders are accountable. By managing sales force effectiveness drivers, companies can build high-quality sales teams that better meet customer needs, increase productivity and successful conversion, and consequently result in improved turnover and EBITDA margins.
Procurement & Managing Suppliers: Smart procurement practices are fundamental for companies across all industries to optimise operational efficiencies and improving EBITDA margin.
Product Portfolio Optimisation: Product portfolio optimisation helps managers assess their products’ current level of success - it provides a centralized view of an entire suite of products against the prevailing marketplace for those products. Effective product portfolio optimisation highlights future opportunities for improved resource allocation, greater returns, growth and profit, and reveals products that are generating a negative contribution.
Operational Efficiencies: Operational efficiency refers to a company’s ability to reduce waste in time, effort and materials as much as possible, while still producing a high-quality service or product. Financially, operational efficiency is the ratio between the input required to keep the company going and the output it provides. When improving operational efficiency, the output to input ratio improves. The greater the operational efficiency, the more profitable a company becomes as it can generate greater income or returns for the same or lower cost.
Cost to Serve: Cost to Serve focuses on aggregate analyses around a blend of cost drivers. The analysis exposes the variation in customer demands for different activities and has a different cost profile. Without understanding the cost to serve a customer, a company is unable to determine the value that customer is contributing to their business.
The value levers are a great way of prioritising what's important.
The levers that drive the biggest value result in an improved performance that leads to greater valuation.
If you are:
1. Getting your business ready for sale
Executing initiatives that drive value and can be in the run rate results will result in a higher sale price
2. Buying a business.
Your investment case is critical to drive the appropriate acquisition price. This will also drive what transformation program looks like once the business has been bought to ensure the business case is achieved/exceeded
3. Running your own business.
Driving value is what you do everyday but sometimes it's easy to miss the levers to pull to achieve the greatest success.
At any point of a business lifecycle it's imperative that driving value is something you focus on to drive consistent and stable earnings with a positive trend.
Article by Jo Hands, Co-Founder Whiteark
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Looking to create value in your organisation? Let us help.
Whiteark is not your average consulting firm, we have first-hand experience in delivering transformation programs for private equity and other organisations with a focus on people just as much as financial outcomes. We understand that execution is the hardest part, and so we roll our sleeves up and work with you to ensure we can deliver the required outcomes for the business.
Our co-founders have a combined experience of over 50 years’ working as Executives in organisations delivering outcomes for shareholders. Reach out for a no obligation conversation on how we can help you. Contact us on whiteark@whiteark.com.au
