Posts Tagged ‘shareholder value’

6 Ways A Business Owner Can Influence Culture

Tuesday, March 22nd, 2011

The 6 Ways a Business Owner Can Shape Culture.

Communicate and publish the company’s values, vision and mission as widely as possible. This first assumes that they were identified during the strategic planning process. Repeat and discuss them at every opportunity; put them on mugs, t-shirts, mouse pads and baseball caps; reward everyone who can not only remember them – but who also know what they mean.

Be a role model for the values. Employees watch the owner and other leaders’ behaviour all the time. Inconsistencies between the written values and day-to-day action send loud messages about the real culture. For example, having “investing in employees” as a value and then not providing funding for training is inconsistent. So is saying that “being innovative” is a value while punishing employees who attempt to innovate but fail.

Tell stories and help create legends about people. Stories are a great way to reinforce the desired behaviour and culture. If, for example, an employee goes out of their way to help a customer, the owner and management team must repeat the story – and encourage others to do so – at every opportunity. That’s how legends are born. Richard Branson shows how here.

Ensure the organization chart supports the culture. A company’s organization chart is a major way in which they embed and send signals about the culture. It’s easy to be inconsistent. For example if the stated aim is to foster collaboration and teamwork, a flatter organizational structure will be much more effective than a very hierarchical one.

Design the work space appropriately. Much like the org. chart, the physical layout of an office, plant or warehouse can affect company culture. For example, an open environment with no walls creates a very different atmosphere than one in which everyone has their own office with floor to ceiling walls. Neither approach is wrong, but both can be really inappropriate and unsupportive of values and culture.

And number 6 is – The use of rewards and status symbols. Salespeople are usually compensated using reward based systems e.g. commissions, bonuses for being over quota for a quarter or year; trips to exotic destination. But the people on whom the company relies to make and deliver the products or services the sales force sell frequently aren’t rewarded in this way. This difference in approach to pay can damage the culture by creating divisiveness or, if left unaddressed, even bitterness. On the other hand, used effectively rewards and status symbols can build an achievement oriented culture.

In Summary

If a business owner isn’t pro-actively shaping the culture in the company, one will develop spontaneously. And while the culture can support the development and execution of great strategies, which get great results, if it is inconsistent with the strategy, it will dramatically reduce the odds of the strategy being successful.

Taking the initiative and developing a culture which will help increase operating profits and build shareholder value is simply another aspect – or even by-product – of good leadership.

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Selling Price of Your Company – Goal or Output

Thursday, December 2nd, 2010

A statement early in Larry Bossidy and Ram Charan’s book (see 5 Reasons I Love Execution) caught my attention. They say that “increasing shareholder value is an output, not a goal”. I’ve always said that increasing the value of your company is 1 of only 2 rewards for being a business owner i.e. it is a goal.

But, when I thought about it, I realized the logic really runs like this.

• The income a company generates from its operations, on an ongoing basis, represents the real value of the business to a purchaser.
• Which is why the value of an owner managed businesses is determined – most frequently – using a multiple of operating income.
• So, if management find the right strategy and execute it well, operating income will increase.
• As a result of that, all other things being equal, the value of the business will increase.
• The goal, therefore, is to find – and execute – the right strategy. Do that and owner/shareholder value takes care of itself and is, in fact, an output.

This is true regardless of whether the shareholders are a small group of family members or the public at large.

Around the time that I read Bossidy and Charan’s statement I attended an excellent seminar at the accounting firm SB Partners LLP called “Preparing Your Business for Sale”. One of the partners, Trevor Hood, a CA and CBV, explained clearly and thoroughly how businesses are valued. He finished by listing 2 sets of variables, 1 of which is under the control of management, which affect a valuation.

When I looked at the controllable variables later I realized that all of them related – directly or indirectly – to strategy. For example, markets, customers, competitive superiority, technological innovation, human resources, production and operating systems are all components of strategy.

Many of the other variables under management control – e.g. documenting policies and procedures, financial reporting, managing gross margins and costs/expenses, building an effective management team – are fundamental to successfully executing a strategy.

Even the variables Trevor correctly described as uncontrollable – economic conditions, industry trends, legislation etc. – all have to be considered during strategy development and/or business planning.

At about this point all of this thinking became very satisfying. Trevor’s variables are amongst the areas we focus business owners on when we work with them to build value in their companies. And since our whole purpose in life is strategy development and implementation – strategy made practical – it was all very reassuring………..

Then I saw an article, “Sell the Business, Sail into Retirement,” on the Globe and Mail web site. It talks about the number of businesses that will change hands in the next few years as the baby boomers retire. The article quotes a survey, which says that selling will be the most popular exit strategy.

But, the author goes on; activity is down, not up. Why, because although valuations have gone down because of the recession, owners’ still expect to get the prices that applied 3 years ago. (We encounter this “expectations gap” quite regularly.) But the good news is that low interest rates and easier lending conditions are pushing valuations back up.

We’re not sure that we buy into the comment about easier lending conditions – yet. But it is possible that it will happen in time for, or to coincide with, the boomers’ retirement.

So, what does all of this mean?

If it’s time to sell; and if valuations are going up; and if value is an output, or result, of a good strategy effectively executed then business owners need to demonstrate that they can execute better than ever before.

All of which reinforces the point that execution is, at the very least, a big issue for businesses today; it is the major job of the business owner/leader and it is a discipline which, if mastered, will give a business competitive advantage.

I’m glad we’re in the strategy business!

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