Today’s investors not only want to see companies invest wisely for their future; they also want to see those investments deliver real returns quickly. Companies feel the pressure to predict returns on their initiatives—and to show those returns in short order.
At the same time, a company’s leaders know there’s more to its worth and performance than financial value alone. In fact, there’s a whole dimension of value that’s often overlooked: foundational value.
Foundational value includes the many intangibles that can have a big impact on performance but are tough to quantify. If your company is working to strengthen your customer experience, improve the workplace, build strong organizational capabilities, and create a winning culture, you’re growing foundational value.
Increasingly, companies that do well on Wall Street or in private equity portfolios are those that can show the value of such initiatives. Why now? Due to the influence of social media, changing employee and consumer expectations, and intensified competition, the foundational value of companies is getting investors’ attention. The rise of data analytics is another reason. Investors expect companies to tap into the data needed to track the impact of initiatives that deliver foundational value.
That said, most companies still struggle to measure and communicate foundational value. How do winning companies get a handle on their foundational value and share its impact with investors in a meaningful way?
We have a framework for that.
A Different Point of View
Because Point B focuses on helping organizations thrive through human-centered change, we work in the realm of foundational value every day. And with our focus in Growth Investments, we help private equity firms deal with the increased pressure to find new ways to impact earnings before interest, taxes, depreciation, and amortization (EBITDA). Many of these new ways are initiatives in organizational effectiveness, employee satisfaction, and other areas that don’t always show explicit cost savings or higher returns.
Drawing on years of insights gained and lessons learned, we have developed a holistic value management framework that gives companies an effective way to categorize and track both foundational and financial value. It also:
- Guides program management offices (PMOs) to deliver projects, or pieces of projects, in a sequence that allows the organization to begin realizing value quickly.
- Gets the right leaders aligned. This usually includes senior leaders, because the ability to realize value quickly requires coordinated improvements across all groups in a value stream.
- Forms concrete relationships between strategic priorities, initiatives and the specific value delivered.
Last but not least, the framework creates a common language for people to talk about value in a way that moves the needle.
How it Works
Point B’s Value Management Framework defines and tracks value through five main value clusters:
1. Cost Reduction
2. Revenue Growth
3. Customer Experience
4. Employee Experience
5. Organizational Excellence
We further divide each value cluster into a number of key performance indicators (KPIs) that help to measure the impact each value cluster drives. For example, the KPIs for Customer Experience include improving customer service; building customer loyalty; increasing customer engagement; reducing complexity; and reducing response and wait times.
Identify and quantify your values at the start. Before launching an initiative, use the framework to identify and quantify your values. What counts?
For example, we worked with an IT group that wanted to make its DevOps processes more Agile. We assessed the processes in their service delivery model and identified several key opportunities for improvement. We recommended the group focus on driving value in organizational excellence, building continuous improvement and a measurement mindset, and employee experience, building a sense of process ‘ownership.’ From there, we were able to establish, train and launch the right teams to make those improvements. The team did a great job of identifying KPIs for all their improvement goals and rolled them up into the corporate business goals. Their win was big: By reducing the time to approve and test a change, the development team was able to save days getting new product features to market—beating the competition in the process. The group also improved their ability to work with data and make continuous improvements as a result of their improved clarity—creating efficiencies and delivering value.
Have a clear, cohesive measurement strategy. In order to link and track the results of initiatives and show how those KPIs influence top- or bottom-line figures, leaders need a well-thought-out measurement strategy. This strategy must tie all expected improvements to financial and foundational KPIs at all levels of the organization. Begin with the goals and KPIs of staff, team members and managers—then tie those KPIs to department and corporate KPIs. Those, in turn, should be tied to executive goals and bonuses.
In working with the IT group mentioned earlier, we used the value management framework to help front-line leaders see how critical it is to capture KPIs. With their buy-in, the group was able to tie improvements from each of the process areas to KPIs—and then tie those KPIs to three IT goals at the corporate level.
Look for ways to deliver value more quickly. People must be able to understand what “fast” means for them. It may mean taking a new, iterative approach to delivering on initiatives. It almost always means getting off to a faster start. That can be challenging for teams that are used to the pace of more traditional processes. Everyone involved, including leadership, must be ready to start projects quickly in order to deliver faster returns.
Get the right information to the right stakeholders. When things are moving fast, it’s essential to keep all stakeholders in the loop. You want everyone from the front line to the C-suite and investors to share the same expectations. What value will be realized—and when? Make sure everyone’s expectations are in sync with the teams delivering on the project.
The Bottom Line
Companies with high foundational value are companies people want to work for, belong to, buy from—and invest in. By using a value management framework, you can showcase the full value of all the initiatives that contribute to your company’s performance.