The Secret of What Drives Value in Your Business

This is the first in a two-part blog entry.

It seems like I’ve been on the road for the last month.  Charlottesville, VA, the Outer Banks of North Carolina, Virginia Beach, Ft. Lauderdale … a hectic travel cocktail comprising business and pleasure.  It brought to mind a  basic travel tip.  Before you embark on a journey, write out a list of the things you’ll need. Socks, shoes, golf clubs, laptop, chargers, Motrin – the list can be daunting, but it collects the necessary information in one place.

You can think of Value Drivers like a packing list.  By making an exhaustive list of the things that drive the value of your company, you are building consensus with your leadership team on the items of importance in your journey to build a more valuable company. Value drivers help you gain insight into every department, division or business unit of your enterprise and how they work together and impact one another.

So what is a value driver? Good question! Value drivers are the tangible and intangible elements which enhance the perceived value of your company’s product or service.

For example, Netflix has many value drivers that go beyond revenue, earnings and their selection of movies – their first rate, do-anything-for-you customer service is a value driver. It’s nothing you can see, taste, touch or smell, but it’s helped this company unseat former business goliath Blockbuster.

Try to write down all of the different value drivers in your company.  It may seem like an insurmountable task.  Perhaps like making a packing list for traveling nonstop for 80 years!  But hang in there …. you can do this.

The first place to start is to separate the value drivers into two general groups: internal and external. While we’ll take a closer look at what we mean by internal and external in the next blog, here’s the list to help get you thinking:

Internal                                                           External

Financial performance and management         Markets & marketing
Corporate structure, ownership & legal          Sales & channel management
Asset base                                                      Pricing
Product/service development                          Customer base
Delivery                                                           Customer support
Business management
Information systems & internet
Leadership, management & HR

Now that you have them separated, it’s easier for you and your leadership team to score each group on a sliding scale from one to five.   It is important to build consensus among the team on the relative strength of a value driver.  If the CEO believes one thing and the rest of the leadership team believes another, we obviously have issues!

Remember that for some areas, there might not be a score, and that’s not a bad thing. Not every company values each of the areas.  Another thing to keep in mind, when the project is completed, human nature says to focus on the bad area, but don’t forget that we’re also very interested in the strengths – they are what will give your company the most value, and make it appealing to outside interests.

Another positive result of this exercise is that it brings every element from your company together, and it gets them talking – maybe for the first time. Think about how productive a conversation on ‘what drives enterprise value’ could be between the marketing department and the engineers or the accounting team and the outside sales manager.

The next blog entry will further define each internal and external value driver, what they represent, and how to use each category to your company’s advantage.

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