Equity Value – Drivers of Equity Value – Strategy
Companies vary enormously in how, and how well they make choices. Many factors can influence these choices, including a company’s history, industry practices, its understanding of customers, its competitive situation, its embedded resource allocation processes, the quality of information available to its executives, and the effects of its reward systems. For SMEs the personal experience and circumstances of the owners also cast a personal influence on the strategic plan.
These and other factors combine in unique ways that predispose one company to make certain strategic management choices one way, while other companies facing similar choices tend to make them in entirely different ways.
One thing is certain: for a business to be successful there needs to be a road map for success. Without that road map provided by a solid strategic plan, decisions are made in a vacuum or there is considerable confusion and inconsistency evident within the organisation.
The Purpose Of Strategy
- As a first principle, the purpose of business strategy is to maximise the growth of economic profit over time.
- The purpose of a well-defined strategy is also establishing clear and specific goals and objectives, so as to chart out a clearer business plan for the future.
- A well-developed strategic plan allows the organisation to gain competitive advantages and enhance sales and profits. This, in turn, helps meet the owner’s vision and expectations for the business including non-financial objectives.
- A toned strategic plan aligns people, teams, departments and divisions to a common plan and focus. This makes every resource in the organisation work towards the same goals and objectives.
- A precise strategic plan helps in establishing an action plan for effective implementation of ideas.
Setting Up A Strategy
When setting up a strategy there is an interrogation of personal and organisational beliefs, performance, capabilities and vision. Choosing the most appropriate course of action for the realisation of organisational goals and objectives is the focus.
- The key component of any strategy formation is to set the medium to long-term objectives of the organisation.
- Another key component is to evaluate the general economic and industrial environment in which the organisation operates.
- A critical evaluation of the organisation’s past performance, present condition and the desired future conditions must be done. A critical performance analysis is a must to estimate its probable future condition.
- One more key aspect that goes into strategic formation is identifying the contributions made by each department or division within the organisation.
- One must practically fix the quantitative target values for some of the organisational objectives.
- Choosing the right strategy is the ultimate step that goes into formulation of a concrete strategic plan. The best course of action is chosen after considering organisational goals, strengths, potential and limitations.
Implementation of a strategic plan is something that is obviously important for achieving organisational goals and objectives. But this is not a once-off task - achievement of organisational goals and objectives needs to be lived on a daily basis.
Frustration about implementing strategy is evident among almost all industry managers, as bridging the gap between having a good strategic plan and implementing it is an everyday task that is always present.
Dismantling barriers to the implementation of corporate strategies is a key success factor for successful organisations. The best organisations integrate its corporate strategy processes with key management processes.
From the perspective of a manager, and even an owner, their own personal success is often linked to the implementation of a sound strategic plan. Why? Because their value to the organisation is directly related to the performance of the business. If they fail to plan effectively and the business struggles, their value to the organisation is marginalised.
When the spotlight of an acquisition event falls on an organisation the quality of its strategy AND the ability to execute that strategy becomes a key valuation component. In today’s changing recruitment industry, drifting along is no longer sufficient.
HHMC Global provides advisory services to the recruitment and staffing industry and is best known for its work on M&A transactions. HHMC is based in Australia and works with clients globally. To discuss your business future contact Rod Hore or Richard Hayward.