contents

Preface xv
CHAPTER 1
Conduct Strategic Audit 1
Highlight Existing Strengths 2
Identify Implicit Strategies 9
Plot Growth Performance 13
Analyze Profitability Ratios 16
Determine Relative Value 18
Summary 20
Endnotes 20
CHAPTER 2
Calculate Current Value 23
Discover Importance of Value 23
Master Discounted Cash Flow 30
Understand Value Drivers 35
Determine Cost of Capital 40
Calculate Current Organization Value 43
Summary 48
Endnotes 48
CHAPTER 3
Assess Strategic Landscape 51
Review Planning Fundamentals 52
Identify Stakeholders 57
Gather Additional Information 61
Define Factors for Success 69
Identify Barriers to Success 73
Summary 73
Endnotes 74
CHAPTER 4
Build Framework Foundation 75
Review Framework Relevance 76
Discover the Process 77
Lay the Foundation 81
Determine Niche Positions and Goals 88
Evaluate Mission, Niches, and Goals 93
Summary 95
Endnotes 96
CHAPTER 5
Formulate Sound Strategies 97
Understand Strategic Thinking 98
Develop Objectives 108
Develop Strategies 113
Select Value-Maximizing Strategies 119
Summary 128
Endnotes 128
CHAPTER 6
Evaluate Alternative Approaches 129
Review the Selected Strategies 130
Understand the Methodology 131
Quantify the Selected Strategies 134
Calculate Revised Case Value 144
Measure Value Enhancement 150
Summary 154
CHAPTER 7
Execute for Value 157
Create Action Plans 158
Plan Implementation 170
Embrace Change 177
Execute the Framework 187
Summary 188
Endnotes 190
Epilogue 191
Index 193

preface

This book is the result of years of experience in assisting middle-market manufacturing and service entities, as well as various not-for-profit organizations, in refining and applying top-management strategy and valuation techniques used by large corporations. Accordingly, it should be of interest to officers, directors, and managers or advisors to all types of organizations. It is especially relevant for people dealing with closely-held firms, autonomous divisions or subsidiaries of publicly-traded companies, county and local governments, and schools and universities as well as other medium-sized entities.

This book shows how, by understanding and using a few, simple concepts, the leaders and members of any type of organization can enhance their daily and long-term satisfaction and that of their key stakeholders while simultaneously reaping substantial financial rewards. It is a “hands on” guide to incorporating sound strategic and valuation principles into decision making throughout the organization. It allows leaders and advisors to create a culture in which people work to achieve their potential and that of the organization by simultaneously improving the wellbeing of all who come in contact with and have an impact on the organization.

The book is divided into seven chapters. Each chapter explains what to do, why to do it, and how. Examples using the ABC Company facilitate the reader’s ability to translate the techniques discussed to unique, real-world situations. In order to maximize the book’s usefulness, the organization’s leader should put together a management team that can work together throughout the seven major steps presented. The first three chapters focus on the organization’s history, worth, and environment. The management team arrives at a consensus on the organization’s current condition and its potential. Chapter 1 focuses on conducting a strategic audit. The exercises enable the participants to develop an understanding of the implicit strategies that have taken the organization to the place where it is today.

Chapter 2 presents a methodology to calculate the current value of the organization. The valuation variables involved require five years of financial statements. However, younger or start-up organizations can develop estimates for the variables and also calculate a current value. Chapter 3 helps the management team characterize the organization’s strategic landscape. It reviews the fundamentals of planning and conducting research. It introduces the concept of stakeholders as all those various groups that have a current or potential impact on the future of the organization. In addition, it presents exercises aimed at highlighting the key factors for and barriers to the organization’s long-term success.

The next three chapters introduce the concept of a strategic framework and how to use it to develop a foundation for future action. Chapter 4 discusses the importance and relevance of a strategic framework. It introduces and defines the major elements of the framework and helps create a common language the management team can use throughout the remaining steps. It presents exercises and techniques that enable an organization to define its vision, values, goals, and niches which, in turn, provide a solid foundation for the rest of the steps. Chapter 5 involves the creation of specific objectives and strategies that, when taken collectively, more completely define the organization’s vision and long-term goals. It reviews the basic principles of strategy formulation and provides checklists to assist in the process. Chapter 6 discusses techniques to quantify the economic impact on the organization of pursuing various alternative strategies. When followed, these techniques allow for the selection of those strategies better suited to enhancing the organization’s overall value.

The last chapter is an action-oriented one. Chapter 7 gets into the specifics of executing the selected strategies. Useful forms and checklists are presented which enable the organization to coordinate implementation of widespread action plans across various elements of the framework. It also addresses methods to deal with changes in the organization and its environment that will inevitably occur over time.

After completing the seven major steps (each represented by a chapter), the organization will have a shared set of values and purposes and a common language to use in discussing future plans. More importantly, it will have an overall sense of urgency to achieve key objectives and take specific actions to change the culture so that each and every employee is focused on cash flow optimization.