Whether you’re embarking on a workout regimen or running a multi-billion dollar company, the formula for achieving results is surprisingly similar. One key is closing the gap between knowing and doing. We all know certain key elements of what it takes to get fit: eat healthier foods and get more exercise. And the basic concepts of achieving significant business results haven’t changed much since the days of Adam Smith: boost revenues, improve margins, use assets efficiently and keep investors happy. But, from experience, creating value is difficult. It usually requires countless small actions, day in and day out, by thousands of people around the company. People who need to be on board. Who need to know what to do. And they need to do it, not just occasionally but all the time. Many small, consistent actions can add up to value creation on a large scale. This newsletter series, along with the Enterprise Value Map and other research, has been designed to help you cultivate the habits – we call them value habits – that can consistently help you create value within your company. We believe value creation must be a full-time commitment as it requires: - a strong link between vision and strategy
- clear communication both inside and outside the company
- processes and systems that support what the people within the company are trying to accomplish
- a tightly focused and consistently executed project portfolio
- compensation policies that link specific performance metrics with raises and bonuses – and accountability when things go wrong.
It is not an easy journey, but we believe it is well worth the effort. Here’s a quick review of the eight Value Habits and a road map for you to consider in putting them to work in your company. Start with Alignment
Value Habit #1: Connect your vision, your strategy, and your business processes with what you need to do to achieve results. And put mechanisms in place that encourage your people. It all starts with a vision. That part is easy: you probably already know where you’d like to be. But how are you planning to get there? You need to connect the dots. Make sure that your strategy, business processes, and people are all tightly in synch with your goals. This may seem obvious, but take a closer look at your organization. Chances are something’s not quite in alignment. We first explored this topic in Vol. 7: Turn Vision into Action. Later in the series we took a closer look at the links between vision and strategy at Domino’s Pizza: Vol. 17: Making Vision Real. Your business might not have much in common with delivering pizzas, but there’s a lot you can learn from Domino’s when it comes to getting your people and processes in tight alignment with your strategic vision. Get Flexible
Value Habit #2: Position yourself to deal with a range of possible futures, but then hone in on what you need only for the future that actually arrives. Getting your vision and strategy in synch with your people, processes and systems is important, but there’s still a lot more work to be done. Alignment is essential, but you also need to be flexible. Times change, tastes change, technology can bring surprises. New regulations arise. Disruptions, disasters, and opportunities of all sorts can render even the best-laid plans obsolete. In Vol. 3: Four Steps to Getting Flexible we introduced the concept of strategic flexibility. That means being prepared to change course quickly as new challenges and opportunities arise. Of course, the pace of change will differ from one industry to another, but it’s something that affects every company. We later saw how the Chicago Mercantile Exchange has evolved over its history by embracing change in Volume 19: Scenario Analysis. Rebalance Your Portfolio
Value Habit #3: Align your portfolio of initiatives with your objectives and strategies. OK, you have your vision and strategic objectives in place. Your processes, people and systems are all in position – and have the proper incentives – to support your strategy. And you have back-up plans in place to respond quickly to change. Great. But that’s still only part of the picture. Now you need to drill down and look at the entire project portfolio. As we saw in Vol. 4: Align Thyself!, alignment often breaks down at the project level. The typical culprits include overlapping initiatives, obsolete projects and misallocated resources. In Vol. 18: Eyes on the Prize, we saw how Logitech, a Swiss manufacturer of cordless keyboards and other computer gadgets keeps its extensive, global portfolio of technology initiatives and products in alignment with its strategy. The solution is to take an inventory of all your major projects and initiatives. If you see anything that isn’t clearly in alignment with your strategic vision, it may be time to pull the plug. It’s not an easy process – and some of your people will no doubt be angry when their pet projects are put out to pasture, but you’re making progress. No pain, no gain. Spread the Word
Value Habit #4: Make sure the words you use inspire the actions you want. The importance of clear communication cannot be overstated. From drafting a mission statement to the meetings you have each day, the words you use can have a tremendous impact on the value creation process. It’s more than just semantics. In Vol. 5: Was It Something I Said? we saw how the words you choose can make a lasting impact on your people and how they perform their jobs. AstraZeneca, a global pharmaceuticals company, presents a comprehensive framework for making the most of your internal communications in Vol. 20: Choose Your Words Wisely. You also need to communicate your vision to the rest of the world – your customers, suppliers and investors. That brings us to the next habit: Value Habit #5: Focus on the connections between stakeholders that create value for everyone. Managers traditionally put the most emphasis on shareholders. It’s perfectly natural – after all, they own the company. And the old yarn about the customer always being right still carries a lot of weight. But there’s a danger in ignoring other stakeholders like your employees, suppliers, and the local community. It’s not a question of deciding who is No. 1 – they’re all important. In Vol. 6: Play the Field or Play for Real we looked at the importance of understanding the connections between stakeholder groups and how to unlock value in these important relationships. Panera Bread puts these ideas into practice in its nationwide chain of bakery cafes. Panera’s founder and chief executive Ron Shaich explained how taking care of stakeholders translates into real dollars of value in Vol. 22: Connections Among Stakeholders. Tell Your Story
Value Habit #6: Use your concrete strategies (and the value drivers that support them) to present a credible and convincing picture of where you’re headed. If you don’t present a specific vision of who you are and where you’re headed, people will likely choose one for you. And you might not like what they come up with. That was the message of Vol. 7: Great Expectations. We later saw how Lenovo, a Chinese computer maker, put this habit to work in shaping its image as more than simply a low-cost manufacturer. In Vol. 21: Tell the Story on Where You Are Going, we learned how Lenovo shook off stereotypes and developed a reputation for quality with highly effective, value-creating external communications. If you’re having trouble with communication, the message might not be the problem. Sometimes it’s a question of choosing the right audience. Be Accountable
Value Habit #7: Make value creation central to how you evaluate and manage your people, and how you reward their performance. If you’ve made it this far, you’re well on your way to creating a culture of value. There are a few things left that you need to complete the picture – and to keep the momentum going. Measuring value creation – and rewarding the people who create it – is essential to the Value Habit. But first you need to make sure everyone understands how the process works. That might be a snap for your CFO to figure out, but how about your store managers or factory employees? You don’t need to give each and every employee a crash course in finance. But you do need to make sure that everyone understands how the tasks they perform affect the value of the business. And when you link that understanding to compensation, you’ll create powerful incentive for performance. This theme is explored in more detail in Volume 8: You Are What You(r Employees) Do Every Day. The Buck Stops Here
Value Habit #8: Put a single person in charge of aligning strategies, actions, and performance management. But wait – isn’t that the CEO’s job? Well, he or she is certainly accountable for all of this, but CEOs are also busy with other things. A full-time Chief Value Officer (CVO), on the other hand, can focus specifically on developing and executing an integrated performance-management process. All of their energy can be directed toward aligning objectives and strategy to the project portfolio, performance metrics, and rewards in every aspect of your company – from finance and operations to information technology and human resources. As you can see, adopting the Value Habit is no easy task. And as these practices take root in your company, you need to monitor their development constantly – or risk developing bad habits again. One solution is to put somebody in charge of the value creation process – a CVO. Creating value isn’t a part-time job. Vol. 9: Help Wanted: Chief Value Officer defines this new member of the C-suite. Using the Enterprise Value Map
The eight Value Habits cover a lot of territory. It’s easy to get lost. But don’t worry - the Enterprise Value Map can help you stay on course. This map – which ties revenue growth, operating margin, asset efficiency and expectations to shareholder value–clarifies the connections between actions and value. It is designed to help you focus on the things that matter most and find practical ways to get them done. 
At the top, in the blue box, is shareholder value. The large red boxes in the next row are four key drivers of value: revenue growth, operating margin, asset efficiency and expectations. And below these are myriad methods of influencing these drivers, from customer acquisition to brand management. With this structure in mind you can use the EVM in two fundamental ways. Start from the top and work your way down. At each step, ask yourself: How can we improve? The sum of many small steps may have a big impact on value. Alternately, you can start from the bottom and work up, asking yourself: Why are we doing this, or considering it? How exactly does it enhance one or more of the factors that drive our enterprise value? Creating Value in the Silos
There’s no shortage of ways to unlock hidden value by using the EVM. Here are a few of the areas discussed in previous newsletters. Most have to do with helping employees in a particular function – IT, human resources, finance – see how they can better align their actions with strategy and value. What Practitioners Said
We’ve laid out the case for adopting the eight habits and shown ways to implement them using the Enterprise Value Map. But are we preaching to the choir? Perhaps these habits are already common practice. To understand how value creation is being approached in today’s marketplace, in January 2006 Deloitte Consulting LLP (Deloitte Consulting)* worked with the Economist Intelligence Unit to survey global executives and board members about their companies’ current practices. We conducted an online survey of 147 senior executives around the world to determine whether their companies were following the key principles of value creation—and to what extent. About half of the respondents were C-level executives or board members. The single largest group was chief financial officers, followed by chief executives. Other respondents were business unit and department heads, senior vice presidents, and other senior executives. The executives surveyed were based in the U.S. (36 percent), followed by the U.K., Germany, India (6 percent each) and Canada (5 percent). The average annual revenue of the companies was about $5 billion. The single largest revenue category was companies with sales of more than $10 billion. The results were sobering to us. Most companies reported doing a pretty good job getting the big-picture right. They had crafted a solid mission statement, laid out a broad strategic vision and even outlined the steps that were needed to get there. But along the way, bad habits had crept in and sabotaged the effort. The typical culprits included short-term thinking, pet projects, poor communication and misalignment in compensation arrangements. It’s not necessarily a question of bad management or laziness. In fact, some of the most talented and hardest-working people can fall prey to these distractions. It’s a bit like developing bad habits when you start to learn a sport or a musical instrument. The more you practice using them, the more ingrained they can become. The same goes for your processes and systems in the office. The Costliest Bad Habits
You need to break the vicious cycle before it’s too late. We believe that means to seriously consider adopting the Value Habits that we’ve been discussing in this series of newsletters. To recap, here are some of the more costly habits that we’ve discussed – and links to newsletters that explain them. Read the full report, Adopting the Value Habit. Mostly and Somewhat Aren’t Enough
The companies in our case studies that have done the most effective job adopting the Value Habits have embraced them unconditionally. They have made this behavior an integral part of their corporate culture, almost to the point of obsession. Sound extreme? You bet it is. You’ll probably encounter a lot of resistance from folks who are more than happy to keep doing things the old way. But the alternative – watching the value of your company slowly deteriorate due to sloppy decision-making, misalignment and a lack of focus – is a heck of a lot more painful. Take things a step at a time. Establish an unbreakable link between vision and strategy. Communicate this message clearly to all of your stakeholders – and continuously reinforce the message at all levels – not just in the C-suite. Make sure your processes and systems are tightly aligned with the goals that you seek to accomplish. Show people how their jobs affect the bottom line. Insist on accountability when things go wrong and reward employees when they get it right. Destructive habits often have years to take root. So it takes a serious effort to replace them with a new way of thinking. It won’t happen overnight, but it will happen. The sooner you get started, the sooner your company will be positioned to create value. You’ll be glad you made the effort. And your stakeholders will thank you too.
*As used in this document, “Deloitte” refers to Deloitte & Touche LLP, Deloitte Consulting LLP, Deloitte Tax LLP, and Deloitte Financial Advisory Services LLP.
This publication contains general information only and Deloitte Consulting LLP is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte Consulting LLP, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication. Related Content: The Value Habit Newsletter Archive
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