How Strategic Planning Increases Business Value

How Strategic Planning Increases Business Value

When I start working with a new company, I run the owner through a series of questions. These questions are designed to prepare the business for sale and look for ways to improve ongoing operations, allowing me to understand the current value of the business.

Some questions are easy to link to the balance sheet of the business, such as: “What is the current status of your equipment and facilities?”

Other lines of questioning can be harder to relate to enterprise value. For example: “Do you have a clear strategy that is communicated, understood, and followed by your entire organization?”

These types of questions can initially strike owners are either frivolous or non-critical. This is because it is difficult to quantify how good strategic planning itself can increase firm value. Clarity can be found if we turn our attention to the results created by good strategy. Does the strategy foster an environment that helps create desirable results, such as the following:

  • Innovative products
  • Enhanced brand awareness
  • Positive company culture
  • Increased customer loyalty
  • And other outcomes that raise firm value

These results may be somewhat intangible, but they become more defendable when discussing the values they create within a company.

Why Strategic Planning?

It is important to embrace a strategic mindset and communicate your strategic plans throughout your company. This approach allows everyone to understand where you are going as a company and how you plan on getting there. Having everyone on the same page improves company morale and culture. It ensures everyone is pulling in the same direction, which can impact productivity across the organization.

In my experience, small and medium-sized companies lack the time and resources to undertake strategic planning. This creates a lack of direction, which leads to managers pulling in different directions and competing for limited resources.

Lack of direction…

  • Hurts company culture
  • Creates confusion
  • Leads to the waste of time and resources
  • Destroys business value

How does Strategic Planning work?

There are many ways of directing strategic planning within your organization. For example, if a company focuses on supporting and communicating innovation throughout its organization, it is more likely to come up with and implement innovative ideas.

Compare this to a company that does not clearly communicate this focus on innovation. You will see different departments and managers moving in their own strategic directions. The R&D department could be focusing on innovation, the accounting department could be focusing on cost-cutting measures, and the production department could be focusing on standardization.

Three different departments and three different directions—creating conflicts over resources, siloing between the departments, and a lack of cohesiveness.

As we have discussed above, it is not only important to have a good strategy, but equally important to ensure it is understood throughout your organization. As a starting point in the alignment process I use a tool called “Line of Sight™” which allows organizations to gauge their overall understanding and confidence in their strategy. Line of Sight™ allows the company to immediately pinpoint misalignments and instigate conversation around what is needed to get back on track. Companies who go through the Line of Sight™ program quickly and efficiently get an organizational pulse that a business owner can use to better align their company and maximize its value.

There has been a shift in the last 20 years:

Company value used to be largely reflected in tangible assets that could be quantified on a balance sheet. Today, over 80% of business value comes from its intangible assets—such as culture, intellectual property, brand, and processes.

One of the main themes I bring up when I work with a company is to always look at your business through the eyes of a buyer. Taking this view is a convincing reason to put a strategy in place to focus on and improve intangible value drivers within the business. Once you understand that your company’s intangible assets will be the primary determining factor in a successful sale, the merits of strategic planning become clear.

If you’re interested in learning more about the process we use for Strategic Planning, visit our contact page!

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