VALUE OF BUSINESS

Value of Business

Value of Business

Introduction

What is the enterprise worth? The book value and the market value provide an inventory of financial assets. They do not tell the whole story as they only show financial results rather than enablers that can be acted on. Moreover, they neglect knowledge assets. The “business value” shows the whole picture.

An enterprise must be able to satisfy its stakeholders and to operate efficiently. To do that, it must invest adequate resources and then deploy them purposefully through a grid of processes. Thus, the quality and quantity of the available resources and the productivity of the grid of processes are the key drivers of sustainable success. In our view, the real value of the enterprise or the “business value” (BV) results from the competitive and profit potential that can be generated by the interaction of the resources and the processes.

What is the business worth?

“Business value”, the approach we advocate, aims to enhance the visibility and the manageability of the creation of business value over the whole business. It structures the management framework in two interactive vectors, the strategic resources and the management processes. The resources and the processes are mapped out in detail so as to enable management and the directors to focus on the desired scope and depth of the business.

The resources form an interactive web that combines physical and non-physical assets. These resources have to be grouped in configurations as no single resource can add much value alone. Management must carefully design the configuration of the resources it wants to invest in the business strategies. To this effect, we have developed a detailed model that shows the main resources and their components.

It should be noted that knowledge assets operate in the frame of complex, dynamic loops that can span longer periods that those of tangible assets. For example, a commercial transaction may take days or weeks, but client capital - an intangible featured under marketing capital - may only be acquired as a result of several commercial transactions. Interestingly, the input of other knowledge assets such as human capital and organizational capital may ultimately generate more client capital than the commercial transaction itself. Paying attention to the combination of resources provides a broader perspective and raises the time horizon.

Each of the stakeholders contributes one or several resources to the business flow and in turn benefits in one way or another from the value created in the business. It is possible to plan and then to estimate the contribution made by the various stakeholders and to examine the benefits that they acknowledge receiving. This enables management to optimize (not maximize) stakeholder satisfaction, thereby ensuring cooperation and the resulting competitive advantages.

Now let us turn to the management processes, the ones that lead to key decisions and that deploy the resources. These processes form an interactive grid that encompasses the strategic and planning processes, the social and support processes, the supply chain, and the performance evaluation and recognition systems (Figure ...