Rethink Business Value Growth

Executive Summary

Growing business value faster, measured as the value of the business from period to period, must be front and center for every CEO, President, and General Manager. In fact, it ought to be more on the minds of the function leaders in every business, because they, not the CEO, own the transformation responsibility and have control of the resources.

Growing business value faster has nothing to do with functional expertise but everything to do with the execution of strategically aligned initiatives. They are the means to transform the value of the company from each beginning-of-year value to a higher value at the end-of-year, each and every year.

Here we demonstrate quantitatively that translating and communicating your strategy in a language understood by execution teams impacts your value growth more than better strategy design or better execution. In fact, communication deficiency is penalized, not linearly but by the inverse square of your deficiency. We hear this referred to as the “need for better alignment” but it is actually a deficiency, and executives own the communication responsibility.

As we all enter 2022, pay particular attention to upgrading your value growth communication. Automating it may provide you your biggest return on investment because it also fuses a common growth language for your entire organization.

Introduction

Recently Pivotal Innovation conducted an executive survey to answer an important question on improving Business Value Growth (BVG):

Think about this response for a moment. Over half, 55%, of the respondents believe that improving strategy execution will provide the most value to them. We believe differently.

In this article, we will unveil some of our research on applying Systems science to accelerating Business Value Growth. We will examine value growth through this lens to demonstrate why an improvement in strategy communication may provide you with a much bigger payoff than focusing on improving strategy design or strategy execution.

The technical details including the BVG Force Equation™ are in the last paragraph: Examine BVG through a Systems Science Lens.

Discussion

While it is necessary for function leaders to understand the mechanics of their functions, it is not important for business unit leaders (CEOs, Presidents, or General Managers) to understand any details about particular functions. For example, a marketing leader must understand the mechanics of marketing while a business unit leader doesn’t need to know much about marketing. Think of T-learning, where the business unit leader needs broad but shallow knowledge in the functions and deep knowledge in the ability to grow.

Business unit leaders must understand the mechanics of Business Value Growth through the growth disciplines, which are strategy, execution, and innovation (SEI), and have the ability to translate the strategic growth goals into a language each process/function leader understands relative to their respective environments. In turn, it is imperative that each process/function leader communicates transformation goals in a language their respective teams understand. Who is responsible for standardizing this language in your business?

Business unit leaders are usually promoted to their positions from a function leadership role. However, this may be an impediment to growing business value faster, because training for Business Value Growth is radically different from training for function operations or function leadership and is not taught in universities today. Marketing, Accounting, IT, HR, and operations are taught, but not BVG.

Measured over a five-year period, business leaders who understand and practice Business Value Growth as a collective discipline grow businesses at twice the rate of their peers because the value from the change in growth rate compounds. Put another way, the opportunity value loss for most organizations is over 50%. The stakes are high.

Strategy

From the BVG Force Equation in the Systems Science section below, the company value growth strategy, v_g1 , creates a future state value desire, expressed in directional, financial, and sub-system transformational terms. Business is a system, and growing the business is a different system that acts on the underlying business to transform it for strategic growth.

The future value is not yet realized but strategy is required if you want to change to a systemic growth culture. More importantly, growing the value of your business will be lackluster or nonexistent as strategy, v_g1, approaches zero. Having a purposeful, customer-centered growth strategy also sets the foundation for cultural transformation.

Strategy Matters. Tracking your environmental insight, such as market, competitive, and technology trends, is critical to great strategy development. Do you know the critical few trends you need to track? Do you have the right capture mechanisms in place with people assigned to summarize these trends at least quarterly, or are you just showing up with a time-biased, outdated SWOT type practice for your strategic planning input? Is your strategy customer-growth focused and translated into transformational objectives? If not, you have room for improvement.

Execution

Again, from the BVG Force Equation in the Systems Science section below, execution value growth, v_g2, represents your team’s ability to execute the strategy. It includes the focus, capability, and capacity to realize the value growth expressed through strategy. From a flow perspective, execution follows strategy. Therefore, if you have the best strategy in the world but are 100% focused on current operations, value growth will be seriously compromised. The urgency of today’s operating demands usually eclipses the importance of tomorrow’s growth unless you have the correct policy and norms in place. 

For most companies, strategy execution is the constraint—or is it? A counter argument is that on several Gallup Poll surveys, employees who are not engaged or actively disengagement consistently score from 67% to 70%. This is untapped latent energy and it’s free! The energy can be easily tapped to engage teams that transform their environments to meet your strategic growth intent.

Execution Matters More. Do you have strategic policy in place? What about assigned time to work on the business vs. in the business? An underutilized lever most businesses have available to accelerate growth is to administer integrated people development programs, ones that teach scientific thinking, accounting for non-financial people, value-growth, problem solving, tools and methods, and skills in initiative design, planning, and execution. Developing a growth learning culture is almost free and the returns are huge, because the additional value created from an improvement in your ability to increase the rate of initiative execution compounds.

Communication

In order to increase the growth force F_g, (see the Systems Science section below) executives must communicate the future state strategic value growth intent in a language, c, that the teams required to implement value-creation initiatives understand. What’s really interesting here is that the denominator, c, is squared. The inverse square law states that the further one object is away from another, the strength of the field between them deteriorates by the square of the distance.

We’ll assign a value of 1 to represent full understanding of strategy in actionable terms, which is the language of aligned initiative execution, and a value of 10 to represent very little understanding. Let’s take two companies: A, with an excellent communication alignment score of 3, and company B, with a terrible communication alignment score of 7. When calculating Fallon’s BVG Force™, company A will use a denominator of 9 (3²), while company B will use a denominator of 49 (7²), ouch! Business Value Growth is negatively impacted by the square of deficiencies in communication.    

Communication Matters Most. We pointed out in a prior article, Rethink the Strategy-Execution Gap that there is no gap – just bad strategy and bad execution. This was to counter the pundits and a Harvard Business Review: The Gap Between Strategy and Execution compendium and their marketing machine supporting the gap.  We introduce here a third and more powerful actor: Communication. Deficiencies and misalignment in communication hurt value growth by the square of the deficiency. Value growth communication can be simplified, standardized, and automated. You have standard languages for Sales and Accounting. Do you have a standard language for Business Value Growth? The benefits from improving strategy communication outweigh the benefits of a similar percent improvement in strategy design or strategy execution by the square of the improvement. Perhaps this ought to be your next frontier for a value growth ROI.

Examine BVG through a Systems Science Lens

Our premise is that business is a system governed by Systems science. From a scientific perspective, the act of transforming an underlying system is also governed by Systems science. Therefore, Business Value Growth (BVG) is a system, which transforms your business to a higher value production system. As such, its domain can be disaggregated into elements that map to elements of other Systems domains, such as mechanical, electrical, thermal, or fluid systems.

Mapping these elements enables us to invoke the principles of Systems science to model, communicate, and solve business growth challenges more effectively and efficiently than examining results through financial measures. As an executive team, if you are communicating your value-growth expectation in financial terms, you’re doing so at your own peril.

Understanding Business Value Growth from a Systems perspective lays the foundation for new organization learning that will help leaders increase the value growth rate of any business for lower cost, in a systematic and systemic way.

We have developed Fallon’s Business Value Growth (BVG) Force Equation. It follows the form of Newton’s 2^nd Law on gravitational force and Coulomb’s Law on electrical charge force. It is based on Field Theory, which was discovered by Michael Faraday in 1831, long after Newton and Coulomb developed their laws of science. Field Theory is the general and root science underpinning Newton’s 2^nd Law, Coulomb’s Law, and the Inverse Square Law. 

Fallon’s BVG Force Equation connects strategy with the ability of the employees in a business to execute it, all communicated in value growth terms. This would be equivalent to two masses in Newton’s world or two charges in Coulomb’s world. Success depends on the value of the strategy, the team’s ability to execute it, and the success of leadership to effectively communicate it in terms understood by those charged with executing it. If employees don’t know exactly what’s expected in terms they understand, why would they execute value growth initiatives? They wouldn’t and they don’t.

The Business Value Growth proportionality constant, k_g, will be examined in a future article on value growth insight. You won’t want to miss it because it will tie your financial ability to grow value with your strategic ability to grow value faster and will dispel what CFOs tell us about our ability to grow. Subscribe at the top of the page to stay updated!

Conclusion

An improvement in strategy design without the ability to execute it is worthless. An increase in strategy execution ability without understanding the true reason and purpose behind it breeds lackluster performance. Not communicating strategy in an aligned initiative-based language throughout your organization negatively impacts value growth by the square of the communication deficiency. 

To successfully shift from an operations-centric low-growth organization to a value-growth centric high-growth organization, business leaders must improve their strategy communication translation capability, or devise a new common communication language for strategy deployment. Utilizing an automation platform is the best solution to ensuring a common communication language. If an automation platform is valuable in improving your operating functions, such as sales or accounting, it’s absolutely essential to accelerating business value growth.

About Pivotal Innovation

Pivotal Innovation’s purpose is to empower leaders to grow value faster for lower cost by helping you automate the growth disciplines of Strategy, Execution, and Innovation with our Pivotal Innovator™ SaaS platform, combined with acceleration support services. Contact us at info@pivotalinnovation.com for a Value Growth Discussion.

We want to help you grow value faster for lower cost!