Balanced scorecard makes strategy operational by translating it into performance measures. Operational orientation allows monitoring of the strategy via selected key performance indicators in a simple and easy way (status and change over time).

Balanced scorecard is a great tool to holistically track the execution of a strategy and understand the “causes – consequences”.

The balanced scorecard divides measures into the following interdependent perspectives – innovation, internal processes, customer and financial.

• • Balanced scorecard: Financial
    How is the success of the company seen by shareholders? The measures often relate to the creation of value, share price, market shares, growth rates, profitability margins and returns, liquidity, viability, cost reduction etc.
  • Balanced scorecard: Customers
    How is the company seen by its customers? The measures often relate to the customer needs (new market penetration, developing new products and services), customer satisfaction, customer loyalty etc.
  • Balanced scorecard: Internal processes
    How do people and processes perform? The measures often relate to the improvement of core competencies, improvement of technologies, production excellence, quality management, inventory management, motivating employees etc.
  • Balanced scorecard: Innovation
    What possibilities of development and learning do the employees have? The measures often relate to the key personnel, research and development, continuous improvements etc.

Balanced scorecard should consist out of well defined set of measures. Each one, should be attributed to one or more employees, responsible for its execution. Eventually it would allow better control over the implementation of the strategy and facilitate the elimination of bottlenecks.

Due to the integrity of the balanced scorecard framework, the measures defined provide compliance with the strategy and in no way encourage short-term activities that are harmful to the company in the long term.

In contrast to traditional thinking, the quantitative as well as qualitative measures are set in the balanced scorecard. Defining measures requires that one thinks about the possibility of updating and comparing the results, the degree of reliability, objectivity, appropriate responsible person, current state of the measures etc.

Strategy and the measures defined within the balanced scorecard framework are the base for preparation of other plans, such as marketing and sales plan, financial plan, and operational plan.

Interested in our support linked to strategy consulting ? Please contact us and we will be glad to prepare you an offer!

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Business valuE determinants

Business value is affected by cash flows from operations, changes in net working capital, net investments, growth potential and underlying risks. Any measures improving these determinants will influence the business value.

However, not everything is in the power of companies to influence. Business worth is significantly impacted by macro factors. In this context one should understand the importance of economic climate as well as industry developments and trends. This is why timing to M&A is very important.

Hint: As consultants we often prefer to present the client the value development cycle. Business valuations in various points in time is a good reference point for them to see if they are confident with the business value at a particular time.

Prioritizing the measures – doing the right things counts

The more value the company adds to the supply chain, the more important player it is and higher its business value. For that reason, it is important to understand first the needs and requirements of key stakeholders and ways to meet them effectively and efficiently. Based on that fact, one should then be prioritizing the recommendations shared below … 

Tips & tricks for higher business valuE

Step 1 to higher business value: Ensure high cash flows from operations

– Differentiate your business
– Brand your product
– Tie your clients to your products/services
– Focus on most profitable products and/or services
– Acquire the right sales & marketing techniques and grow your revenue
– Appreciate and retain your key employees
– Establish barriers to enter the market
– Gain bargaining power against other companies in the supply chain
– Exploit large prepayment discounts
– Supervise the COGS
– Enhance the productivity of employees
– Optimize interest rates and taxes

Step 2 to business value boost: Optimize your net working capital

– Establish partnership relation
– Negotiate better payment conditions
– Optimize inventories and inventory turnover

Step 3 to business value maximization: Optimize your net investments

– Be aware of consumer trends
– Choose the right timing for acquiring new technologies
– Carefully plan capital investment – make investments that will support growth
– Increase the capacities in line with demand
– Ensure that the level of investments covers the growth potential
– Optimize financing

Step 4 to business value enhancement: Enhance your future growth potential

– Innovate with business model and come up with creative strategy
– Rethink processes and stick only to those that add value to your clients
– Develop new products and services

Step 5 to high business value: Minimize the risks related

– Keep the level of indebtedness at the level of comparable companies
– Endeavor appropriate product/service mix diversification
– Disperse your sales geographically
– Gain deals of appropriate size
– Supervise the creditworthiness of clients and suppliers
– Assure the level of fixed costs as low as possible
– Inform owners extensively and on a regular basis
– Give priority to transparency

Maximizing the business value is the most important criteria there is in running your business. For that reason it is important to follow the value of your company continuously, strive to bring the value maximization goals closer to the stakeholders involved, introducing the value based management techniques and setting up the KPIs based on business value maximization principles etc.

As a rational investor, one should always keep in mind also the exit strategy. The fact is that as an owner you will not be able to run or follow the company forever, so have a plan how you plan to divest your investment from the very beginning.

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