The Convergence of Value and Strategy - A Blog by Jeff Sisco

Business Valuation and StrategyIn parts 1 and 2 of this series, I discussed the trap of the quarterly economy mindset and creating the necessary shift in mindset to move from short-term to long-term thinking. In part 3, I will discuss what our valuation and strategy practice refers to as the convergence of value and strategy. Business strategy as a discipline is an evolution of military strategy. Strategy has existed for as long as people have gone to war. There are several pioneering figures in the world of academic business strategy. As you would imagine, each leading figure developed their own definition of strategy. Dissecting the different nuances in the definitions of strategy is beyond the scope of this blog post.  However, a brief discussion of the similarities is important.

If you read the definitions of strategy by the five or six leading figures in the discipline you will see many similarities. Some of the most oft repeated words are:  plan, pattern, products, markets, customers, and method. So, is strategy a plan? Is it a method of getting products to customers? Is it deciding what market to compete in?  I would argue it is all of those things and much, much more. I would also argue that the value of the firm is inextricably linked to the firm’s strategy. All strategy, regardless of how it is defined, seeks to create a long-term, sustainable competitive advantage above that of your competition. Therefore, the only way to truly understand if your strategy is working is to take a long-term approach and to tie the evaluation of the strategy to the value of the firm. We call this process the convergence of value and strategy. Valuation without understanding the firm’s strategy is incomplete. Strategy without a regular assessment of the company’s value is dangerous to the long-term sustainability of the company.

Under the above approach to strategy and value, is it possible to see short-term profitability while executing on the wrong long-term strategy?  It is absolutely is possible. Conversely, is it possible to experience short-term losses while building out the correct long-term strategy? Clearly, the answer is yes. This reinforces the point we have been exploring in this series of blog posts. Measuring the success of your strategy by using short-term profitability metrics can be problematic.

I hope this three part series introducing you to the importance of linking your strategy activities to your company’s value provided you with some food for thought. We are in a transformational period in global business. There has never been a more critical time to focus on your strategy.

Our valuation and strategy practice has created a unique service offering that bridges the information gap between value and strategy. Knowing that a privately held company cannot look to the market place to understand its value, we created a product that is vital to your strategic planning process. Our Value Intelligence service gives senior executives the insight into firm value that is critical to the formulation of strategy. In addition to providing you with a Calculation of Value, we identify several financial drivers that impact long-term value creation in your business. Lastly, we also identify the top three to five risks to your company’s ability to create value in the next one to three years.

 If you have any questions or would like to discuss a valuation or strategy engagement, please contact me, Jeff Sisco, at jeffrey.sisco@sobel-cpa.com or at 973.994.9494