“Value creation” is a term that’s bandied around quite a bit in business circles. It’s important to have a clear understanding of what value creation means, why it’s important and how you can help your CEO with it as a COO.
Value creation is the two-step process of:
- Create value to your business, then
- Capture the value you’ve created.
CEOs need help with value creation – first, so they can stay focused on running their businesses, and because CEOs sometimes struggle with implementing strategic plans to fulfill big picture goals. That’s where a COO can dive into the weeds of execution around creating more shareholder value for them (and their investors).
The first step in helping your CEO with value creation is to understand what the strategy is. Value creation strategy is a long-term plan for creating owner (or shareholder) value, which includes three components:
- The business model. This will define how your organization creates, delivers and captures value in its industry or market segment. It includes how the company brings products or services to market and how it gets paid for them. It also includes how they interact with customers, suppliers and other stakeholders (such as employees).
- The key performance indicators (KPIs) that will drive success in the business model over time; for example: “We need to increase sales by 10% per year over the next five years so we can achieve our goal of doubling enterprise value by 2029.”
- An implementation plan that outlines specific actions taken by each member of senior management team along with dates by which these actions must be completed if they are expected to deliver results on schedule.
The first step is defining what success looks like: What does success look like for extracting the value (or the exit plan)? For the company? Once we have an idea of what success looks like (and sounds like), we can start looking at where we need help getting there and who has expertise in those areas. This process helps us identify where gaps exist so that they may be filled by others who have complementary skillsets or resources available within the organization or outside of it. Additionally, we can create a timeline, and break down the goals by year to focus our efforts, and set milestones to achieve.
The CEO is ultimately responsible for creating and delivering value for the company. As COO, you can provide this assistance by keeping them focused on their priorities and accountable when needed. Additionally, you keep them from getting distracted by other initiatives or ideas that don’t contribute to the long-term goal or exit plan.
