Reimagining the big picture of enterprise value

Posted
14 July, 2017

Broadening and deepening our understanding of value is absolutely vital for improving performance and building investor and stakeholder credibility,  argues Anant G Nadkarni, Advisor, Value creation.

Extensive research into value organised by a reputed global body of accountants estimates that the world’s combined ‘enterprise value’ rose from $30 trillion in 2001 to $90 trillion in 2015. Interestingly, of the $90 trillion, $43 trillion was made up of ‘softer’ assets. Goodwill accounted for $7 trillion, disclosed intangibles for $5 trillion and undisclosed value $31 trillion. This means that the $47 trillion in tangibles are almost equal with the $43 trillion in intangible value! Furthermore, this analysis does not even include all aspects of human, relationship and natural value.

The importance of broader value is now widely recognised. The crux of the matter now, is how intangible value or the ‘soft power’ of companies can be brought into the ‘Value-Sheet’ to tell your full enterprise-story. These are exciting times in which the disruptive reimagining of current business models should combine traditional business with developmental aspirations that will enable the corporate or enterprise to find solutions that serves those billions of dollars left out and restore greater honesty, a sense of purpose and build trust, both within the organisation and with stakeholders.

Let’s begin with ourselves: Where am I in this transformation? Do I see the shift required in me as a leader? Do I fully understand the widening bandwidth of  value for which our businesses are created? Do I realise it requires vast spaces to build truthful on-the-ground organisational-abilities, reshape strategies, re-engineer processes, and to measure impact beyond outcomes? We need to build new talent and converse with people on a more holistic wavelength. Ultimately, when will sustainability be embedded in my decisions and broaden my engagement with stakeholders? How do I create the basic context for integrated thinking and performance? As the author Kevin Murray puts it: ‘this would need people with purpose’!

New questions will be asked: Are we mere customers or also developers / investors to long-term suppliers and partners; how will companies share intellectual property-rights and other forms of value more generally with their innovators and employees; do we have the right processes and systems to influence value at the negotiating tables; how can IT and new technology serve companies to their fullest potential and capture, evaluate and analyse value in real time? Finally, with the expansion of capitals beyond finance, like human, social, natural and others, these new set of means or resources would have to mature into value. Then how will these fresher spaces find befitting forms of ownership, governance and business models to answer the above and more questions?

CFOs are consequently becoming Chief Value Officers. Chiefs of HR function would serve better as Culture and Human Value creators. Thousands of accounting professionals have put their heart into creating Global Management Accounting Principles and Processes to build their bridges. We have enormous pressures from financial investors and demanding stakeholders to meet their growing immediate and distant expectations. There are already hundreds of thousands of evangelists working with sustainability standards and frameworks. Corporate saviours relentlessly reinvent modes so that ethics and values guide business.

All these mobilisers have a common challenge. They have to attune and converge, collaborate and integrate into a single ‘synchronous force’. This involves transforming diverse systems and culture into sustainable value creation. It will connect the last dots on the most vulnerable part of a methodical journey towards sustainable development – which will be our new abilities and conviction to co-exist and to cocreate. Business leaders and companies must put down value-sheets rather than balance sheets. And this must not just happen in a dozen or a couple of businesses, but in hundreds if not in thousands, and quickly! In India, the regulators have mandated value creation for top listed companies effective next year. The question you should be asking is: What is it that I can do to help?