Structurally grasping the mechanism of holistic enterprise value management, creating a growth story for the business, and transforming the company to realize its vision
Rather than simply proclaiming its vision and management goals as slogans, companies must also share common goals with stakeholders, build empathy and resonance, and steer the company toward “co-creation” through mutual engagement.
This kind of co-creative management approach forms the foundation for companies to achieve sustainable growth and value creation. To that end, it is important for companies to develop their future “growth prospects” while delivering near-term results that raise their “earning power,” thereby increasing their overall value.
In order to realize such value creation, companies require management that views financial and non-financial capital as two sides of the same coin, repeatedly engages in strategic capital investments and outcome measurement.
Holistic Enterprise Value Management ― Essential for strengthening global competitiveness
For many years, Japanese companies have faced the challenge of a price-to-book ratio (PBR) below 1.0, and there has been a strong demand for improvements in capital efficiency and profitability. However, a clear path toward holistic enterprise value management remains unclear.
On the other hand, many companies listed on the S&P 500 in the United States and the BE 500 in Europe have achieved a PBR of over 2.0 times or more, highlighting the lag of Japanese companies in global competition.
Given this situation, these companies must implement management reforms that strengthen their “earning power” through the visualization of non-financial information and the steady execution of medium-term management plans, rather than merely improving short-term financial indicators, in order to continuously increase their value.
A diversified investment strategy
The first step and starting point is to evaluate businesses side by side using metrics such as return on invested capital (ROIC) and other indicators, and then envision an ideal business portfolio for the future. At this same time, it is essential to look beyond the company's current growth potential and profit margins, and consider the external environment, understand the social significance of each business, and identify future growth opportunities.
In order to realize an envisioned future, the reallocation of management resources will be one key issue. This will require the adoption of a governance model that enables advanced corporate management to support business management from multiple perspectives, such as the business, customer, and regional axes.
To steadily advance these reforms, it is necessary take management decisions that create investment capacity and allow for diversified, concentrated investments to foster new seeds of growth and competitiveness.
Management of competitiveness and earning capability
Deploying ROIC as a KPI for each business division and promoting improvements at the operational level through the use of a “Reverse ROIC Tree” and strategic maps that visualize value creation mechanisms are effective means of driving holistic enterprise value management. These approaches enable the establishment of a management foundation that systematically links the output of corporate value, the drivers that support value creation as a source of competitiveness, and the company's capabilities (human capital, intellectual property, and others), thereby achieving continuous strengthening of competitiveness.
As a source of competitiveness, it is crucial to reevaluate non-financial value such as human resources and intellectual property, and to establish mechanisms to enhance such value.
Specifically, companies must be able to explain the validity of their corporate activities with “evidence.” This includes the verification of the contribution of non-financial capital investment to corporate value (PBR) and the strengths and weaknesses of elements that create value chains, the measurement of social value through capital investment, and the estimation of future financial impacts.
Furthermore, in order to increase the value of companies and businesses and create investment capacity, value-enhancing initiatives that aim to improve capital efficiency are essential.
Stakeholder empathy
Needless to say, communication with investors is becoming increasingly important. For business management partners seeking to build long-term relationships, clearly communicating the story of holistic enterprise value management, including business structure transformation, is essential.
In addition, by quantitatively measuring and communicating the impact of corporate activities on business partners, customers, end consumers, and society as a whole, it is possible to increase the cogency of corporate initiatives.
To support such information disclosure, it is essential to establish materialities and implement sustainability management initiatives that comply with new frameworks such as Corporate Sustainability Reporting Directive (CSRD) and the Task Force on Climate-related Financial Disclosures (TCFD).
Communication with employees within the company is also gaining significance. As diversity and mobility among human resources increase, rather than placing one-sided expectations on employees, it is important to clearly state the company's aspirations through purpose and vision, and to promise and implement measures that contribute to employee growth and job satisfaction in order to improve engagement.
Such sincere communication and efforts both inside and outside a company contribute to the sustainable improvement of corporate value.
ABeam Consulting supports the establishment of a management foundation for holistic enterprise value management value and sustainable growth through three pillars: (1) diversified investment, (2) management of competitiveness and earning capability, and (3) stakeholder empathy.
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