Identifying the Value Points within the Corporation 1 Hour Workshop Alliance for Corporate Wealth Conference www.corporatewealth.info Presented by: Matt H. Evans, CPA, CMA, CFM January 21, 2005 Orlando, Florida Alliance for Corporate Wealth 1 Matt H. Evans, CPA, CMA, CFM Workshop Agenda I. Introduction II. Common Value Points III. Emerging Value Points IV. The LPI Model V. Value Dynamics Framework Model VI. Denison Cultural Model VII. The Creativity Model VIII. Closing Comments IX. Alliance for Corporate Wealth Additional Information 2 Matt H. Evans, CPA, CMA, CFM Introduction • Purpose of this workshop: - Outline some good focal points for creating higher value within the corporation - Provide some practical tools and techniques that everyone can start to use immediately - Help frame the knowledge base for the Alliance for Corporate Wealth Alliance for Corporate Wealth 3 Matt H. Evans, CPA, CMA, CFM Common Value Points Alliance for Corporate Wealth 4 Matt H. Evans, CPA, CMA, CFM Common Value Points – Four Good Sources • Value Based Finance • Balanced Scorecard Enablers • Human Resource Capital Scorecard • Strategic Business Analysis = Competitive Intelligence Alliance for Corporate Wealth 5 Matt H. Evans, CPA, CMA, CFM Value Based Finance – From Accounting to Real Finance Traditional Accounting Value Added Finance Historical, Looking Back Predictive Forecasting Oversight and “Cop” Like Service oriented Narrow understanding of the business Broad in-depth understanding of the business Financial performance only Non Financial Performance linked to Financial Performance Bottom Line / Short Term Customer / Long Term Cost Control Process Improvement Advocates profits Advocates value Transaction oriented / approvals Manages and works to resolve Backward checking Integrate and Re-Design Enforces rules / compliance Internal Consultant / Facilitates Alliance for Corporate Wealth 6 Matt H. Evans, CPA, CMA, CFM Benefits of Value Based Finance • By focusing on non-financial measurements, the finance function pulls in other functional areas into the value management process. • Finance is the main proponent of value – educating others on how value is created. • Finance adds value through major projects: - Define Organizational Performance - Leads Initiatives on process improvement - Improve out-of-date systems - Value Chain Analysis Alliance for Corporate Wealth 7 Matt H. Evans, CPA, CMA, CFM Scorecard Enablers – Applying the Generic Drivers • Generic Models provide a good starting point for understanding what drives value: - Customer Value comes from certain value drivers: Quality, Time, Pricing, Image, Reputation, Innovative features, etc. - Process Value comes from three phases in process delivery: Pre Delivery (meet customer demands in a proactive way), Delivery (Rapid turnaround times), and Post Delivery (After sale service) - Organizational Value comes from employee results, system results, and organizational culture. Alliance for Corporate Wealth 8 Matt H. Evans, CPA, CMA, CFM Human Resource Capital Scorecard • The value created by people is often intangible – knowledge, leadership, collaboration, etc. • Standard financial measurements are usually inappropriate for measuring human resource capital. • Sources of value other than people are potential sources until human interaction takes place. • How people are managed has profound implications on organizational performance and value. • The HR (Human Resource) Capital Scorecard measures the management activities associated with Human Resource Capital. Alliance for Corporate Wealth 9 Matt H. Evans, CPA, CMA, CFM HR Capital Scorecard Framework – Built Around Four Basic HR Activities ACQUIRE – Hiring practices, Recruitment, Fill Rates, Quality of New Hires, etc. RETAIN – Identify top talent, retention programs, motivation, etc. HR Strategic Plan DEVELOP – Coaching, Training, Supervision, Job Rotation, etc. Alliance for Corporate Wealth 10 Traditional Financial Metrics such as Cost per Hire vs. Value Added Metrics such as Satisfaction with Hire MAINTAIN – Compensation, Benefits Administration, etc. Source: The ROI of Human Capital by Jac Fitz-enz Matt H. Evans, CPA, CMA, CFM Strategic Business Analysis through Competitive Intelligence • Strategic Planning is dynamic through Competitive Intelligence (CI) • Competitive Intelligence is required to protect your competitive advantages in the marketplace • Risk Management is too internal and CI brings an external dimension to risk management • Senior Management is too inward in their thinking and you need CI as a reality check Alliance for Corporate Wealth 11 Matt H. Evans, CPA, CMA, CFM Emerging Value Points Alliance for Corporate Wealth 12 Matt H. Evans, CPA, CMA, CFM Emerging Trends for Understanding Value Points Going Forward • The discipline of management will give way to the discipline of leadership • Complex adaptive systems will help advance the concept of the Learning Organization • Organize around processes as opposed to functional silos for increased flexibility and innovation • Processes will become more simple, self serve, and more collaborative. • Technology has and will continue to be an important component of value – especially emerging technologies such as Nano-Technology. Alliance for Corporate Wealth 13 Matt H. Evans, CPA, CMA, CFM Leadership Practices Inventory (LPI) Model Alliance for Corporate Wealth 14 Matt H. Evans, CPA, CMA, CFM Measuring Leadership using the LPI Model • Leadership Practices Inventory (LPI) Model was developed by James M. Kouzes and Barry Z. Posner. • Based on 20 years of research and supported by case studies with 10,000 leaders and 50,000 constituents. • Recognizes that leadership is a measurable behavior that people can observe. • Uses assessment surveys from both the leader and observers of leaders. Creates greater awareness of how to improve leadership competencies. Alliance for Corporate Wealth 15 Matt H. Evans, CPA, CMA, CFM LPI Model Components The LPI Model is built around five leadership practices and ten leadership commitments: Model the Way Inspire a Shared Vision • Find Your Voice • Set the Example • Envision the Future • Enlist Others • Search for Opportunities • Experiment and Take Risks Encourage the Heart Enable Others to Act • Recognize Contributions • Celebrate the Values and Victories • Foster Collaboration • Strengthen Others Alliance for Corporate Wealth Challenge the Process 16 Matt H. Evans, CPA, CMA, CFM LPI Model – Annual Survey from Observers of Leaders Rating Scale: 1 – Almost Never | 2 – Rarely | 3 – Seldom | 4 – Once in a While | 5 – Occasionally | 6 – Sometimes 7 – Fairly Often | 8 – Usually | 9 – Very Frequently | 10 – Almost Always 1. Sets a personal example of what he / she expects of others. 2. Develops cooperative relationships among the people he / she works with 3. Praises people for a job well done. 4. Actively listens to diverse points of view. 5. Appeals to others to share an exciting dream of the future. 6. Treats others with dignity and respect. 7. Supports the decisions that people make on their own 8. Talks about future trends that will influence how our work gets done. Alliance for Corporate Wealth 17 Matt H. Evans, CPA, CMA, CFM Resources on the LPI Model • Very inexpensive and practical model - $ 65.00 for • complete CD and Surveys – Facilitator’s Guide: • Visit www.leadershipchallenge.com for more information. Alliance for Corporate Wealth 18 Matt H. Evans, CPA, CMA, CFM Value Dynamics Framework Alliance for Corporate Wealth 19 Matt H. Evans, CPA, CMA, CFM Value Dynamics Framework Model • Based on a three-year study of 10,000 companies by Arthur Andersen. • Used to determine how well a corporation is taking advantage of its asset capabilities. • Rates the contribution of assets and helps corporations leverage all assets for driving higher value. • Distinguishes the relationships of how assets add value in combination with one another. • Recognizes that assets are not fully controlled by the corporation – customers, suppliers, partners, etc. • Uses a much broader definition of assets (beyond the accounting model) for creating value. Alliance for Corporate Wealth 20 Matt H. Evans, CPA, CMA, CFM Basic Principle behind Value Dynamics Framework • Assets have inbound and outbound relationships; customer assets are outbound whereas employee assets are inbound (convert resources into products and services) • All assets have outputs – Organizational assets (systems, information, etc.), Financial Assets (cash flow, etc.) By understanding these relationships, we “crack the value code” Physical Customer Land Buildings Equipment Inventory Customers Distributors Channels Affiliates Organization Cash Receivables Debt Equity Investments Financial Alliance for Corporate Wealth 21 Leadership Strategy • Knowledge • Values • Brand Innovation • Systems • Process • Culture • IP Employees Suppliers Partners Employee/ Supplier Matt H. Evans, CPA, CMA, CFM Critical Concept – From Tangible to Intangible Assets In the old manufacturing economy, Balance Sheet assets in the accounting model were the critical value points. Increasingly, value points are coming from the Intangibles, outside of the traditional accounting model. Physical Assets Customer Assets Organization Assets Employee & Supplier Assets Financial Assets Alliance for Corporate Wealth 22 Matt H. Evans, CPA, CMA, CFM Creating the Overall Model • Identify and classify your assets into the five categories. • Understand the relationship of assets and how they are used within the business. • Front End Survey Work: Determine qualified people who can confirm how assets are used and what value they contribute to the business. • Conduct Value Dynamics Survey for all five asset categories. • Back End Survey Work: Reach consensus on final data through workshops, peer exchanges, and other forums. • Align your business model around those assets that add the most value. How should we use our assets going forward? Alliance for Corporate Wealth 23 Matt H. Evans, CPA, CMA, CFM Survey Questions – How well is your company using employee assets? Second Pass on Survey – More precision For employee recruiting process? Best Very Practice Good Above Below Very Good Average Average Average Poor Poor Worst Practice Know For employee training program? For employee satisfaction data? For resources to improve employee quality of life? First Pass on Survey – Basic Feel for How Data is Breaking Needs Does the Work Job Best Practices Don’t Know For information technology to leverage employee knowledge? For collaborations or joint ventures to start new businesses? Alliance for Corporate Wealth If you are getting a lot of Don’t Knows, then you need to conduct some educational workshops with survey candidates before you continue with the survey and development of the Model 24 Don’t Matt H. Evans, CPA, CMA, CFM Resources on the Value Dynamics Framework The Value Dynamics Framework is completely documented in the book: Cracking the Value Code by Richard E.S. Boulton, Barry D. Libert, and Steve M. Samek. “Organizations are creating value in totally new ways, using assets and combination of assets heretofore unrecognized under traditional accounting systems – and certainly unmeasured. In such a milieu, old methods of managing and measuring are simply not up to the task. To ignore the significance of the changes afoot in business today is to ignore reality itself as the page turns on a new millennium. And what organization can thrive, or even survive, in a world of illusion? None.” - Cracking the Value Code Alliance for Corporate Wealth 25 Matt H. Evans, CPA, CMA, CFM Denison Cultural Model Alliance for Corporate Wealth 26 Matt H. Evans, CPA, CMA, CFM Denison Model - Introduction • The culture of an organization, whether explicit or implicit, is fundamental to the execution of strategy and high performance. • The Denison Model was developed by Daniel Denison and William S. Neale based on 15 years of research with 1,000 companies. • The Denison Model describes organizational culture around four traits consisting of twelve management practices. • Very business oriented – directly linked to the bottom line. Alliance for Corporate Wealth 27 Matt H. Evans, CPA, CMA, CFM Denison Model Framework Degree to which the organization clearly understands the needs and requirements of customers, responds and adjusts to meet those needs Degree to which the organization is clear about its vision, goals, objectives and strategic direction Degree to which everyone is engaged and involved in helping move the organization forward Degree to which the organization has values, systems, and processes that support the vision, goals, objectives, and strategy Alliance for Corporate Wealth 28 Matt H. Evans, CPA, CMA, CFM Three Critical Management Practices of the Consistency Trait Coordination and Integration - Different functions and units of the organization are able to work together well to achieve common goals. Organizational boundaries do not interfere with getting work done. Agreement - The organization is able to reach agreement on critical issues. This includes both the underlying level of agreement and the ability to reconcile differences when they occur. Core Values - Members of the organization share a set of values which create a sense of identity and a clear set of expectations. Alliance for Corporate Wealth 29 Matt H. Evans, CPA, CMA, CFM Survey Question Examples – Consistency Trait Alliance for Corporate Wealth 30 Matt H. Evans, CPA, CMA, CFM How to use the Denison Model • Do you have cultural issues? • Propose solutions to address your issues. • Set targets and take action steps to change your culture. • Understand the benefits – How do the action steps close the gaps? • Determine the risks of not taking action to close your cultural gaps. • Due Diligence - Compatibility issues prior to a merger. • Benchmark against other companies from the Denison Database. Alliance for Corporate Wealth 31 Matt H. Evans, CPA, CMA, CFM High and Low Performers – Denison Model High Performing Companies Low Performing Companies Composite of companies that had an ROI of 9% Composite of companies that had an ROI of 30% Alliance for Corporate Wealth 32 Matt H. Evans, CPA, CMA, CFM Resources on Cultural Assessments For more information, visit www.denisonculture.com Facilitator’s Guide for Cultural Compass - $ 98.00. Visit www.newtrainingideas.com Alliance for Corporate Wealth 33 Matt H. Evans, CPA, CMA, CFM Creativity Model Alliance for Corporate Wealth 34 Matt H. Evans, CPA, CMA, CFM Important Concepts behind the Creativity Model • Creativity Model is based on the highly respected research of Carl Jung, Katherine Briggs, and Isabel Myers. • Breaks long-standing myths about creativity: - Creativity is NOT about ideas, it’s about the range of outcomes that are available to the organization. - Creativity is NOT about certain talents (art, music, etc.), it is about using the eight creative talents that are found in everyone. - Creativity is NOT about being different, but more about articulating results that no-one else recognizes. • Creativity is critical to problem solving because of increased complexity, the need for innovation, and increased competition. Alliance for Corporate Wealth 35 Matt H. Evans, CPA, CMA, CFM Creativity Model Framework – Eight Creative Talents Adventurer Quick to Act, Self Expressive, Aggressive Problem Solver, Fun Navigator Very Open, Good Source of Ideas, Energetic, Pursues New Things Explorer Deliberate, Observant, Thorough, Grasp’s Details, Helps Clarify Visionary Great sense of Future, Big Picture, Comprehends Complexity Pilot Organizing, Planning, Team Leader, Systems Thinker, Sets Goals Inventor Very Precise, Highly Focused, Analytical, Curious, Systematic Harmonizer Social, Helpful, Good People Skills, Seeks Consensus, Flexible Poet Alliance for Corporate Wealth High Values, Tolerant, Quietly Curious, Supportive, Skilled Writer 36 Matt H. Evans, CPA, CMA, CFM Key Points about the Eight Creative Talents • All eight talents have equal value. • All eight talents work differently. • You need access to all eight talents for creating different results – cover all the bases. • Since people have different creative talents, a team environment helps leverage all eight creative talents. • If you can consistently apply all eight creative talents, then your organization will have more control over its destiny. • Understanding and using the Myers-Briggs Type Indicator will help explain how you can apply all eight creative talents. Alliance for Corporate Wealth 37 Matt H. Evans, CPA, CMA, CFM Myers Briggs Types aligned around the Eight Creative Talents Adventurer Navigator Explorer Visionary • ESTP • ISTJ • ENTP • INTJ • ESFP • ISFJ • ENFP • INFJ Pilot Inventor Harmonizer Poet • ESTJ • ISTP • ESFJ • ISFP • ENTJ • INTP • ENFJ • INFP Extroverts – Sociable, people oriented, works well in groups, interacts, engaging. Introverts – Intense, works through ideas, reflects, reserved, few relationships. Sensing – Practical, responsive, realistic, factual, accurate, detail oriented. Intuitive – Insightful, innovative, forward thinking, strategic, learning, inspires. Thinking – Logical, objective, reasoning, consistent, analytical, information user. Feeling – Personal, cooperative, values, relates to others, persuades, humane. Judging – Decision maker, planning, goal oriented, fast to act, hard working. Perceiving – Flexible, adaptive, casual, goes with the flow, improvise. Alliance for Corporate Wealth 38 Matt H. Evans, CPA, CMA, CFM Resources on the Creativity Model The Creativity Model is completely documented in the book Breakthrough Creativity by Lynne C. Levesque. For more information, visit www.lynnelevesque.com “Creativity drives growth, and creative people drive every great enterprise. It’s not too trite to say that. These days, we’re all too easily caught up in the tactics of competition. We can forget that sustainable advantage is ultimately a function of a company’s ability to consistently generate, develop, and sell valuable ideas. Which is to say, creativity is at the heart of work and business.” - John A. Byrne, Editor – Fast Company Magazine, December 2004 Alliance for Corporate Wealth 39 Matt H. Evans, CPA, CMA, CFM Overall Framework for applying these tools and techniques (Big Picture) Value Dynamics Framework Dennison Cultural Survey Identify Major Value Related Issues Apply specific techniques to close the value gaps within your Organizational Framework Vision Goals Competencies Strategies, planning, and budgeting Communication and Management Systems Determine how these value related issues align to various layers within your Organizational Framework Products - Services - Processes LPI Model Alliance for Corporate Wealth Competitive Intelligence 40 Creativity Model Matt H. Evans, CPA, CMA, CFM Closing Comments • Most value points are easy to recognize and conceptually, they are easy to comprehend. • However, getting management “value-focused” is not easy and therefore, most corporations have significant points of value that need further development. • Ironically, getting the plane off the runway seems to be the biggest challenge . . . . • And if corporations would just start with a modest understanding of where value comes from (leadership, culture, etc.), the corporation could realize enormous increases in value. Alliance for Corporate Wealth 41 Matt H. Evans, CPA, CMA, CFM Additional Information Download presentation and reference files from: www.exinfm.com/workshop.html 1. Workshop Slides (powerpoint) 2. Building HR Capital 3. Aligning Human Capital with Business Strategy 4. Value Dynamics Presentation 5. Five Ways to Develop Corporate Culture 6. Organizational Cultures that Get Financial Results 7. Applications of the Denison Cultural Model Alliance for Corporate Wealth 42 Matt H. Evans, CPA, CMA, CFM Questions and Comments Matt H. Evans, CPA, CMA, CFM Email: matt@exinfm.com Phone: 1-877-689-4097 Alliance for Corporate Wealth 43 Matt H. Evans, CPA, CMA, CFM Back Up Slides Alliance for Corporate Wealth 44 Matt H. Evans, CPA, CMA, CFM Value Dynamics Model Survey Questions – How well is your company using physical assets? Best Very Practice Good Above Below Very Good Average Average Average Poor Poor Worst Practice Know Real estate / land for productive use or investment? Buildings and facilities? Existing equipment or newly acquired equipment? Inventory management to minimize risk of not delivering? Information technology infrastructure? Supply chain management to optimize the use of and need for physical assets? Alliance for Corporate Wealth 45 Don’t Matt H. Evans, CPA, CMA, CFM Value Dynamics Model Survey Questions – How well is your company using financial assets? Best Very Practice Good Above Below Very Good Average Average Average Poor Poor Worst Practice Know Cash reserves? Receivables in minimizing the cash-conversion cycle? Investment strategies in order to increase profitability? Debt strategy to manage or eliminate debt? Equity to further business expansion? Information technology to enable financial management? Alliance for Corporate Wealth 46 Don’t Matt H. Evans, CPA, CMA, CFM Value Dynamics Model Survey Questions – How well is your company using customer assets? Best Very Practice Good Above Below Very Good Average Average Average Poor Poor Worst Practice Know Customer satisfaction information? Current customer information to expand customer base? To develop customer loyalty? Collaborative relationships to better serve customers? Information technology to enable web-security? Supply chain management to increase customer satisfaction? Alliance for Corporate Wealth 47 Don’t Matt H. Evans, CPA, CMA, CFM Value Dynamics Model Survey Questions – How well is your company using organizational assets? Best Very Practice Good Above Below Very Good Average Average Average Poor Poor Worst Practice Know Leadership to drive innovation and passion? Business strategy ? Structure to delegate the responsibilities? Processes to identify business opportunities? Culture to foster honesty and respect? Branding in the marketplace? Knowledge in product development and marketing? Intellectual property? Alliance for Corporate Wealth 48 Don’t Matt H. Evans, CPA, CMA, CFM Value Dynamics Model Value Dynamics – Survey Process Surveys Received Level of awareness acceptable? N Conduct Workshops Reassess Facilitated Peer Exchange (Gartner Best Practice) Reassess Y Level of agreement acceptable? N Y N Likely possibility that BUs have independent assets? Y Develop standard Value Dynamics data representation Develop alternative model for Value Dynamics data representation Alliance for Corporate Wealth 49 Matt H. Evans, CPA, CMA, CFM Value Dynamics Model Low Level of agreement Run survey data through quality control matrix for refining the data High Alliance for Corporate Wealth Low number of “Don’t Knows” & Low level of agreement High number of “Don’t Knows” & Low level of agreement Low number of “Don’t Knows” & High level of agreement High number of “Don’t Knows” & High level of agreement Level of awareness (% of respondents answering “Don’t Know”) 50 Matt H. Evans, CPA, CMA, CFM Value Dynamic Recommendations – Within the Business Model ISSUE: Management does not believe they have the competencies necessary to meet customers’ needs, nor do they feel empowered to use the competencies they do have. Vision & Goals Competencies Action Items Benefits • Develop a competency model and performance management system. • A competency model will outline the necessary knowledge, skills and abilities for each position, allowing employees to understand how their jobs fit into the goals and values of the organization. Strategies, Planning & Budgeting Communication & Management Systems • A performance management system will ensure employees and functional areas are evaluated using standardized performance metrics. Alliance for Corporate Wealth 51 Matt H. Evans, CPA, CMA, CFM Denison Cultural Model Three Critical Management Practices of the Adaptability Trait Creating Change - The organization is able to create adaptive ways to meet changing needs. It is able to read the business environment, quickly react to current trends, and anticipate future changes. Customer Focus - The organization understands and reacts to their customer, and anticipates their future needs. It reflects the degree to which the organization is driven by a concern to satisfy their customer. Organizational Learning - The organization receives, translates, and interprets signals from the environment into opportunities for encouraging innovation, gaining knowledge and developing capabilities. Alliance for Corporate Wealth 52 Matt H. Evans, CPA, CMA, CFM Denison Cultural Model Three Critical Management Practices of the Mission Trait Strategic Direction and Intent - Clear strategic intentions convey the organization's purpose, make it clear how everyone can contribute and "make their mark" in the industry. Goals and Objectives - A clear set of goals and objectives can be linked to the mission, vision, and strategy, and provide everyone with a clear direction in their work. Vision - The organization has a shared view of a desired future state. It embodies core values and captures the hearts and minds of the organization's people, while providing guidance and direction. Alliance for Corporate Wealth 53 Matt H. Evans, CPA, CMA, CFM Denison Cultural Model Three Critical Management Practices of the Involvement Trait Capability Development - The organization continually invests in the development of employees' skills in order to stay competitive and meet ongoing business needs. Team Orientation - Value is placed on working cooperatively toward common goals for which all employees feel mutually accountable. The organization relies on team effort to get work done. Empowerment - Individuals have the authority, initiative and ability to manage their own work. This creates a sense of ownership and responsibility toward the organization. Alliance for Corporate Wealth 54 Matt H. Evans, CPA, CMA, CFM Denison Cultural Model Example of Action Plan Denison Cultural Model ISSUE: Need to better articulate the company’s vision, mission and goals. This will translate into increased revenue growth, quality, and employee satisfaction. Recommendations Action Plan Benefits • Hold strategy articulation sessions to plan • If employees understand and can positively identify with the for the future. Communicate these plans Company’s vision, mission, and (Vision, Mission, Goals) to employees, and goals, there should be a positive ensure they know how their jobs fit into the impact on profitability, sales / company’s goals revenue growth, market share, perceived quality, and employee • Develop a philosophy that long and • Create a list of criteria that projects must satisfaction. short-term interests can be meet before they are accepted. Make sure reconciled short term and long term goals and interests are considered when creating criteria • Give the future the attention it deserves • Make everyone in the organization familiar with your vision, mission, and goals Alliance for Corporate Wealth • Determine the best communication vehicle to cascade the vision, mission, and goals to all levels of the organization 55 Matt H. Evans, CPA, CMA, CFM Value Dynamics and Denison Cultural Model Combining the Results – Value Dynamics and Denison Cultural DENISON This chart was developed by comparing Denison survey results to Value Dynamics concepts. 1 Adaptability Creating Change V A L U E D Y N A M I C S Customer Focus Consistency Mission Organizational Learning Physical Assets Strategic Direction & Intent Goals & Objectives Vision B Financial Assets E Customer Assets E2 Employee/ Supplier Assets Organization Assets Coordination & Integration Agreement Involvement Core Values Capability Development Team Orientation Empowerment B B B B B B B E B B B B B E E B B B B B E E B B B B B E3 B B B 3 B B 3 B B B E B E E = Enabler B = Barrier Major Cultural Issue impacting value Alliance for Corporate Wealth 56 Matt H. Evans, CPA, CMA, CFM