Value enablement: what is it and how does it make a difference?
Value Enablement Series - Part 2
What is value enablement?
The previous article concluded that current Value Creation approaches may, through their assumptions and methods, cause various dysfunctions which impede value creation. It proposed, by way of a counterbalance and partial cure, ‘value enablement’.
So, what is this proposed addition to our vocabulary? In short, a framework of assumptions, questions - and coherent actions driven by them - to increase the likelihood that strategies and VCPs are executable by design and then executed in practice.
There are three ways to unpack that in more detail:
A. Explore how value creation and value enablement relate to each other
B. Consider value enablement’s assumptions and why they are distinct
C. Understand the three questions/activities which drive enablement
A. Value Creation and value enablement
We could think of these two perspectives like Ying and Yang: different in their styles and assumptions but ultimately strong complements to each other. As the diagram below lays out, Value Creation focuses mostly on the ‘what’ aspects of value creation. In other words, what results are we seeking and what initiatives could bring about favourable improvements? By contrast, value enablement focuses on ‘how’ aspects, i.e. building capability and effectiveness at individual, team, organisational, governance and strategy levels. It then deploys methods to improve that effectiveness.
When combined successfully, they will tend to build value systematically. Value Creation by itself without enablement struggles with sustain execution. Value enablement without the 'what' would lack teeth. The colour scheme reflects the fact that certain issues have greater visibility and focus than others. The types of items in bright pink tend to get plenty of focus from Value Creation, those in dull pink a bit less. Items in blue tend to be less visible, even more those in the darker tone.
B. Value enablement assumptions
Whereas Value Creation has often focused on ‘full potential’ optimisation, value enablement focuses on sustainable progress in practice.
That drives a different set of assumptions:
-
Clearly, some kinds of DD are necessarily more validatory in nature. However, anything related to building and improving business models (commercial, operational, sales, technical, management/organisation etc) would surely benefit from scoping, feedback and synthesis in such a way as to support execution.
-
Achieving a three-dimensional sense of a business pre-deal is difficult – sometimes the best we can do is use acid tests to spot anything dysfunctional or eccentric. But, post-deal, gaining understanding of how the various elements of a business model come together is the basis for building executable strategies. That integration process is essential.
-
The less visible areas of a business model are often hard to analyse and create plans for due to the uncertainties. But a newly formed board needs to make sense of how individual, team, organisation, strategy and governance aspects come together and create inter-dependencies. It is in those relationships – the connective tissues if you will – that things tend to go right or wrong. What happens in the white spaces between boxes in organisation charts is more critical than, say, the reporting lines.
-
Some complexities just need to be worked through. So, starting at the level of management’s current level of understanding and building conclusions and plans with their full engagement may be slower in the short term than getting a few bright folks to present and sell proposals, but is likely to be more successful in the medium-term. The key to success is genuine co-creation.
-
Does anyone have any useful KPIs for strategy completeness, team dynamics, organisational effectiveness or quality of governance? That gap, though, doesn’t mean that those things need to be left as completely subjective topics. Instead, somewhere between gut feel and science we can find meaningful ways of judging quality and effectiveness. We should trade some precision for relevance
-
If that is true, then much Value Creation activity (aiming for completeness, tidiness and measurement) creates unhelpful noise and high opportunity costs. Taking that assumption seriously would probably mean, apart from anything else, that strategies/VCPs would start with capacity and capability building as the first priority of business. We would need to worry more about return on effort (a cause) than on capital (an ultimate effect).
-
When Catalysis talks with managers in non-transactional situations, only a minority have a clear sense of what key priorities are beyond high-level themes. The interpretation of those for themselves and their teams has been left undone. That isn’t just the fault of a bad strategy cascade; it often reflects investors diverting management attention towards creating VCPs rather than thinking what would help managers create value at the ‘frontline’.
-
We need to identify the vital few causal factors amongst the trivial many – remembering the radical implications of the 80:20 principle - and then focus our energies on addressing them. Getting management to focus on other items will likely slow down progress.
Very often the key constraints can look mundane: a team which doesn’t align; a fuzzy strategy; a function which has big plans but weak capability. The painful conclusion of prioritising may be that the US market entry initiative will need to wait, the new product double-checked or the new IT system reconfigured.
-
Under conditions of uncertainty and complexity, a model based on more frequent and pragmatic interventions – even if that goes against the grain of VCP playbooks - seems more likely to deliver results. Stretch goals can be set around achieving the vital few as fast as reasonably possible
-
I referred in my Seven Sins document to a case where a CEO who had just gone through a funding round was cajoled by the Chair to spend almost two months writing a 15,000-word VCP – even as the business slid into operational chaos. That is an extreme example but highlights where Value Creation and its focus on analytical tidiness can conflict with actual value creation.
Instead, thinking about the best allocation of management time, and considering the digestibility of initiatives, is more likely to generate value.
C. Framework, building blocks – to address the blind spots
How do the assumptions above translate into a better way of approaching value creation? There are three high-level questions/activities which need attention:
Insights: How do we acquire and digest the most critical insights?
Making decisions when some of the most relevant areas are left in the dark is likely to lead to unbalanced decisions. Solving this requires three steps:
Identifying which business model foundations the intended value creation initiatives need to rest on. That implies, especially, opening up big messy areas like ‘people’ and unpacking the individual, team, functional and organisational elements of growth. As mentioned above, attention needs to be given especially to the ‘connective tissues’ where effectiveness is made or lost.
Gaining decent visibility of the current state of those critical foundations. The problem here is that there are a lot of potential areas and few of them tend to have useful data available. So, ‘wide spectrum’ tools are needed to throw light in the right places.
Finding ways to weave together data into validated information, useful insight and well-balanced judgement calls on key constraints.
Focus: how do we arrive at a well-grounded and shared view on strategic or other priorities?
Converting insights into executable strategies and plans requires:
Powerful questions to generate productive debate. In practice, it is much easier to maintain consistent questions across companies and contexts than using the same playbooks and templates in each case.
Ways of ensuring genuine input and co-creation from a wider range of managers than is often the case today. It is especially important that those likely to be held accountable for the execution of strategic projects are able to identify likely constraints but, ideally, also make proposals on how those can be overcome and turned into plans. That doesn’t deprive the CEO or board of the ability to overrule those views, but it does reduce the chance of over-optimistic board discussions generating unrealistic plans.
Acceleration: How can management time best be used to build sustainable momentum?
If, as discussed earlier, the main constraint on progress is management bandwidth and capability, then increase the pace of change and growth requires a coherent set of activities to address the specific bottlenecks identified by the critical insights.
But bandwidth constraints mean that any initiatives in this area need to either address the most crucial constraints and/or not consume much bandwidth.
Subsequent articles will look at how to think about such initiatives but, in short, there are three types:
The vital few – significant initiatives (in both impact and cost) in 1-2 super critical areas
Quick wins – low time cost, but limited impact, initiatives which, however, can build a sense of progress
Catalytic projects – low time cost but high impact interventions. You might expect that these would be much sought after by investors and CEOs but often they are too counter-intuitive or unfamiliar to be deployed much.
Why make the effort to think about this?
Giving more equal consideration to the ‘how’ of pursuing value as much as the ‘what’; reconsidering some key assumptions; and being more explicit in defining the sorts of insights, focus and acceleration being pursued. Put together, and made to complement more formal value creation, these offer the prospect of more rounded decisions; more robust management focus; a higher likelihood of achieving positive momentum in change and improvement.
Get in touch
If you would like to find out more about how we work with investors and leadership teams, feel free to ask us for introductions to clients who know us best.
