A Strategy's Value
Key points

The five fundamental questions to determine a strategy's value are:

• what is the benefit to the customer, our promise to the customer?
• how are we going to pay for it - what is it going to cost?
• who is going to do this - are we able to do this?
• is the timing right? Our competitor's response?
• what is the bottom line to our firm?

In this chapter, we examined how to estimate the value added to the bottom line. Using the Action Plan page templates, our key players map out what is it going to cost, the timing, who is going to do it.

From the Page 2 Template, they then combine all the action plans NPVs of the growth phase and PV of the terminal values to calculate the strategy's total value added.

All this work is a rehearsal, a road map, a model of the strategy.

Key points

• the senior management team when they select the discount rate are setting the desired pace, the desired return, the stretch.
• Keep the inputs simple to the NPV and Terminal Value calculations, so you can compare one alternative to the other. Do not let folks adjust the basic formula!
• One person needs to review the financial analyses for consistency and rigorousness. In my experience, that is the only way to compare "apples to apples."
• The analyses provided to investors and lenders should be calculated using methods they trust. This may be very different and more complex than the calculations used internally.