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Tapping into long-term value whilst remaining sustainable in an everchanging, disruptive landscape can be a challenge for business. How can business owners unlock value in a post-COVID world?
- What are some of the considerations to explore to unlock long-term value?
- Business owners, now more than ever are discovering that long-term value stems from engaging your stakeholders, not just your customers, to align on value creation.
Nearly every organisation today is grappling with huge strategic challenges, often with a need to reimagine its very purpose, identity, strategy, business model, and structure. Society is demanding greater responsibility from the organisations they work for, buy from, and invest in. Capital, talent and market recognition is shifting to those that create value in the long term. The pandemic has only reinforced the importance of this stakeholder-focused approach.
The bottom line? Business leaders know that running a successful company today requires creating long-term value across a broader group of stakeholders. Creating a long-term value strategy is easier said than done, though. The question many CEOs and boards are asking, as they look to reimagine their purpose and redesign business strategy in a post-COVID world, is simple: where do we start?
At EY, focusing on a purpose-led strategy aimed at long-term value creation is where we begin. We think of it as a three-step process:
Get everyone on board
First, align your C-suite and Board around your purpose of creating long-term value for your people, customers, society and shareholders. This is probably the toughest part of the job. An organisation can only demonstrate an authentic commitment to purpose if its leaders actually believe in it. That requires leaders to explore deeply what they, and the company as a whole, believe and stand for in the world.
Start the transformation process
Second, do the work to transform your business to deliver on your purpose and long-term value strategy, assessing and investing in business capabilities to create value for all stakeholders. The vehicle for our strategy creation efforts is our Long-Term Value Framework, which was developed by EY in partnership with the Coalition for Inclusive Capitalism. This framework provides an approach that companies can use to identify and evaluate key value drivers and to develop non-financial metrics that can help clarify value and value creation.
Demonstrate impact
Finally, demonstrate impact and build trust through measurement, reporting, and communication. An effective long-term value strategy embeds environmental, social and governance (ESG) considerations squarely into how you approach your business.
Of course, finding a common set of drivers and metrics to shape your strategy and measure your progress against your peers and the marketplace is a challenge in itself. Unlike standards for measuring financial performance, there’s no set standard for measuring non-financial information and the value we create for stakeholders beyond shareholders. In fact, part of the problem is that there are too many ways. There are hundreds of frameworks and thousands of metrics out there.
EY’s Long-Term Value Framework goes some way towards simplifying this. And the drive to develop standard metrics has gained further momentum over the past year and a half, with the World Economic Forum’s International Business Council (WEF-IBC) - a group of 120 global CEOs – leading a robust conversation with global companies, standard setters, and international institutions around one priority: measuring sustainable, inclusive growth in a comparable and consistent way.
The Long-Term Value Framework highlights four key areas where businesses must build sustainable value:
Talent: Your people have a significant impact on your company’s ability to create long-term value by implementing company strategy and developing new ideas for success and growth. How you deploy your human capital, how you create a vibrant organisational culture, and the impact of employee health programs on wellness and productivity are key to attracting and retaining the best talent.
Innovation and consumer trends: Are your company’s innovation efforts meeting the rapidly evolving demands of your customers? Companies can only know this by measuring their interactions with, and impact on, consumers and other stakeholders.
Society and the environment: To be successful in the long-term, companies need to understand how they create the social value that provides competitive advantages in attracting talent and customers. This strengthens their ‘license to operate.’
Corporate governance: While companies already disclose information about their boards and governance practices, current disclosures don’t always demonstrate the quality of the board’s composition and governance frameworks and how those assets impact long-term value. Has the board conducted a robust evaluation of its composition, dynamics and effectiveness? Does the board have decision-useful skills matrix? Does the company disclose milestones achieved in the execution of long-term strategy?
Within EY, our own long-term strategy, NextWave, is aimed at executing around our purpose of building a better working world and creating long-term value for our clients, our people, and society. As part of this, we hold ourselves accountable through a set of metrics specific to each stakeholder. We’re fully committed to being part of the working world’s shift to being more inclusive, sustainable and purpose-driven. We look forward to helping you reimagine long-term value, reframe your future and build a better working world for all.
Summary
Finding where your business offers long-term value in an unpredictable socio-economic landscape can be a daunting task, but there are frameworks that you can enlist to begin the journey.
