The purpose of this paper is to provide business executives with a practical and systematic way of preparing for board member questions on the shareholder value of proposed strategic initiatives.
The authors observe that previous work has shown how shareholder value is derived from revenue growth, margin improvement, and asset efficiency. While such general value levers are useful they do not guide any particular organization regarding the critical decisions on where and how to compete. They also observe that strategic plans show how strategic initiatives support the overall corporate vision, but apart from ad hoc business cases, do not systematically link to shareholder value. By depicting shareholder value as a vertical tree, and strategic plans as a horizontal tree, the authors are able to construct a systematic mechanism for explicitly linking strategy to value.
The approach enables mapping strategic initiatives to their contribution to shareholder value. Furthermore, because the value tree is generic and the strategy tree is specific, linking the two enables identifying the strategic options not taken. The approach has also been extended to show how enabling corporate initiatives (such as those in IT) can be linked to both corporate strategies and shareholder value.
In addition to helping CEOs or CIOs prepare communications to the board, the article can also help board members confirm the shareholder impact of proposed corporate strategies. It also provides middle management with a practical way of drawing a direct line of sight between their efforts and the concerns of senior management.
