Thoughts on How Valuation Professionals Can Recognize and Quantify the Value of Strategy

What is strategic planning? How does a valuation professional adding value to the client recognize strategic planning? Quantify strategic planning? Michael Porter observes that the whole subject of strategy has become too confusing. It seems that everything is strategic; otherwise, it is not really that important. We have become overwhelmed with strategic plans, strategic vision, strategic thinking, strategic insight, strategic management, strategic information, strategic marketing, strategic branding, and strategic positioning. In this article, David Axson shares his views on what is truly strategic and how to incorporate strategy into the valuation analysis.

StrategicPlanningIn March 2010, Fast Company ran a piece entitled “Strategic Planning is Dead, Long Live Strategy Execution.” Since then global volatility had only increased with turbulent events across Europe, the Ukraine, Asia, and the Middle East.  For companies seeking to do business on a global scale, the ability to adapt to unexpected events is fundamental to success. So is strategic planning another victim of the economic tsunami that has washed over the world?

It is easy to jump on the bandwagon and declare that in today’s volatile and uncertain world strategic planning is irrelevant.  Amidst all the talk of flexibility, agility, speed, and responsiveness, strategic planning seems oddly out of place. After all, how useful can a long-term view of the future be when our near-term predictive ability is so poor?

However, before we discard strategy, let’s back up; maybe the problem is not strategic planning itself but the way in which we apply the technique. As Michael Porter, author of numerous books that are essentials in the library of any strategic planner, commented: “Strategy is a word that gets used in so many ways with so many meanings that it can end up being meaningless.”

Porter is right. The whole subject of strategy has become too confusing. It seems that everything is strategic; otherwise, it is not really that important. We have become overwhelmed with strategic plans, strategic vision, strategic thinking, strategic insight, strategic management, strategic information, strategic marketing, strategic branding, strategic positioning, and even strategic bombing! Appending strategy or strategic to anything elevates its significance and that of anyone associated with it. Frankly we have lost the plot. Today you can define strategy just about any way you like, and that is a large part of the problem. Here are just a few definitions:

However, none of these make my top three listing of the most absurd definitions of strategy. In best beauty pageant form, here they are in reverse order, with my comments in italics:

“Strategy has no existence apart from the ends sought.” I love this one as it reminds me of late-night, alcohol-infused philosophical discussions while in college on the meaning of life or the real message behind Led Zeppelin’s “Stairway to Heaven.” 

“Strategy is a broad, ambiguous topic. We must all come to our own understanding, definition, and meaning.” Well, that clears things up doesn’t it?

“Strategy is what top management does that is of great importance to the organization.” Ah, so that is what they do!

Clearly, there is no clarity! Yet strategic planning is even more vital today than ever before, but remember strategies are not five-year budgets, obscure aspirational statements that have little grounding in reality or excuses for each new management team to put its own stamp on an organization. Done right, strategy lays out a direction and focus that guides an organization’s actions under a number of future scenarios. It describes how an organization will create value and increasingly how technology and operations will combine to drive execution. In a world where disruptors such as Uber, Apple Pay, cloud computing, and big data are redefining whole industries, the power of effective strategy is clear. Instead of handicapping management in times of uncertainty, strategy provides a foundation for fast, confident decision-making.

Keeping strategy simple makes it very easy to ask basic questions as ideas, opportunities, or events arise that impact an organization such as how should we respond to unforeseen events? What are the implications? What opportunities are being created? Effective strategies work in both good and bad times. Warren Buffet’s investing strategy has barely changed in 50years through all manner of economic cycles.

The truth is that very few organizations or managers are truly strategic. When push comes to shove, strategic thinking flies out of the window as the pressure to make the budget or hit the quarterly numbers takes over, and anything that does not directly contribute to making near-term goals gets ignored. Unfortunately, for many organizations, strategy has many similarities to the excessively complex financial instruments (think—credit default swaps and collateralized debt obligations) that were at the heart of the credit crunch. We need to get back to basics: with strategy, if you don’t understand it, you can’t execute it; with a financial instrument, if you don’t understand it, don’t invest in it. Simplicity is key. I like the way General Electric described growth strategies in its 2003 Annual Report, “The best growth strategies take companies to places where only a few can follow.” I understand that, and it provides a test I can apply to any strategy: will it create distance between our competitors and us?

A GE alumnus offered some of the best advice on strategy. Larry Bossidy was Jack Welch’s number two at GE for many years before becoming chairman and CEO of AlliedSignal and then Honeywell. I had the pleasure of working with him early in his tenure at AlliedSignal during the early 1990s, and his candor and clarity left you in no doubt what he was thinking. In the 2002 book Execution, co-authored with Ram Charan, Bossidy described strategy thus: “It’s a roadmap, lightly filled in, so it gives you plenty of room to maneuver.”

I like that; it’s simple and readily understandable. You have a destination in mind, and you’ve worked out a rough direction or route for getting there, but you haven’t necessarily planned out every restroom break or constrained yourself to a single road. You have options to take alternative routes if needed and maybe even change the ultimate destination based upon events along the way.

Building upon this I would add one further dimension—speed. How fast do you want to get there? Strategies that clearly describe a direction, a destination, and a speed provide a solid foundation for planning. For example, the command, “Go west young man,” offers information as to direction but provides little guidance for planning. If I am sitting in New York, will getting to Pittsburgh be good enough, or do I need to go all the way to San Francisco?

If the destination is defined as San Francisco, you now have more information to start building a plan to get there, but you still have a lot of choices—walk, ride a Harley, cruise in a Corvette, or fly on the Learjet. If speed is added to the equation in the form of “head west to San Francisco and try to get there in less than 24 hours,” planning just got a whole lot easier. You can eliminate walking, riding your motorcycle, driving, or catching the train as options since none of these tactics will get you there in time.

In valuing a business, a key element is the potential value of assets, capabilities, and other intangibles under different future scenarios.  We have seen a number of examples of valuations being directly impacted by the ownership of under-valued assets.  Today, we see failed electronics companies realizing value from their library of patents, retailers release value from their real estate holdings, and fallen industry leaders release value from their brand portfolio.  The ability to assign value under different future strategies and scenarios can be compelling.

Strategic planning is not dead; we just need to get to the basics. In today’s uncertain world remember three key points:

  1. Strategies increase flexibility, rather than reduce it.
  2. Good strategy simplifies planning by taking certain options off the table. Often the most valuable section in a strategy is the one headed: “Things we will not do.” Interestingly, it is often the one section in voluminous strategy documents that is missing.
  3. The ultimate test of a good strategy is that it remains relevant in bad times as well as good.

This article was adapted from David Axson’s book The Management Mythbuster (Wiley 2010).

David Axson is a managing director with Accenture Strategy based in Cleveland, Ohio. Mr. Axson can be contacted at (312) 842-5012or at

Save and Share:

event themes - theme rewards