More than just business jargon, corporate performance systems are tools that seek to enhance the long term value of a company. Companies both large and small can benefit from having strong corporate governance systems in place to not only increase performance, but also to be used as an effective tool to drive value in an acquisition.
Features of performance systems:
- Defines the roles of the board, employees, and staff and holds them accountable
- Creates a framework for decision making, structure, and risk analysis/mitigation
- Creates a process of iterative performance enhancement and identifies gaps in strategy or skills
- Ties short term decisions to longer term strategy
All with a goal to enhance long-term shareholder value!3>
The Balanced Score Card
More than just a corporate governance system, the Balanced Scorecard is unique in that it attempts to link decisions made by the organization to the core mission, vision, and values of the organization. The balanced scorecard is not just a measurement of past or current performance as many other strategic analyses are; it promotes consistency of vision, action, and direction across the business. It is both a system of accountability and the basis from which strategic decisions are made.
Components of the Balanced Scorecard:
There needs to be harmony among all staff so that the vision and resulting strategy are aligned and understood by all members of the organization.
Communicating and Linking
Individual and team objectives are communicated and aligned with high-level goals translated into smaller objectives for all individuals. Performance measures defined by the scorecard are linked to incentives.
Efficient allocation of resources resulting from integration of business strategy, budgeting, and other financial measures.
Feedback and Learning
Strategic learning developed from customer, employee, and process success.
In the context of M & A
So often the due diligence process becomes an effort in scrutinizing the financials of a target rather than conducting a focused analysis of the strategic fit and the ability to drive value from the acquisition. Is it any wonder why more than 50% of acquisitions fail to deliver on the forecasted performance?
More than ever, a strong corporate performance management system is a competitive advantage for an organization. Ethical standards promote greater trust between a company and its clients and potential investors. Perhaps most importantly, a company that has a defined, internal strategy of accountability, can more easily show the value of those processes when it comes time to sell.
A company that understands its own culture, people, and other non-financial qualities, can more easily evaluate, integrate, and drive value from acquisition targets due to an alignment interests and a shared understanding of goals.
While there are many ways to value a business, the true value of a company isn’t reflected until an open market transaction takes place. For small business owners, the ability to transfer value is key to maximizing the price that they get for the business. The more a business owner can separate themselves from the goodwill of their company – the more value they can transfer when it comes time to sell. While this is often difficult for smaller enterprises, the Balanced Scorecard is one tool to help you get started.
Senior Associate, Mergers & Acquisitions