Conclusion

This chapter dealt with understanding value and value propositions. Three concepts of value were discussed: book value, market value, and intrinsic value. Shareholder value based on a book value convention is net asset value less liabilities. Shareholder value based on a market value concept is the price paid by a willing buyer and a willing seller. Intrinsic value is the sum of future cash flows adjusted for time and risk. We have chosen the intrinsic value method because it is cash flow–based, future-oriented, and accommodates the assessment of Strategic Alternatives.

The three main categories of value propositions are revenue increase and maintenance (RIM), competitive repositioning, and efficiency. RIM–related value propositions assume that increase or maintenance of revenue will have a similar impact on cash flow.

Competitive repositioning assumes that increased cash flow will be driven from increasing/maintaining market share, competitive intelligence, and differentiation. Efficiency assumes cash flow improvements from making business processes better, faster, or cheaper.