Preface

STRATEGY deals with creating a sustainable competitive advantage for a business. The focus of business strategy is traditionally long-term in nature and is primarily concerned with the longevity of the business. Finance, on the other hand, is concerned with making management decisions in order to achieve its objective of increasing wealth for its owners. Finance looks at ways to obtain, manage, and utilize funds for wealth maximization. The two disciplines are many times perceived as working against each other. Yet, business leaders know that firms that have a sustainable competitive advantage become more valuable than their competition.

I have focused on the problem of aligning strategy with value creation for many years—as a management consultant serving global clients. The conceptual inspiration for this work can be traced to 1997, when I met Jim Hudick, who was the Global Practice Leader in Finance for the American Management Association (a worldwide management training organization). Jim contributed his thoughts around the conceptual framework and the notion of an economic filter, as well as the initial draft of the introduction and preface of this book.

During Jim's tenure at the AMA, we joined forces to develop a new management-training seminar. In that seminar, we presented the financial and economic aspects of corporate strategy as a critical step for the creation of shareholder value. Subsequently, we also worked together on a special conference entitled "Partnering to Create Shareholder Value" held in Newport Beach, February 2001. This book is an outgrowth of those earlier works. The focus of this effort is on "shareholder value creation", which is the central business issue confronting organizations. All businesses have a common goal—to increase in shareholder value. Nevertheless, many companies do not link strategy and finance in a concerted effort to achieve strategic goals. There is a disconnect between functional disciplines within the corporate architecture and an organizational obstacle that needs to be overcome. This disconnect has been recognized by numerous academic organizations. "We're trying to prepare people to appreciate that technical silos are not very effective in the workplace".^[1]

I intend to continue this essential integration of disciplines by increasing an understanding of the interrelationship of finance, strategy, and value creation. One of the biggest challenges in business is to create a collective approach between the various functions of the business. I am writing this book to bridge the gap between strategy and finance. Strategists are proactively shaping the future of the business to assure its long-term dominance. Meanwhile, financial analysts are quantitatively measuring (and controlling) the results of these plans on a current/ short-term perspective versus budget.

I will help to bridge the gaps and resolve the conflicts that exist between the functional disciplines (as described above). All sides can gain from this book because it builds a bridge between vision (strategy) and value creation (shareholder wealth). The development and implementation of strategy to create shareholder value must be a team effort. All disciplines must partner together to achieve a common goal—creating shareholder value. Financial techniques serve as a method of validation that business strategy is creating shareholder value and not as an end in itself. "The whole idea is that CFOs pushing buttons to create shareholder value is an abstraction from reality if they don't have a feel for marketing strategies, and don't develop financial strategies that make sense to the other side of the house".^[2]

This book is a must-read for all businesspeople regardless of discipline. The book is intended for every businessperson who wants a practical, grassroots method of how to assess the alignment between strategy and shareholder value. My purpose is to provide businesspeople (and students) with a basic understanding of how business strategy translates into shareholder value. I will focus on the financial and economic assessment of strategy as a means for value creation using a step-wise approach.

This book is for businesspeople of all backgrounds—both financial and nonfinancial—at all levels of the organization. Just about every decision maker in business can benefit from the principles we will present. I will attempt to explain complex ideas in simple terms using easy-to-understand examples. I will provide readers with concepts and frameworks that can help create a collaborative approach to shaping strategy across all executive and operational functions throughout their organizations. In addition, this book provides a perspective required for corporate advancement. A critical competency of a senior manager is to understand how to translate strategy into the bottom line. After reading this book, the reader will have a better capability to:

• Understand the impact of economic conditions and market (industry) forces on his business.

• Assess the financial repercussions of strategy.

• Identify and assess Strategic Alternatives.

• Evaluate Strategic Alternatives within the context of fluid business conditions.

Notes

1. CFO, April 1997.

2. Ibid.

^[1]CFO, April 1997.

^[2]Ibid.