AVM is an expert in working collaboratively to design and implement Economic Profit based strategy and management systems, and thereby equip client companies with capabilities that will continue to create value long after project completion. Consultancy services and solutions are provided in the following areas:
AVM works with Management Teams and Boards of Directors to assess systems of performance measurement, target setting and business planning, investment analysis, and incentive compensation for technical quality, effectiveness, and alignment with the principles and practices of value creation. Our objective is to produce a comprehensive value improvement plan stretching from the Executive Suite to the Shop Floor.
AVM’s approach to portfolio management involves a ground up review of strategic position, economic performance, and valuation of each discrete component of the business portfolio – discrete components that in all likelihood should be evaluated well below the business unit level, i.e. business groupings such as products, customers, and facilities. A thorough understanding of the granular sources of value creation and destruction is fundamental to charting a strategy and plan aimed at growth, performance improvement and long-term value creation.
How should a business be structured, formally or virtually, in order to best plan, measure and manage for value creation? With the practice of value based management, performance is best considered from a bottom-up perspective. What products and services do we provide and in what markets do they create or destroy value? This view of performance management contrasts with the conventional top-down control and compliance perspective of accounting based financial management. AVM works collaboratively with client companies to define organizational strategy and management systems that enable a detailed understanding of the economics of a business, and the motivation and capability to respond to opportunities or threats as they emerge.
The conventional practice of financial performance measurement, oftentimes, overemphasizes the role of control and compliance at the cost of strategic analysis and true economic performance management. AVM is expert in designing and implementing comprehensive performance measurement and strategic financial management systems, which utilize an Economic Profit basis. Working closely with company management, AVM can quickly design and implement a powerful Economic Profit based performance measurement and management system, fully integrative with existing systems of financial management and control yet far reaching in the illumination of business economics and proactive performance management.
Well designed and executed financial strategy is a powerful driver of value creation. Financial strategy formulation involves defining a target capital structure that minimizes the cost of capital and thereby maximizes enterprise value, all the while being supportive of corporate strategy as it relates to expected future performance, funding of current operations, financing of investment programs, and the desire for financial flexibility. Working collaboratively, AVM employs sophisticated approaches to corporate and financial strategy simulation to establish financial policy that seeks to create long-term value all the while meeting the desired requirements of rating agencies and other measures of financial protection and flexibility.
Conventional target setting and planning procedures are, oftentimes, narrowly focused on the achievement of an annual budget based operating profit target with little recognition of the long-term strategic goals of the company and multi-year performance improvement expectations of shareholders. This conventional framework will encourage practice focused on finessing short-term operational profitability as opposed to managing for long-term value creation. AVM introduces multi-year target setting and financial planning systems focused on growth and improvement in economic profitability, where this expectation of growth incorporates the strategic plan and the objective improvement expectations drawn from shareholders and other external performance and valuation benchmarks. This value focused approach to business planning and target setting will break the oft encountered counterproductive linkage between target setting, planning and incentive compensation, and thereby strengthen not only strategic decision making but also corporate performance and governance.
Well designed and implemented value focused incentive compensation is fundamental to performance improvement and responsible corporate culture and governance. Incentive compensation should be designed to align the interests and rewards of those who manage the business with those who own the business. AVM possesses a high degree of expertise in defining compensation strategy, policy and practice, and extensive experience in working with Senior Management and Board of Directors to implement customized management incentive plans, typically incorporating short-term (cash based) and long-term (equity based) components.
Corporate strategy is best defined when detailed economic information is available at a deep and granular operational level. Improving the quality of information about the value contribution of products and services, as well as, the value contribution of customer relationships is fundamental to defining a corporate strategy that is aimed at long-term value creation. AVM employs a detailed approach to computing value contribution at an operational level, highly customized to industry and company economics and organizational structure. Typically, this involves the development of functional databases and the transfer of technology to strengthen internal analytical capabilities. Securing these resources and capabilities will result in improved decision making and strategy formulation, and ultimately competitive advantage towards achieving long-term value creation.
AVM provides technical support to companies, institutional and private equity investors in both pre- and post-merger activity. This support may involve due diligence and the evaluation of acquisition and/or divestiture targets, valuation and fairness opinions in support of asset pricing, and advisory for post-merger restructuring, acquisition integration, and performance improvement programs.
Ultimately company management must build institutional conviction and capabilities towards the principles and practices of performance improvement and value creation. AVM works closely and collaboratively with companies to design and deliver customized communication and training programs aimed at upgrading financial and business literacy and decision making capability surrounding value creation and the generation of Economic Profit. Education and training programs are available as part of larger value based management implementation programs or as stand-alone institutional improvement projects.