Integrated Strategy Model for Value Creation

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Framework Primer
Integrated Strategy Model for
Value Creation
Design business
strategy
TSR
goal
Develop
investor
strategy
Formulate
financial
strategy

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Contents
Overview
Limitations of Traditional Strategy
Integrated Strategy Model
Strategy Alignment
Templates
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The traditional Corporate Strategy model is no longer effective—this deck
discusses the Integrated Strategy Model for Value Creation
Presentation Overview
Due to a number of socioeconomic and technological changes, the traditional, serial Corporate
Strategy process is no longer adequate in today’s business environment. The traditional
process has 4 primary weaknesses:
An improved model is the Integrated Strategy Model for Value Creation. This framework centers
around Total Shareholder Return (TSR) goals by assessing Business Strategy, Financial
Strategy, and Investor Strategy concurrently. Likewise, the 3 dimensions to this strategy model
are:
This presentation also discusses sources of strategy misalignment and how to align the
organization beyond the corporate strategy. It also includes templates for you to use in your
own business presentations.
There is a pervasive disconnect at many companies between Corporate Strategy and Value
Creation—Value Creation should be an integral part of the Corporate Strategy process.
1 Excessive Reliance on Incremental Changes 3
2 Sequential Planning 4
Siloed Decision Making
Weak connection to Value Creation
1 Design business strategy. 3 Develop investor strategy.
2 Formulate financial strategy.

It is a turbulent time in the global economy—macroeconomic, political,
regulatory, and technological changes are impacting business
Corporate Strategy Defined
In essence, the Corporate Strategy process assists top management set up financial
policies and determine investor communications to optimize business value.
Rationale for traditional corporate strategy
Organizations strive to develop their Business Strategy whereby they plan to establish and exploit
sustainable differential advantage. Corporate Strategy, however, focuses on delineating ways to generate
value in excess of what individual business units would create and to make sure the company’s portfolio
sustains that superior value for its investors.
Corporate Strategy identifies the advantage or financial and operational synergies that make an organization
the owner of a set of businesses, in addition to defining clear-cut role of each business unit in overall
organizational value-creation strategy.
Corporate Strategy ensures that a company’s portfolio of businesses evolves from time to time. For instance,
mature businesses that are no longer creating value in line with the firm’s objectives should be sold and
replaced by new businesses that offer greater value potential.
Rationale for traditional corporate strategy
Organizations strive to develop their Business Strategy whereby they plan to establish and exploit
sustainable differential advantage. Corporate Strategy, however, focuses on delineating ways to generate
value in excess of what individual business units would create and to make sure the company’s portfolio
sustains that superior value for its investors.
Corporate Strategy identifies the advantage or financial and operational synergies that make an organization
the owner of a set of businesses, in addition to defining clear-cut role of each business unit in overall
organizational value-creation strategy.
Corporate Strategy ensures that a company’s portfolio of businesses evolves from time to time. For instance,
mature businesses that are no longer creating value in line with the firm’s objectives should be sold and
replaced by new businesses that offer greater value potential.
In principle, Corporate Strategy is defined as to how an organization utilizes its organizational skills,
financial assets, and differential advantages to generate higher value for its shareholders. But
practically, majority of the firms do not focus on undertaking a thorough deliberation on the process of
Value Creation.

Contents
Overview
Strategy Alignment
Templates

The Corporate Strategy function, as it is actually practiced at most
organizations, rarely performs the required tasks effectively
Limitations in Traditional Corporate Strategy (1 of 3)
The Corporate Strategy process at most organizations typically falls prey to the following
inadequacies:
Excessive Reliance
on Incremental
Changes
Sequential Planning
Siloed Decision
Making
Weak connection to
Value Creation
1 2 3 4
In practice, Corporate Strategy at most organizations fails to deliver as it is not grounded
in a detailed consideration of how the company actually generates value.
Source: Does Your Strategy Need Stretching?, BCG, 2008.

Traditional organizations, overall, have substantially
fragmented business functions working in silos
Excessive
Reliance on
Incremental
Changes
An organization’s typical business model—including existing businesses portfolio and
financial policies—forms as well as restricts the Corporate Strategy process.
Longstanding assumptions are rarely evaluated. The typical Corporate Strategy process
incorporates projecting trends in the current markets at the individual business-unit level
only. The process rarely examines potential standstills in the external environment
affecting the entire organization.
Sequential
Planning
At typical Corporate Strategy function, planning and decision making tend to flow in one
direction only. Once the strategies of the various business units are defined and specific
financial targets are set, those options then determine the parameters of a company’s
financial policies and the communications necessary to communicate and “sell” the
strategy to investors.
Siloed
Decision
Making
Since decision making is sequential at traditional organizations, it ends up being highly
fragmented across different operational and functional silos. Corporate Strategy function
works with business unit management to set business strategies. Corporate finance, in
turn, determines the financial policies, focusing on important but tangential issues as well
as imperative to create shareholder value. Likewise, investor relations is solely
responsible for investor communications. Hence, each business function works in
complete isolation, in its own silo. So instead of an objective fact-based analysis on how
to create value, the result is simply a product of negotiation and legacy thinking.
1
2
3
Excessive
Reliance on
Incremental
Changes
Sequential
Planning
“Siloed”
Decision Making
Weak
connection to
Value Creation

Overall, there is a general disconnect between Corporate Strategy and Value Creation,
with only a few organizations setting explicit objectives of achieving shareholder value for
the Corporate Strategy function. The companies that do this rarely incorporate the
shareholder value generation goal clearly in their planning process, and do not bother
quantifying the potential Total Shareholder Return (TSR) contribution of their business
plans. Hence Value Creation is not an actual driver of strategy development, but rather
an anticipated outcome.
Value Creation must become a more central and
definite part of the Corporate Strategy process
Weak
Connection
to Value
Creation
The traditional approach to Corporate Strategy works only when an organization’s
environment is stable, profits are healthy, and investors are content.
In changing times, this approach is far from adequate. In a BCG study of more than hundred corporate
strategists from large global firms, the respondents criticized the following aspects of their Corporate
Strategy function:
Excellence and depth of strategic thinking in their organizations.
Considered strategic analysis tools to be ineffective in dealing with the ever-changing issues.
Realized the strategy process to be inept, rigid, and counterproductive in steering the organization.
4
Excessive
Reliance on
Incremental
Changes
Sequential
Planning
“Siloed”
Decision Making
Weak
connection to
Value Creation

Contents
Overview
Strategy Alignment
Templates

These challenging times warrant a better approach towards Corporate
Strategy with a specific focus on Value Creation
Traditional Strategy Model – Areas for Improvement
In reality, executive teams do not really focus on Value Creation, as their Corporate
Strategy process does not take into account all the factors affecting TSR.
In today’s challenging business environment, organizations need to incorporate the following
features as essential ingredients of their Corporate Strategy:
There is a common belief amongst most executive teams that they are already committed to
improving investor returns, and some even set targets for improvement in TSR.
1 Make Value Creation an integral part of their Corporate Strategy process.
2
The scope of Corporate Strategy in the company needs to be broadened to
include Business Strategy, financial guidelines, and investors’ priorities and
objectives.
3
Business Strategy, Financial Strategy, and Investor Strategy have to be assessed
concurrently (not serially) by the senior leadership so as to ascertain and reach
consensus on key tradeoffs.

The integrated Corporate Strategy process presents a new, “concurrent”
model that centers around TSR
The integrated Corporate Strategy process is based on the thought leadership of the
Boston Consulting Group.
Comparison of Traditional vs. Integrated Strategy Model
Let’s compare the difference between the traditional Corporate Strategy process vs. an integrated
approach to Corporate Strategy that focuses on Value Creation:
Traditional Corporate Strategy Process Integrated Corporate Strategy Process
Set business strategy
Align financial strategy
“Sell” to investors
TSR
results
Design business
strategy
TSR
goal
Develop
investor
strategy
Formulate
financial
strategy
vs

In our Integrated Strategy Model for Value Creation, there are 3 core
dimensions to evaluate
The 3 dimensions of the integrated Value Creation model for Corporate Strategy exist in
dynamic interaction.
Integrated Strategy Model for Value Creation – 3 Dimensions (1 of 2)
The integrated model of Value Creation, developed by Boston Consulting Group (BCG), incorporates
3 critical dimensions:
Integrated Strategy Model for Value Creation
Design business
strategy
TSR
goal
Develop
investor
strategy
Formulate
financial
strategy
Improvements in fundamental
value, represented by the
discounted value of
future cash flows of a
company’s business based
on its margins, asset
productivity, growth, and cost
of capital.
1
Direct payments to investors
or debt holders in the form of
dividends, share
repurchases, or pay-down of
debt.
3
Improvements
in a company’s
valuation multiple,
driven by investor
expectations that
shape how capital
markets value
a company’s
fundamental
performance at any
point in time.
2

To better understand these dimensions, we need to breakdown
and evaluate the drivers of TSR
Integrated Strategy Model for Value Creation – 3 Dimensions (2 of 2)
It is important for us to understand the linkages and manage the tradeoffs across the drivers
of TSR. The diagram below depicts a breakdown of the drivers to TSR.
EBITDA
margin change
Sales growth
Share
repurchases
Dividend yield
Debt repayment
EBITDA
growth
EBITDA
multiple change
Cash flow
contribution
Capital gain
TSR +
X
X
f
Growth in
fundamental
value
Growth in
valuation
Cash
returned to
investors

The starting point for senior executives could be to begin a dialogue about
the company’s TSR goals
Integrated Strategy Model for Value Creation – Focus on TSR
An organization may improve its fundamental value
through profitable growth, but actually how it goes
about achieving that growth can have either a
positive or a negative impact on its valuation
multiple and on its TSR.
On the other hand, the level of a company’s
multiple, compared to its competitors, can enable
certain business strategies and make others
impossible. For instance, a strong multiple can
make a company’s stock lucrative for acquisition
while a weak multiple can make it vulnerable to
buyout.
In addition, cash payouts also contribute directly to
TSR and can have a positive influence on a
company’s multiple by reinforcing the loyalty of
existing investors and appealing new investors.
To avoid any negative outcomes, our approach should be to make our financial policies and
investors’ goals and priorities a fundamental part of our Corporate Strategy process.
Unless we account for these linkages
and allow executives to manage the
tradeoffs, our Corporate Strategy
process is not focused on Value
Creation. In turn, our executives are
not reaping full advantage of their
value-creation potential, and are
more likely to make decisions that
destroy value, and may even find
themselves vulnerable to pressure
from investors.

Design business
strategy
TSR
goal
Develop
investor
strategy
Formulate
financial
strategy
The 3 dimensions of the Integrated Strategy Model corresponds
to the 3 components of an organization’s Corporate Strategy
Integrated Strategy Model for Value Creation – 3 Components of Strategy (1 of 2)
The 3 main components of the firm’s Corporate Strategy are:
Financial Strategy is based
on various decisions about
aspects—such as capital
structure, dividend policy, tax
strategy—that often seem
distinct.
However a holistic approach
is needed to optimize an
organization’s overall
Financial Strategy. Every
investment option needs to
be considered simultaneously
against alternative utilization
of capital.
Unless senior management
integrates financial policy
deliberations with
considerations of Business
Strategy, managing tradeoffs
is quite challenging.
2
3 Investor Strategy deals with
the expectations and
priorities of dominant
investors of a firm.
It is essential for an
organization’s Corporate
Strategy to be aligned with
investors’ expectations that will
drive the company’s valuation
multiple in relation to
competitors. This initiative
delivers short-term TSR and
has a significant impact on the
company’s long-term Value
Creation.
Business Strategy provides benchmarks on the following:
Company’s historical and expected future value-creation performance.
Gaps between plans and aspirations.
Any needs to consider revisiting the strategy, or to scale back goals.
1

It is important to realize these 3 components are all interdependent
and will affect each other
Integrated Strategy Model for Value Creation – 3 Components of Strategy (2 of 2)
All these components of Corporate Strategy are interdependent and affect each other:
Stark difference in strategic thinking of investors and managers plays a significant role
in the misalignment of Corporate Strategy. Investors expect the company to maintain
current level of returns.
Financial policies and key investors’
goals and priorities have implications on
an organization’s business unit
strategies and vice versa.
The integration of Business Strategy,
Financial Strategy, and Investor Strategy
into a firm’s Corporate Strategy is
crucial and should be treated in parallel.
These strategies significantly influence
the TSR.
Design business
strategy
TSR
goal
Develop
investor
strategy
Formulate
financial
strategyThe content on this page has been partially hidden.

Contents
Overview
Strategy Alignment
Templates

The misalignment of Corporate Strategy is attributed mainly to differences
in management’s thinking and assessment of business opportunities
Misalignment of Corporate Strategy
The misalignment of Corporate Strategy with other prime considerations (e.g. investor, business
and Financial Strategy) is owing to difference in executives’ and investors’ assessment of business
opportunities
Alignment with investors’ priorities does not always mean doing whatever current investors
wish—there’s the option of migrating to new investors who are aligned with the strategy.
Managers typically evaluate the potential of business opportunity incrementally, i.e. earnings per share
(EPS) today, positive Net Present Value (NPV), reasonably assuming future cash flows and potential risks.
However, investors focus not only on EPS and NPV but also on how the initiatives fit in with their view of
the overall TSR profile.
Other typical sources of Corporate Strategy misalignment are:
For any growth initiative that delivers returns above the firm’s cost of capital, if the returns are less than
the average returns being earned by the whole organization, they will erode the average and thus
disappoint the investors. This also results in a reduction in its valuation multiple.
Different expectations of different investors is also a source of Corporate Strategy misalignment.
− Value investors reward increasing the payout of free cash flow over growth.
− Growth-at-reasonable-price (GARP) investors, however, favor stable, low risk EPS growth.
− While growth investors target revenue growth in excess of 15%.

The purpose of an integrated approach to strategy is to accurately take
into account the complex dynamics and tradeoffs shaping Value Creation
Solutions to Align Corporate Strategy
Depending upon the scenario, senior management need to anticipate likely results of their
decisions and plan in advance accordingly.
Unless a firm’s Corporate Strategy aligns with the
priorities of its investors, it will not realize the
value from its strategy.
Educate existing investors and persuade them on
the effectiveness of the current strategy in
meeting their goals.
In some cases, a firm may decide to “take a
swing” at its near-term valuation to pursue a
strategy that will pay off in future.
Top executives who do not consider business,
financial, and investor strategies concurrently miss
out on key interfaces.
When understood in this more dynamic way,
Corporate Strategy clearly becomes a more
complex process with many moving parts, each to
some degree dependent on others.
To make the Integrated Strategy Model
work, a firm needs to take the following
three critical steps:
Start a senior executive dialogue
on Value Creation strategy.
Develop a comprehensive value-
creation fact base.
Align the organization around the
right strategy.
1
2
3

Contents
Overview
Strategy Alignment
Templates

Insert headline
Limitations in Traditional Corporate Strategy – TEMPLATE
Excessive Reliance on
Incremental Changes
Sequential Planning
Siloed Decision
Making
Weak connection to
Value Creation
1 2 3 4
Insert bumper.
• Filler text, filler text, filler
text, filler text
text, filler text
text, filler text
text, filler text
text, filler text
text, filler text
text, filler text
text, filler text
text, filler text
text, filler text
text, filler text
text, filler text

Insert headline
Insert bumper.
Integrated Strategy Model for Value Creation – TEMPLATE
Design business
strategy
TSR
goal
Develop
investor
strategy
Formulate
financial
strategy

Insert headline
Insert bumper.
Integrated Strategy Model for Value Creation – TEMPLATE ALTERNATE
Design business
strategy
TSR
goal
Develop
investor
strategy
Formulate
financial
strategy
1. Design Business Strategy
• Filler text, filler text, filler text, filler
text
text
text
3. Develop Investor Strategy
text
text
text
2. Formulate Financial
Strategy
text, filler text
text, filler text
text, filler text

Insert headline
Insert headline.
Comparison of Traditional vs. Integrated Strategy Model – TEMPLATE
Traditional Corporate Strategy Process Integrated Corporate Strategy Process
Set business strategy
Align financial strategy
“Sell” to investors
TSR
results
Design business
strategy
TSR
goal
Develop
investor
strategy
Formulate
financial
strategy
vs

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1
Flevy (www.flevy.com) is the marketplace
for premium documents. These
documents can range from Business
Frameworks to Financial Models to
PowerPoint Templates.
Flevy was founded under the principle that
companies waste a lot of time and money
recreating the same foundational business
documents. Our vision is for Flevy to
become a comprehensive knowledge base
of business documents. All organizations,
from startups to large enterprises, can use
Flevy— whether it's to jumpstart projects, to
find reference or comparison materials, or
just to learn.
Contact Us
Please contact us with any questions you may have
about our company.
• General Inquiries
support@flevy.com
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press@flevy.com
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