Dynamic Value Drivers
The growth potentials
Viability requires a dynamic state of a company’s organizational performance system and strategic responsiveness of the value drivers. For this purpose, each company has three types of available resources. They are needed not only at a specific time, but they also change during the lifecycle of a company and are therefore called potentials. Companies have Financial, Governance and a Market potential. Viability is not the sole pursuit of value drivers but the dynamic force for achieving them
As a takeaway, it is important to remember that all three potentials are interdependent and that they always change over time. Therefore, you cannot assess viability as the sum of its individual components; it needs to treated as a system.
The governance potential relates to the organization’s structure and relationships (management, individuals, complexity), its processes (patterns of interaction that produce action, including deviance and mistake) and people’s tasks (their technical uncertainty and in-exactitude, the perfect knowledge and interpretive flexibility necessary to go from written procedures to action in context) and how this contributes to adequate responses to solve problems (for example safety incidents or reactivation of assets) that the company faces in order to sustain long term value creation.
The governance potential contributes to the emergence of innovation but also to a culture that supports operational performance and strategic responsiveness of the value drivers. The company’s success and value creation are evident in its financial results but is driven by its business model and governance potential. It also represents the basis of human behavior (human relationships) in a company.
All assets and products progress through a sequence of stages during the life-cycle of a company and are thereby influenced by the market conditions (read supply and demand), the ability of management to promote, distribute, price and class the asset or product accordingly. A diversified asset or product portfolio provides flexibility and increases the potential as a broader variety of customers can be served over time. The allocation of resource for R&D activities together with client loyalty and satisfaction tells if the company can respond to innovative disruptions in the market.
The finance structure needs to be organized in such a way it can deal with changes in its environment. High leverage will make a company less adaptive to change as it will be more difficult to attract capital to grow the business. Therefore, the leverage ratios are an indicator of the robustness of the system. A low leverage ratio will increase the financial parameters within it can respond to changes without the need to attract additional capital in the market. Together with available cash, this provides enough variety, which increases the potential.