For the past two decades the service sector has been the fastest growing portion of the economy. Service businesses including consultants, contractors, hospitality and professional services are reshaping the business landscape. As many of these fast growing businesses mature, they are now looking to fine tune their business models. And yet, many business leaders either don’t understand or cannot articulate the economic flows that make these businesses tick, the dynamics that keep them cash-positive and ultimately enable them to grow profitably.
A growing chorus of business leaders is questioning the singular notion of maximizing shareholder value. In a recent Forbes article, Jack Welch and Marc Benioff, Chairman and CEO of Salesforce, both label it the “World’s Dumbest Idea”. Neither of these CEOs think shareholder value is unimportant, but without using the label they advocate a more Balanced Leadership approach. Marc Benoiff in an essay in the Huffington Post calls for maximizing stakeholder value while Jack Welch says, “Shareholder value is an outcome—not a strategy.”
This December the world watched the hacking drama at Sony Pictures unfold, and the real world handed us a “disruptive event” we couldn’t have made up. When we use business simulations to teach strategic finance and strategic thinking to senior leaders, we often add a disruptive event to a final round to really challenge the participants’ strategic agility. Of course, one of the concerns with this approach is that it can seem unrealistic to suddenly encounter an unforeseen event with business changing short- and long-term consequences. Even when we do, our clients usually tell us, “Nothing like that could happen here.” Until now!
Who would have thought this would be the year terms like “tax inversion” and “strategic finance” became cocktail party conversation? Thanks to proposed restructurings by Walgreens’ and Burger King, that’s just what’s happening. People are talking. And, they’re realizing the importance of financial strategy and its application. In this case, the tradeoffs were clear and interesting – cost savings versus local presence. Walgreens leaned towards local presence and Burger King towards lower cost structure.