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Many managers spend time looking into sales, growth, and investor returns trying to benchmark the performance and valuate their companies. In doing this they look to increase performance on one or more of the mentioned factors to generate more returns to shareholders, or generate even higher incomes for the company. But what problems do these managers face in approaching corporate strategy this way?

Some of the popular measures include comparing the net income with the equity of the company, or comparing the net income the total amount of assets in the company. The problem in this method is that measuring net income relies on the way in which the company chose to do so. For example there are different ways of calculating costs of sold goods, calculating R&D expenditures or calculating the acquisition of a new company to name a couple. On top of this, these measurements do not take in account the ‘time factor’, which can give managers misleading results from which they will have to take decisions on future corporate strategy.

If we want to take a closer look on how well the company is performing, we will need a measurement that can give us a more precise idea about this issue. The answer to the question is looking into how the company is creating (or destroying) value, and/or adding value to its operations. This, among many names, is known as Economic Value Added, or EVA, as the consultants Stern & Stewart named it.

With EVA we have a measurement that tells us something about how well a given company is performing, and the measurement can be used to plan corporate strategy to create positive long-term results.

Doing this we need to look into some basic factors. The idea is comparing the invested capital with the returns on invested capital (ROIC) and the waged average cost of capital (WACC). To put it simple we want to make sure that we are getting more returns from our invested capital (ROIC), than we are paying for the capital (WACC). To make sure that the company’s operations give us a positive result, the ROIC also has to be superior to zero. This means that the optimal result would look like this:

This example would generate economic profit, as well as generate long-term value for the company and enhance its competitive edge. In an investor perspective, this would be a good investing, as this company is focusing on the generation of long-term value and not trying to short operations to make the balance sheet look even better.

This was a very short introduction on how to change your mindset into the Value Based one. In the next couple of weeks I will explain how to calculate these numbers, how to make forecasts and thereby optimizing business operations.

Yahoo! stocks have been dropping to under $20 pr share during the last year, and the $31 pr share offer seemed reasonable thinking about Yahoo!’s market position. As a portal and email service, the company might have a good share of loyal visitors, but in the online marketing and search engine divisions they are way behind market leader Google. There is no signs, and not even a statement from the board of Yahoo! directors, stating that the company has a reasonable strategy in gaining market shares in these new and highly growing markets, even though they probably want to make us think so in rejecting the offer. In saying that Microsoft is undervaluing the Sunnyvale-based company, the very same board of directors might be overvaluing their own business.

It is possible that the negative response is a strategic attempt to gain massive PR, trying to force Microsoft into making an even higher offer, which would please Yahoo! shareholders. The problem is that Microsoft stocks have been dropping down since the offer was announced, and a higher offer is bound to make their stocks fall even more.

Now Microsoft can do the following. They can withdraw their original offer, which will probably send Yahoo! stocks down to or below it’s original level around $20 pr share. There has been several speculations on other interested buyers, or even strategic alliances. In the latter Google has been mentioned as a possible alliance, but it seems very unlikely that this would be granted during to the two companies positions in the online marketing business. The other option is that Microsoft tries a hostile takeover, going straight for the Yahoo! shareholders. And third and last, the company could simply raise their offer to please Yahoo!’s board of directors.

We can only wait and see what will happen in this case, but the future behavior of the companies will be interesting to follow. Obviously Microsoft wants a piece of the online marketing pie, but for what price? And how far are they willing to see their shares drop before the final offer really doesn’t give the company any increase in economic value?

In a decade of years we might be able to travel from Europe to Australia in less than 5 hours. That’s the plan of the company Reaction Engines on their new type of airplane.

According to CEO of Reaction Engines, Alan Bond, the big problem with the now retired Concorde flight, was that it wasn’t designed for flying at low speeds. This generated a shock-wave kind of reaction when the plane took of, and may have been the cause of the fatal accident that lead to the total suspension of the Concorde flights.

With their new project, A2, the company are looking into the solution of this problem. At low speeds the plane will be able to take off and leave the airports without engine problems, and as soon as the plane gets out to the sea, they will be able to increase the speed up to mach5, or 5 times the speed of sound.

The plane will have a 300 seat capacity, and instead of using regular fuel, the plane will be using nitrogen, that doesn’t pollute the environment with CO2.

Any which way we will probably not see this plane in the air the next 20 years, as the development is still in progress. The project is partly funded by the European Space Agency.

Read more about the plane and see more photos here

It’s not any news that the computer business is one of the fastest changing industries in the world. Companies get big fast because of ‘investor love’, and of course from time to time some way to positive analysis leading to insane IPO’s. These giving new companies a cash flow boost that many other industries can only dream of.

When Yahoo! started back in the days they had a dream start with a extremely good IPO making the young Stanford founders, rich guys. But Yahoo! delivered. The company grew fast and got a good portion of the search, email and page traffic. Yahoo! became a brand, and one of the first really established online brands. With recent Microsoft buying offer the question is if Yahoo! can really continue delivering, or if they will suffer from the common tendency where established companies start loosing their competitive edge, the competition gets more tough, and as a result the growth slows down in these companies. Maybe this already happened to Yahoo!. The company has not been delivering the expected results and the stock dropped more than 10% only some weeks ago. Maybe founder and current CEO Jerry Yang has not been able to keep up with the new trends, or maybe the competition has simply grown too strong for Yahoo! that currently has roughly 14.300 employees.

When the big social networking wave started rolling, Yahoo! tried to get on it. Their “360″ flopped massively and the company failed to get into this big growth market. Maybe the same flop is what Yahoo! is facing? I mean when did you hear “Do you Yahoo!?” the last time? I guess you more recently heard the phrase “Google it”.

So what is going to happen? Of this we can only guess so far, but one thing is certain. Google is a big an innovative player in both the search, and online marketing business, and there is no indications that this will change. With Google’s great dominance in both, Yahoo! is forced to look into new ways of re-launching their brand, and the question is if this race is already lost. Microsoft just announced their 0ffer for a possible hostile takeover, and it’s going to be very interesting to see if an acquisition can help boost both these companies. Buying Yahoo! will give Microsoft a better share in the online marketing, but who knows if this will just force Google to be even more innovative. New speculations include a possible Google/Yahoo! merger, but this deal is very unlikely to be approved because of these companies current positions in online marketing.

I guess the next couple of months will give us the answers to all these questions. In the meantime Yahoo! is analyzing the offer, while Microsoft is waiting, but let’s hope they don’t forget all about the innovative edge that once made these companies big.

In this example advertising agency RAPP Collins in Australia did a brilliant campaign for Discovery Channel on their special show; Shark Week. The idea was to create a hype by putting out surfboards with shark bites, on different beaches in Australia. The guys put the advertisement on the flip side of the boards and waited to see the reactions.

Source: I believe in advertising

It should be the most logic thing that execution is the final part of every planning phase, and should be part of any companies duties, but sometimes this causes problems. Co-workers don’t do what they said they would, and projects get delayed. At the same time loads of good ideas and initiatives will never see the light of day if the execution fails.

Professor Sull has three good methods for how a manager can be pro-active in this process, and thereby avoid any problems that failure of execution could bring:

1. The basic use of force
This would apply if the leader simply and explicitly tells employees that they will be fired if they do not do as told. As Professor Sull concludes, this method can be effective, but it has a backside. All decision-making slows down as no one wants to take decisions without asking the management, and it can simply kill creativity, as employees don’t feel save to express themselves.

2. Making the work process more streamlined
This method could involve well-known control systems like the Six Sigma or Lean Management, and as Professor Sull describes it, this can be very effective if the company has a lot of functions with routine based operations. At the same time he points out that these systems do not work very well in innovative companies with new tasks requiring new solutions. As he explains the use of streamlined processes can kill creativity.

So what solution does Professor Sull suggest? This would be the third method called Promise-Based Management.

3. Promise-Based Management
According to the Professor this method is still on its way up, and many people might already be using it, without really thinking about it.

It’s about understanding the organization, and that this contains more than processes and an organizational diagram. The dynamic parts of the organization are what really matters. How employees make agreements within the company, regarding the organizational hierarchy. This way all these dynamic agreements tie the organization together, and Professor Sull suggests that optimizing these agreements and how they are made, can make the execution work better.

Sull has been researching in the Promise-Based Management for years, being at meeting in companies, watching how people commit to agreements. Afterwards he has been tracking the progress, sending out questionnaires to the very same people asking how it worked out, and if they trust each other. At the same time he is also involved with a software company that can track the progress to make data collection easier.

Together with consultant Charles Spinosa, Professor Sull has been working on a new way of making agreements. Their main conclusion is that the dialog is of extreme importance, and that all parts have to agree on what has to be done. This can be very complicated, and as the Professor explains in his paper, sometimes people don’t understand each other at all.

So how can you avoid this? These are Professor Sull’s suggestions to making an agreement:

- It’s public
- It’s active
- It’s voluntary
- It’s clear
- And it’s important for the company

Public simply means, that everyone knows what’s going on. By active he refers to having the plan ready (activated) before starting to hand out the tasks. Sometimes managers get busy handing out tasks without discussing the tasks thoroughly with the employees. According to Professor Sull making the agreement voluntary helps motivating the employee. It’s like the personal drive, that could be lost if someone is forced to so a specific task. Having a clear agreement supports this, because by talking things through the employee will know exactly what it is about, and have the opportunity to react if there are some problems – before doing the task! The last point is doing something important for the company. This can help employees get a special drive as well, as this will make them feel part of something important. If a company succeeds it will automatically receive a positive response, and get a more smooth execution process.

Combining personal drive, freedom to talk and act, and involving employees in the talks can simply create a strong positive effect in the organization.

Buy the full article here or visit London Business School’s podcast site with podcasts from Professor Sull

Rob Small is one of the founders of the gamesite Miniclip, and managed to get through the tough dotcom bubble, and maintain the company successful after the bubble collapsed.

Today the company is the second largest privately owned website in the world after the community page facebook, with more than 36 million users.

Read the full story HERE

It’s updated weekly with new interesting questions, and definitely a good source for inspiration. With lengths between 7 to 12 minutes, it’s also a very easy way to get updated and inspired.

Enjoy ->> BusinessWeek – The Welch way

The positive thing is staying connected and reachable everywhere in the world, which for frequent travelers can be brilliant, but be careful on how you use this instrument, so you don’t end up getting used by it.

Imagine a night home with the family. You just cooked a good dinner, and you are ready to watch a movie and relax without worries about anything outside of the room. Your phone ‘plings’ with the well-known new mail tone, and as a normal reaction you just check to see what it’s about, and who is writing you. Imagine if it’s a company email stating that something crazy happened. Maybe your companies stocks dropped 50% during the afternoon and there will be a crisis meeting the following day where people are suggested to come prepared. What do you do? What to choose; Job or family?

Obviously the example is extreme, and most people would never receive this type of email. But think about the side effects of you ‘always being connected’. A study from MIT Sloan School of Management in 2006 concluded that stress can be a natural side effect of not turning off your smartphone when not working. What is interesting in their report is that top management regularly causes the problem. If everyone in the organization has on, and senior managers establish a pattern of continuous connection, subordinates mostly get used to this and follow the pattern. I’ve spoken to several people who confirmed this tendency, even though some people seem to be able to handle the stress a lot better than others.

Tips from the authors of the study include prioritizing your incoming emails, so you don’t get a habit to answer straight away on any email. This could be categorizing your email in ‘important’ or ‘no response needed’, or simply deleting emails that don’t require a response, so that you get your inbox stuffed with old messages. Having a company policy about Blackberry hours, and even prohibiting use during meetings can also be a way to teach people not to use them 24/7, so they don’t get too connected, and in worst case too stressed.

Read the article at MIT Sloan