Value cycle dynamics™ (VCD)
Value cycle dynamics™ (VCD) is a coherent process for developing "joined-up" strategy, applying simulation to test the risk/reward implications of potential investment and operational strategies - across whole organisations and over time.
VCD provides a physical, resource-based picture of strategy, supplemented by sound financial analysis and balanced performance metrics.
The need for strategy alignment
In many industries, established companies face real difficulties in balancing investments to produce future growth and shareholder value. Many face the conundrum of having to protect existing market positions with deteriorating asset bases that require constant replacement.
In utility industries (e.g. water, electricity, gas, telecoms) markets are progressively competitive (or regulated) and creating new growth and value is challenging for established companies and new entrants alike.
Likewise, pharmaceutical and chemical companies also face new growth challenges. New products must constantly replace the revenues lost as existing product patents expire – yet R&D costs, risks and times to market are all rising - and health markets are increasingly resistant to high drug costs.
In oil and gas, real growth is history. Against the real background of diminishing resources and growing pressure for energy conservation, energy companies can only grow by capturing market share through ever-improving efficiencies.
In all industries, companies must balance their investment decisions with competitive market dynamics across complex organisational structures and over short and long term time horizons. Investments in R&D, production capacity, distribution, sales capacity etc., must all be planned in harmony to deliver growth and to create long-term value. Imbalanced investment strategies destroy value, notwithstanding the evident attractiveness of individual projects.
Managers, however, must be judged and rewarded on the basis of short term performance. It is a fact that managers rarely stay in place for more than 2-5 years.
This reality sits uncomfortably in a world in which investment returns must often be measured over decades.
Dynamic versus static alignment
Strategy alignment demands a dynamic (time-based) approach. Static scorecard approaches are invaluable to communicate strategy and to align short-term thinking, but can never deliver the insights necessary to understand and address temporal imbalances in investment strategies.
How VCD supports strategy alignment
To help address such issues, value cycle dynamics™ supplements scorecard approaches by integrating valuation methods to provide a global performance measure; and with simulation - the only means by which complex strategy interdependencies can be assessed.
VCD is a unique, simulation-based strategy method that supports “risk-free” testing of alternative investment strategies - helping to balance investments and operations across the whole organisation and over time.
VCD is transparent and logical, teasing out strategy inconsistencies and flagging potential side effects. Simulations are constructed with full involvement of the senior management team and therefore represent the best knowledge and thinking of the organisation as a whole.
ValueSims™
ValueSims™ are simulation tools that incorporate, or link to, financial and value-based analytics, combining the resource-based power of system dynamics and the financial rigour of valuation. ValueSims™ may also incorporate sophisticated scorecards that track performance over time in terms of relevant business metrics, that lead financial performance.
In short, VCD provides a means to balance short-term and long-term strategy and performance - simply and convincingly.
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