Our client, a group of companies headquartered in Trinidad and Tobago in the manufacturing industry. The group, considered a large entity in the region, is engaged in the manufacturing and distribution of more than 20 brands, present in a dozen countries worldwide and growing, the shareholders recognized that long term value orientation and ownership mentality was missing.
The shareholders of the company wanted to clearly define and understand value creation as well as link company performance to the practical application of a management control system for measuring performance and incentive compensation.
Specifically, to replace traditional measures used for financial reporting, financial planning, investment decision making and management control and develop a complete measure of firm performance. In short, to address the problems that are associated with short term decision making and therefore solve the agency problem between managers and shareholders.
We recommended that the group of companies adopt the use of Economic Value Added (EVA)as a method for calculating financial performance as a key indicator for value creation and implement an associated management system to achieve desired results. Economic Value Added (EVA) attempts to understand whether a business creates sufficient surplus to cover the cost of its capital and to fulfill the shareholders expectation of value creation. The concept of EVA is better than that of the concept of accounting profit as a tool for understanding value creation because it considers the overall cost of capital.
After an in-depth financial review and analysis which we assisted with, initial results indicated that the company was destroying value for shareholders (EVA negative). An action plan was created to course correct these results by focusing executives and managers on value creation and the associated drivers the team needed to focus on to create shareholder value. In addition, several workshops and training sessions were conducted to align executives, managers and employees with this ownership mindset.
As a result of these efforts, the company has outperformed similar companies in the industry since implementation and is cementing its leadership as a global exporter since the management system was implemented.
Significantly, the company was able to overcome the poor results of focusing on accounting profit and create economic profit (EVA positive), even amidst the turbulent and uncertain COVID-19 pandemic environment.
The initiatives implemented went far beyond understanding and awareness-raising for all stakeholders, it brought the practical actions and measures needed to improve the corporate results of the company, but also – and perhaps more significantly – align the leadership team with an owner’s mentality orientation that is required to ensure that the long term viability of the company was secured.
Here is a testimonial from our client that attests to our results.
“EVA was very valuable for us and is such an important strategy for my business and is a very important part of my operations.”
From our EVA implementation projects, we help companies develop a robust and holistic management system. We show them how to have a fresh look at their business and how to link tangible results to executive and management compensation. We offer to do this at a reasonable cost and by undertaking such projects, we transform how leaders’ and managers’ think about and achieve shareholder value which is sustainable.