The Four Strategic Business Value Drivers All Leaders Should Know

15 December 2021

A clear shared understanding of the key drivers of business success is immensely important across any company. Leaders should be able to articulate what it takes for their business to thrive in all market conditions, and how these factors will affect profitability and shareholder value. 

But what are the four key business value drivers? Which practices drive the value of businesses effectively? Keep reading to learn more.

What Are Business Value Drivers?

The business value drivers of a company are its primary profit generators. They provide a window into the company’s competitive advantages and core competencies, which in turn determine the nature of the product or service it provides for its customers.

Business value drivers are variables that boost the worth of a service, product, company or asset. For products, these drivers of value usually position companies with a distinct and unique capability or offering, making them a must-have for clients and customers. For businesses, economies of scale, skilled personnel and employees, and a loyal and well-nourished client base could all be drivers of worth in your organisation.

Leaders need to understand their company’s business value drivers because they drive long-term corporate strategy. In fact, several of these drivers can be leveraged to create a sustainable growth strategy and gain competitive advantage. Four key strategic value drivers of a business can include:

  • Revenue Growth
  • Margin Expansion
  • Product/Service Innovation
  • Operational Efficiency

Related Reading: 7 Ways To Increase the Value of Your Business

Identifying Key Business Value Drivers

Each company will have its own unique mix of these value drivers, but most will have one or two that are more important than the others. Identifying your individual key value drivers is a vital step for any organisation.

Start by looking at your company’s financial statements, KPIs and OKRs. Which metrics drive the most value for your business? For example, if you’re a retailer, revenue growth and margin expansion are likely to be more important than product innovation or operational efficiency.

Business value driver analysis can be a powerful tool for identifying your key value drivers and directing management attention to activities and practices that have the greatest impact on value. 

These key analysis practices may help managers ensure that strategies and decision-making are in line with the company’s true drivers of value. This helps to minimise issues caused by investing in the wrong areas of your business and ensures that your efforts are focused in the most effective places.

What Are Four Strategic Value Drivers of a Business?

1) Revenue Growth

Revenue growth is one of the most common business value drivers, as it can increase share price, size and market valuation – all key performance indicators used by investors to identify investment opportunities.

Growth in revenue shows whether customers are satisfied with a product or service and if it adequately meets their needs. Sustained growth demonstrates that customers find your services or products unique and compelling compared to competitors’ offerings.

There are many ways to generate revenue growth, including new product development, geographic diversification or acquiring complementary businesses.

2) Margin Expansion

The second most important strategic value driver for businesses is margin expansion – the overall rise in operational profitability, or increase in the rate of profit made. Measuring margin change allows managers to detect increases or decreases in pricing power, cost of doing business and market share over time. If your gross profits are growing at a higher rate than your total costs, you may be able to expand your operating margins.

Operating margins also depend on the value driver of product/service innovation. If a business invests in this area, it may be able to boost its gross profits and revenue growth simultaneously.

3) Product/Service Innovation

Product or service innovation is one of the most crucial strategic value drivers for organisations, as it allows them to differentiate from competitors and capture market share. In order to achieve sustainable revenue growth, businesses must continually introduce new products or services that are appealing to customers.

Product innovation can be achieved through Research and Development (R&D) or by acquiring new businesses with innovative offerings. It’s also important to keep in mind that not all innovations are successful – many products or services launched or planned ineffectively can fail. This is why it’s important for businesses to have a strong innovation process in place to evaluate and select new ideas.

4) Operational Efficiency

The fourth key strategic value driver is operational efficiency, which is the ability to run a business at lower costs than competitors. This can be done by improving labour productivity, reducing waste or implementing cost-effective processes.

When operational efficiency is combined with revenue growth and margin expansion, it can create a virtuous circle that drives profitability and increases shareholder value over time.

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Understanding Business Value Drivers

Each of these four strategic value drivers can be essential for businesses to achieve long-term success. By understanding and focusing on these areas, organisations can create long-term value for their shareholders.

Of course, each business will have a unique set of opportunities and risk factors that influence its value drivers. Mature businesses with little room to grow by increasing revenues or margins may need to focus on operational improvements instead.

Understanding the strategic value drivers driving profit growth in your industry is a valuable tool for management. It not only helps managers prioritise activities and direct resources to where they will be most beneficial, but also provides investors and other stakeholders with key information on the health of a company.

Strategic value drivers help managers prioritise activities and direct resources to where they will be most beneficial. Why not get started today?

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