OUR THINKING

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Our research and analysis throws out some interesting insights which help us formulate our opinions. To help our clients we make these insights and opinions freely available on this site, For those clients interested in attaining a deeper understanding of our analysis we offer our analysis as subscriber reports. These can be independently commissioned, or customised and  tailored as subscriber reports whichever best suits meets your needs. 
In business as in life I believe that great things can be achieved by adopting a simple 4 step model. Note I said simple, not easy. There are many ways to describe this but I would express it something like the following:
  • Transformation - Delivering your strategy will not be strategic. Rather it will be operational, functional, hands on and practical. It will require a sponsor or change leader. This person will want to follow a plan, not a strategic plan but a road map, detailing how to go from a to b. A road map or target operating model essentially brakes the strategic plan into action based strategies or executable projects. Most strategies such as M&A or other Transformations fail precisely because this area is weak, so pay attention to how as well as what. The why should be obvious.
  • Governance - Ben Franklin once quoted that to leave your manager without supervision is to leave ones purse open to the public! Governance has clearly failed spectacularly in recent years. We're seeing the void filled with the challenger banks and the growth in the activist investor as a class. It is still unclear as to whether these changes will improve the overall respective alignment of interests and shareholder value value add.
So there it is, short and sweet. I do wish you luck in your endeavour, If you are curious as to how we apply this thinking to projects, consider reading the expanded narrative below below:
Our Thinking
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EXPLORE THE THINKING A LITTLE MORE?

Below I've illustrated some of the practical tools and assets I bring to bare in executing the Bigham Consulting approach.
Our assessment process is diagnostic, in that it is thorough combining both detailed interviews and data gathering. It is designed to identify the core business driver causal relationships critical to the business being considered at both process and activity levels. We take an initial hypothesis and develop it into a fact based platform for strategy formulation.

Performance Benchmarking

Human Capital Analysis

Process Analysis
Performance Benchmarking - This involves first preparing a detailed financial performance assessment based on both people and process analysis. operational analysis initially and then overlays the results as a best fit to selected peer group. It's not always possible to match to peers precisely however it does have the value of providing a performance gauge that can be used to back up strategic planning. To better understand this process you should read the Peers, and Performance section of the client services pages.
Human Capital Analysis - is a practical assessment based on interviews and activity based analysis. It is based on applied organisational psychology in that the assessment are tailored to produce a balanced assessment. It examines such things as personal style, capability maturity analysis and motivation. This approach differs somewhat from the theorists such as Abraham Maslow who considered money for example to be a hygiene factor rather than a true motivator, yet we know that ego is a motivator, and most well paid managers who perhaps don't need the money, still use it as a scorecard, so it is motivational precisely because of this. To learn more about Human Capital Analysis click here...
Process Analysis - To synthesise a good plan, it is best to analyse the process. Improved returns are are function of many parts. the better the analysis the better the plan, the more likely it will be executable. Iv'e seen more haughty plans go nowhere because they were produced in haste by eager MBAs looking to cut deals with little or no regard for the consequences of implementing them profitably. Most deals that are manufactured destroy value, this is not what any executive wishes to hear, yet it is true and well supported by all the largest studies, from McKinsey and Accenture down.  You can learn more about our process analysis by clicking here...
We all know that "Blue Sky" strategies tend to lead nowhere, which is why we prefer the tangible measurable type. We systematically dismantle the fundamental economic drivers of Return on Equity (ROE), Economic Profit (EP) and Shareholder Value Creation, into a tangible suite of performance metrics that can logically be applied in a systematic fashion to centres of accountability or core operating units that comprise any business. This adaptation, which marries top down strategy with bottom up strategic assessment, amplifies the positive communication signals being communicated by top management. By default winning the critical buy in of key internal stakeholders. This buy in, naturally manifests in a critical success belief in, and desire to, facilitate impending change in a positive motivational manner that ultimately leads to success in the shortest possible time frame. Eliminating the ambiguity and fear that which often accompanies transformational change processes creates a clear and structured road map for transformation and change leadership...

Transformation & Change Leadership

M&S post merger integration failures are as notorious as many of the CEOs that have attempted them, yet the lure of value capture pervades. It is perhaps unfortunate that many deals fail to deliver the promised returns not because they dont exist, but rather as a failue of execution. We believe research backs this up and we also believe that such risks can be mitigated through better design and thoughtfulness surrounding the development of change programmes. I have been called into to many banks, after a project is signed off, only to discover there is little or no plan that bears any relationship whatsoever to the deal metrics, which might at first glance appear to be complete works of fiction to any operational partners challenged with having to get to grips with a transformation. 
ROE and Economic Profit
Funding Structure
This is why my preferred approach is to at least tenuously make an attempt at building up the change programme using separately crafted blocks of change, and associated value proposition input. There are approximately only 10 business units that comprise the operating model of almost any business. Each unit is logically accountable for a mere handful of accountabilities, we shall call them functional objectives. Each output comprises a set of processes and activities and can be assigned cost, income and capital allocations. There are a variety of approaches to engineer this however each process can in turn be subject to about 7 transformation filters, that when aggregated (10 departments, 5 accountabilities and 7 process filter ) amounts to some 350 Strategies for adding value. We can attribute each change lever with a key performance metric, that forms the underlying driver of ROE, EP and SHA. This mechanically designing a change strategy that logically delivers the required returns. By taking this approach the execution challenge can be addressed at the project sign off level. Each proposed change making up the combined strategy being subject to sign off before releasing budget. I have seem many budgets squandered by zealous teams of IT managers and change leaders burning cash whilst finding their feet. So quantification of defined objectives must surely must go a long way to achieving strategic and operational transformation success.
We believe that opportunities can show up in many places, and for this reason we adopt a two prolonged approach to sourcing deal flow. 1. We used a systematic market screening approach that examines listed securities and global banks. this enabled a programmable approach to search that is faster than humanly possible and automatically removes 98% of time wasters. 

Portfolio Company Governance

It's not uncommon for portfolio companies to produce detailed management accounts and reports that bear little resemblence to the underlying economic drivers of performance. We solve this problem by designing clear and simple dashboards that link the drivers of performance to your srategic goal using expertly designed ROE targeted KPI's.
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Balanced Scorecard Design and KPI customisation

Explaining the thought process

To expand and illustrate the tools and approach a little more we can discuss each stage in a little detail.

Let's start by considering a simple hypothesis

To help explain our approach, let's consider the hypothesis that greater returns only come if increased risk is taken. If this holds true then "shareholder value add" as a concept might not really be possible.

Then illustrate stock returns over time...

We illustrate below that over time, a measures of variability in returns, which we will use to represent risk, is greater for higher returning stocks than others.

And again using real data

Observe the red line below, as the slope of the line increases, and so improving returns, the variability increases also, as measured in blue.
If the above is indeed true a business should be able to visualise returns on a simple graph as a portfolio. We can see that increased returns require increased risk. Thus on a Risk Adjusted basis there is no gain, i.e. risk return ratio as almost always equal to 1.

Graphing Returns relative to Risk

But What If?

Shareholder Value Add

If we could find, or manufacture in some way, returns greater than risk, the odds, or probability of returns exceed 1. A notion referred to as Alpha. Many believe that it is not possible to achieve alpha returns, yet many business leaders and investors to achieve alpha returns on their investment and business holdings, so they must be doing something right.
To do this we need to use some measure for Return and Some for Risk.
We'll tackle this below.
In order for us to create shareholder value add or to add shareholder value, which we will define as Alpha returns, we must Risk Adjust returns.

Splitting RAROC into two manageable elements

Risk Adjusted Returns are presented here as RAROC Risk adjusted return on capital. I've chosen to break this into ROE and EP ROE or Return on Equity measure the profit after tax from a business relative to equity and can be subdivided into a number of drivers. Risk I measured using Economic Capital, this is a measure of Market risk, credit risk and operational risk. Economic Profit is risk adjusted profit and represents the minimum return a shareholder is willing to accept for the opportunity foregone a sort of break-even return.

Examining the drivers behind return on equity

To understand how we might tackle the job of improving returns it is worthwhile examining the economic drivers of return. Doing so provides a good platform for development of strategies that will improve the metric.

Linking ROE drivers to Financial Statements

So having agreed the drivers of Returns we must relate these to the financial statements. This is important as we can now understand why the ROE is what it is. It is not a single numbers it is a relationship between 5 drivers that can be improved only if you focuss separately on each. So we will do that.
  • Reserve Requirements - Understanding the cost of holding assets in cash
  • Asset Utilisation Ratio - The efficiency of earning generating assets
  • Liquidity Coverage Ratio - The ability to convert assets to cash at short notice
  • The marked value of assets - The discipline of recognising the market price
Our assessments are multi faceted, interrelated models that comprise, Peer Group Analysis, Operating Model Analysis, Value Based Financial and Human Capital analysis. These criterion are effective in identifying driver based value propositions that are often times buried deep within the heads of key operational staff, the loss of which puts your investment returns at risk.