Value creation is often the primary focus in the investment world, where the goal is to paint a picture of prosperity and success for portfolio companies. However, in this pursuit, we often overlook the other side of the coin – value destruction. The term is not commonly used in everyday conversations, but it is real and happening everywhere.
Enter Value Destruction.
Regardless of its size or reputation, every company goes through challenging phases. These phases can be characterized by errors, misjudgments, and unforeseen obstacles, leading to erosion of value.
And many mature firms suffer from chronic issues that slowly erode value.
Consider the following scenarios, most of which are chronic long-term issues that contribute to significant value destruction:
- Failed Digital Transformation: There are many stories of digital projects failing and the tech’s lack of adoption or unsuitability for the business.
- Disengaged Teams: A dispassionate team is a dormant one. Without drive, innovation withers, and productivity stagnates.
- Cyber Security Issues: In an age where data is the new gold, a breach is the obvious concern. The reputational and financial ramifications can be staggering.
- Tech Debt: It’s the silent killer. Like a corrosive rust, it steadily eats into the fabric of an organization, hindering agility and responsiveness.
- Maintenance Ratio Too High: When too much is spent merely keeping the lights on, there’s scant left for pioneering or innovation.
- Poor Leadership Leading to Inept Tech Delivery: Technology is as good as the hands that wield it. Inept leadership can misdirect, mismanage, and miss opportunities.
For investors and CXOs, it’s important to be vigilant and watch potential sources of value destruction.
While it’s undoubtedly magnetic to focus on value creation, a holistic approach to portfolio management must account for both creation and potential destruction.
It is essential to not just build but also safeguard. In our pursuit of the next big leap, we must ensure that we’re not unwittingly taking two steps back.
In our pursuit of the next leap, let’s ensure we’re not unwittingly taking two steps back.
