New Process for Evaluating and Managing Investments Triples Return for Fortune 100 Company

Situation Analysis:

A multinational Fortune 100 company had an arm that provided equity capital in growing companies. The company’s strategic investments spanned a broad range of industries—from communications, to retail, to financial services. The business unit president, familiar with Decision Quality (DQ), thought DQ might offer a more disciplined approach in what had always been seen as an inherently relationship-focused business. The company already had a rich deal stream, meaning that its ability to quickly recognize and separate the winners from the losers— and to do it again and again, reducing cycle time—could be a competitive advantage. With this objective, the president approached Strategic Decisions Group seeking a more effective approach to screen, evaluate and manage its equity investments.

Discovery & Solutions

SDG worked with the unit president in a three-phased approach, first testing and confirming the value of DQ at the individual investment level. The DQ process helped measure the value of a decision when results were uncertain, exploring the potential impact of alternative decision strategies on individual investments and the portfolio. Eventually, the process was implemented across the entire portfolio, supported by information systems.  Employees underwent a training process to understand how to implement the new approach, which brought consistency to decision-making throughout the organization. By using the new process and tools, the company’s deal teams were able to quantify sources of value in a proposed investment and, equally important, flag landmines that could negatively impact transactions.

Results & Impact:

Over the course of two years, more than 100 investment professionals were trained on how to apply the new decision-making techniques and tools, affecting more than $4 billion of investments. The president observed a cultural transformation in which the organization measured success in terms of contribution to value instead of simply the number of transactions. “By investing in the decision-making capabilities of our people,” the president said, “we achieved significant financial returns through eliminating poor investments, not losing attractive deals, and structuring deals to capture more upside risk and mitigate downside risk.” The DQ program had a concrete result as well: After implementation, the company experienced returns nearly three times the industry average IRR.