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Prakhar SharmaTop Contributor
Social media marketer, Content Writer

In order to codify their alignment, the owners of a company should draft an Owner Strategy Statement, which not only articulates their goals and guardrails, but the rationale behind them.

The statement should be as specific as possible. The acid test is: does it help the company make decisions that require tradeoffs? For example, one business we know set a 15% return on invested capital (ROIC) target for its retained earnings. During the time that the market was expanding, they reinvested almost all of the profits back into the business. As the market matured, they began to reduce investment and increase distributions to shareholders.

A good Owner Strategy Statement should be the basis of a dialogue between the owners and board/management, as there are times when an owner strategy may require adjustment to fit with business realities. It also should be a living document, revisited whenever there are meaningful changes to the internal or external environment. Lastly, it should be translated into a dashboard that identifies the metrics and targets the owners can use to measure success, which they should review on a regular basis.