When you learn how to analyze a company for investment, one of the first things you look at is the financial statements including:
- the income statement which tells you how profitable a company is for a duration of time (typically a month, quarter, or year) and…
- the balance sheet which is a representation of the assets, liabilities, and net worth at a selected point in time. It shows how a company has secured capital, used it, and how much value it has created in the process. It’s like a medical report and can be used to diagnose problems… and finally…
- the cash flow report which uses information from both these statements. It cuts through the BS and tells it like it is— did the company generate cash or not?
Financial statements unfortunately can be hard to get a hold of— private companies don’t give those out just because you ask them. And just because you have financial statements doesn’t mean that they are accurate and compiled correctly. More importantly, the information in financial statements is historical and of limited value in being able to predict the future of the company. In other words it’s a lagging indicator. What we need is a leading measure or indication of success and value generation.
That’s where the icubeTM framework comes into play.
When we look at a company, an organization or a team, what we see generally, is how it works. Does it play well? Are the team members working well together? Is work being done efficiently and with high quality? Are customers being served well and are they satisfied? In other words we are seeing the execution of the company or what we call “Intensity” in icubeTM. The financial statements put execution in terms of numbers and tells us How the company is doing.
But execution isn’t automatic. Excellent execution only results when there is a well thought out and time-tested strategy that works. A compelling and validated strategy clearly identifies a constituent or customer, a clear understanding of what they need and their drivers, a service or product that meets those needs for a reasonable cost, a team that can deliver the product or service, infrastructure and processes that facilitate the delivery, and a set of objective measures to know if the strategy is working and if it needs fine-tuning. The strategy is what the company does and referred to as “Intelligence” in icubeTM.
Strategies however are the external reflection of a deeper source within the organization. Strategies may need to be changed if external conditions change. And when that happens only companies that are guided by a clearly defined purpose are able to do so effectively. The purpose which guides the vision and mission of the team, and its values help foster trust at all levels of the team, enables its members to understand Who they are, and form its culture or, in icubeTM terms, “Inspiration”.
So while financial information shows us the execution of the organization and how it has already performed, we need insight into its strategy and culture to get a handle on how it will perform in the future. Only companies and teams that strengthen all three rings of Inspiration, Intelligence, and Intensity can continue to reinvent themselves, adapt to external situations, and generate value for their stakeholders and investors.