characteristics of value creating strategies and … · this material includes material developed...

CHARACTERISTICS OF VALUE CREATINGSTRATEGIES AND BUSINESS MODELS

Lars Terney & Bent Dyhre Hansen

Copenhagen, May 30th, 2006

The Boston Consulting GroupThe Boston Consulting Group

INTRODUCTION

This material includes material developed by The Boston Consulting Group for a presentation with Finansanalytikerforeningen on Tuesday, May 30th, 2006 in Copenhagen

The material is incomplete without accompanying oral comments. As such, it is most meaningful to those who participated in the meeting.

For further information please contact:

The Boston Consulting GroupAmaliegade 151256 Copenhagen KPhone: +45 77 32 34 00

Bent Dyhre Hansen can also be contacted directly at +45 77 32 34 15 or at [email protected]

- 1 -43860-00_BDH-kth_30May06_Cph.ppt Copyright © 2006 by The Boston Consulting Group. All rights reserved.

mailto:[email protected]

THREE OBJECTIVES TODAY

1. Put value creation in Danish companies in a long term and international perspective

2. Give our perspective on what characterizes value creating strategies and business models

3. Facilitate an open discussion on how to “test” strategies and business models


WHO IS HERE TODAY

The Boston Consulting Group (BCG) Lars Terney Bent Dyhre Hansen


Founded in 1963

>3,000 consultants in 61 offices in 37 countries

Work with clients on topics of strategy and operational effectiveness

Office in Denmark since 1998

• Today 35 employees• Part of Nordic system

with 170 employees

• Vice President& Director

• With BCGsince 1995

• ManagingDirector

• With BCGsince 1994

• Cand. merc., ASB

• Works with strategy, M&A, post merger integration, organization and pricing

• HA from OdenseUniversity, MBA from Kellogg

• Works with corporate strategy, strategy, efficiency improvement, organization and innovation

DENMARK HAS BEEN A TOP PERFORMER ON VALUE CREATION LAST TEN YEARS

10y Annual TSR Growth 5y Annual TSR Growth 1y Annual TSR Growth

0

5

10

15

20

25

30

Net

herla

nds

UK

Ger

man

yU

SA

sia

Nor

way

Euro

pe n

ewSw

eden

Fran

ceD

enm

ark

Finl

and

CAGR%(1)

0

5

10

15

20

25

30

Net

herla

nds

US

UK

Swed

enFr

ance

Ger

man

yN

orw

ayFi

nlan

dA

sia

Euro

pe n

ewD

enm

ark

CAGR%(1)

0

10

20

30

40

50

60

US

UK

Fran

ceFi

nlan

dN

ethe

rland

sG

erm

any

Asi

aD

enm

ark

New

EU

Swed

enN

orw

ay

CAGR%(1)


(1) CAGR: Cumulative Average Growth RateNote: Including companies >100MEUR Market Cap. Data rolling 24th of November each year, Last date 24.11.2005.US: Frank Russell 3000 Index. Asia: Indonesia, Malaysia, Hong Kong, Singapore, China, South Korea, IndiaEurope new: Estonia, Latvia, Lithuania, Poland, Czech Republic, Hungary, Slovakia, Slovenia, Cyprus, Malta Source: BCG Analysis, Datastream.

LARGE DIFFERENCES IN PERFORMANCE OF DANISH COMPANIES

Performance of Individual Danish Companies

Annual TSRgrowth, %(1)

12 12

30

19

28

40

25

38

65

0

10

20

30

40

50

60

70

Period

Bottom 25 Median Top 25

1996–2005 2001–2005 2005


(1) CAGR: Cumulative Average Growth RateNote: Including companies >100MEUR Market Cap. Data rolling 24th of November each year, Last date 24.11.2005Note: Median have been applied due to the small sample size i.e. listed companies in Denmark with a Market Cap > 100 MEURSource: Datastream, BCG Analysis

TSR RANKING OF DANISH COMPANIESTen Year Perspective

0

5

10

15

20

25

30

35

40

Bio

mar

Hol

ding

TK D

evel

opm

ent

Tivo

liC

arls

berg

A/S

Per A

arsl

eff

Sani

stål UP

Dan

isco

Mon

berg

& T

hors

enFL

Smid

th

DLH

Aur

iga

Indu

strie

sSc

houw

& C

oN

ordi

sk S

olar

Lån

& S

par B

ank

AM

BU

Inte

rnat

iona

lC

odan

Flug

ger

UIE

Har

boe

H&

H In

tern

atio

nal

Chr

. Han

sen

TDC

B

ang

& O

lufs

enED

B G

rupp

en

Col

opla

stR

oyal

Uni

brew

GN

Sto

re N

ord

Kbh

's L

ufth

avne

Alm

Bra

nd ØK

DFD

S D

anth

ern

Hol

ding

sN

ørre

sund

by B

ank

Nov

o N

ordi

skFi

onia

Ban

kA

P M

ølle

r Mæ

rsk

Jeud

anLo

kalb

ank

i Nor

dSp

arba

nk V

est

Høj

gaar

d H

oldi

ngs

Dan

ske

Ban

kTo

pDan

mar

kVe

stjy

sk B

ank

Dib

a B

ank

Nor

djys

k B

ank

Jysk

e B

ank

Gro

nlan

dsba

nken

Rin

gkjø

bing

Ban

kSp

ar N

ord

Ban

kN

KT

Dju

rsla

nds

Ban

kSp

arka

ssen

Fåb

org

Sydb

ank

Will

iam

Dem

ant

Fors

tæde

rnes

Ban

kA

mag

erba

nken

Luxo

rN

ESA

Gre

entc

h En

ergy

Nor

dico

mR

ingk

jøbi

ng L

andb

oEg

nsba

nk H

an H

erre

dD

/S T

orm

Ros

kild

e B

ank

DSV

D/S

Nor

den

Company Annual TSR Growth(1) 10y

(%)


(1) CAGR: Cumulative Average Growth RateSource: Datastream, BCG Analysis

MOST DANISH COMPANIES HAVE OUTPERFORMEDEUROPEAN INDUSTRY AVERAGE


William Demant

Company’s performance

relative toown sector

average

Company’s sector performance relative to overall market

Højgaard

Chr. Hansen

B&O

Tivoli

TDC

(1) Refers to value creation performance last 5 yearsNote: Company performance indexed vs. relevant DJTM Western Europe index. Each industry segment has a different index performance i.e. comparison point Source: DJ, Datastream, BCG Analysis

Top Danmark

HighLow

Low

High

Codan

Nesa

Novo Nordisk Carlsberg

Ente

rtai

nmen

t

Insu

ranc

e

Tele

com

Inds

. Goo

ds/S

ervi

ces

Phar

ma

Indu

stria

ls

Food

& B

ever

ages

Con

sum

er G

oods

Med

ical

Equ

ipm

ent

Ban

ks

Util

ities

Inds

. Tra

nspo

rtat

ion

Bev

erag

es

GN

DanskeBank

Jyske Bank

DaniscoNKTFLS

Monberg & Thorsen

Alm. Brand

Harboe

Ambu

ColoplastMærsk

NordenTorm

DSVRoyal Unibrew

KBH lufthavne

Roskilde Bank

ØK

Companies performing

below average in strong sectors(1)


above average in strong sectors(1)


above average in difficult sectors(1)


below average in difficult sectors(1)

CREATING SUPERIOR SHAREHOLDER VALUEYEAR AFTER YEAR IS A DIFFICULT TASK

Number of companies(1)

Number of years in which they beat the local market(2)

Relative TSR Analysis 1995-2004

1

522

305

98

5 1

556

147

355

343

0

100

200

300

400

500

600

0 1 2 3 4 5 6 7 8 9 10

What characterize these

companies?


(1) Sample characteristics: 2,020 companies excl. financial service companies; continuously listed for at least 10 years; market cap above $1B as of end 2004(2) Relative TSR > 0 Source: T.F. Datastream; BCG analysis

LEADING PRACTICES OF TOP PERFORMING COMPANIESKey Check Points

Set explicit value creation targets• And translate these into operational targets on business level

Actively improve business portfolio health• Shift investments from under-performing units to strong performing• Improve profitability to above the cost of capital before growing• Manage portfolio mix, roles of BU’s

Use M&A to improve businesses and to take advantage of relative valuation• Migrate portfolio through acquisitions and divestitures• Create value from acquiring relatively undervalued companies

Apply disciplined management processes• Install processes that reinforce value creation

Actively manage the valuation and the free cash flow• Understand key share price drivers and expectations• Understand tradeoffs on capital structure and free cash flow payouts

1

2

3

4

5

- 9 -43860-00_BDH-kth_30May06_Cph.ppt Copyright © 2006 by The Boston Consulting Group. All rights reserved.Source: BCG worldwide research 1991–2006

1 SELECTING RIGHT MEASURES AND DRIVING THESE DOWN THE ORGANIZATION ALLOWS FOCUS ON VALUE DRIVERS

ProfitabilityCFROI

TBR

∆ intrinsicvalue

Freecash flow

Growth in assets

Cash flowmargin

Asset turns

TSR

Capitalgains

Dividends

~

Top value creators set explicit value creation goals and translate them into internal value creation metrics

Top value creators set explicit value creation goals and translate them into internal value creation metrics


1 VALUE DRIVER DISCOVERY PROCESS BUILDS OPERATING TEAM CONSENSUS AROUND PRIORITIES AND TRADEOFFS

Value drivers are known by management

But not prioritized for value impact

And trade-offs across them not syndicated

1. Reduce churn2. Extend asset

lives

3. New services4. Price

5. New customer additions

6. …

High

Medium

Low

Service levels

Revenue growth

Acquisition costs

Cost of service

Extend lives

Capital costs

Customer pruning

Lifetime value

Customer churn

Maintenance costs

PriceService level

VolumeMarket share

Safety

Working capital turnsEmployee

turnover …

Value driver discovery creates a shared understanding of priorities and tradeoffs for managing revenue, margin, and capital

Value driver discovery creates a shared understanding of priorities and tradeoffs for managing revenue, margin, and capital


2 THREE ASPECTS IN MANAGING PORTFOLIO HEALTH

BU strategic fit BU value creation fit BU logic fit


Market attractive

-ness

High

Low High

Supports portfolio

visionCFROI

High

Low High

High

LowLow High

Low Low

Business Unit position/competitive

advantage

TBR Parenting advantageto BU value

Value creation fit

Strategic fit

Logicfit

?

??

2 TOP VALUE CREATORS MANAGE THEIR PORTFOLIO BASED ON PERFORMANCE...

Historical performance of the BU(1) over three years

Average relative change in assets (%)(2) Comment

–67

Out-performers stop investing in business units with deteriorating performance

–182Steadily declining

22

99Consistently above average

169

83Steadily rising

Out-performers clearly identify turnaround candidates

Out-performers consistently support well-performing units

Top performerUnder-performer–200% 0% 200%


(1) Business-unit ROI relative to the average cost of capital in the region in the year under review(2) Relative to the change in the company's total assetsSource: Annual reports; BCG research 1991–2006

... AND DON'T INVEST IN BUSINESSES BEFORE THEY REACH COST OF CAPITAL – THE “C” CURVE

2

Hurdle rateHurdle rate

Top relative TSR performers, year 0–5 Bottom relative TSR performers, year 0–5

Low starting point profitability companies and subsequent performance

ROI(%)

Capital employed index (starting year= 1.0)

0

5

10

15

0,6 0,8 1,0 1,2 1,4 1,6 1,80

5

10

15

0,6 0,8 1,0 1,2 1,4 1,6 1,8

ROI(%)

Capital employed index (starting year= 1.0)

(n = 27) (n = 36)

Yr 5Yr 4

Yr 3

Yr 2

Yr1

Starting point

Yr 5Yr 4Yr 3

Yr 2Yr 1 Starting point


Note: Top performers are second-quartile ROI companies that achieve year 1–5 RTSR >1.0; bottom performers are second-quartileROI companies that achieve year 1–5 RTSR < 1.0Source: BCG top value creator company research 1991-2006

EXAMPLES OF THE “C-CURVE”

Gross investment

CFROI

Cost of capital

2. Increaseprofitability

1. Downsize for profitability

3. Leverage profitability

Louisana-Pacific(1): TSR 16% p.a. (Miscellaneous, USA)

2000

2003

20022001

WACC

CFROI(%)

Gross investm. (Bn. USD)

10

3.52.5 3.0

5

15

Orica: TSR 25% p.a.(Chemicals, Australia)

WACC2003

2004

10

3

2002

2001

2 Gross investm.(Bn. USD)

CFROI(%)

8

6

1 4

Hyundai Mobis: TSR 70% p.a.(Automotive Supply, Korea)

200420032002

2001

CFROI(%)

Gross investm.(Bn. USD)

10

1.5

WACC

1.0 2.00.5

2000

1999

20

2


(1) Not included in any TPS industry sampleSource(s): BCG Value Creators Report 2005

TOP VALUE CREATORS COMPANIES ACQUIRE AND DIVEST MORE THAN UNDER PERFORMERS

3

6.7

13.7

4.65.8

Average number of deals in 2000 BCG research shows that companies growing

Acquisitions Divestments

Out-performer

Under-performer

through M&A creates more value

Analysis of 700 largest companies from 1992-2002 shows that companies growing through M&A creates more value

Successful M&A practices• Growth through M&A only when inherent part

of the strategy and only when competitive advantage can be achieved

• Develop detailed understanding of the role of M&A in achieving growth – far in advance of bidding on any particular deal

• Rigorous deal evaluation, buy in "lean times"• Pay at least as much attention to integration

as to the deal itself and integrate fast


Source: Bloomberg; BCG research 1991–2006

4 SUCCESSFUL COMPANIES HAVE VALUE MANAGEMENT INGRAINED IN MANAGEMENT PRACTICES

Explicit shareholdervalue goal?

Are more than 75% ofmanagers trained In VBM?


Note: Success is defined as improvement of a 3-year average annual total shareholder return relative to industry peers (to 3-year averages were compared)Source: INSEAD, BCG and Harvard Business Review study ‘Getting The Most Out of Value Based Management’ (July 2001)

Are more than 75% of employeesparticipating in a bonus scheme?

‘Our budgets and strategicplans are closely integrated’

32%

SuccessfulCompanies

UnsuccessfulCompanies

65%

26%

SuccessfulCompanies


65%

37%

70%

SuccessfulCompanies


50%

12%

SuccessfulCompanies


5 INVESTOR/ANALYST DISCUSSIONS SHEDS LIGHT IN A NUMBER OF IMPORTANT AREAS

Feedback tomanagement’s agenda

Goals and measures

Acquisitions, portfolio

Diversification

Growth vs. ROIC focus

Capital structure

Dividend policy

Share repurchase

Incentive alignment

Risk management


Who are your investors, segmented by investment style?

What are investor expectations for performance?

What is your credibility quotient with current investors?

How could or should your investor base change

• To improve valuation?• In response to

strategies?

Fact base development Tailored communication/ outreach strategy

Equity “story” and commitments

Targeting new investors and “natural” investor

LOB reporting

Strategic milestone reporting

Value creation commitment and alignment dissemination

Investor migration plan

POPULAR AND NECESSARY STRATEGIC THEMES

Low cost manufacturing – what is the role of Rapid Developing Countries (RDCs)

Lean concept – introducing it in production, logistics, administration, commercial development (but competition is likely doing the same...)

Winning model development – knowing your capabilities and their worth (inspired from Danaher’s Business System thinking)

Acquisitions – building scale, forward integration, or entry into new adjacentbusinesses

Growth strategy and sales force effectiveness – understand growth drivers on an operational level

Innovation – increasing success rate to secure long term performance


Testing the water• Recognize LCC

potential• May source some

products on a trial basis• Have no formal LCC

initiatives• Are not yet organized

for sourcing in LCCs

Purchasing components or complete products

• Focus on reducing purchasing costs

• Obtain valuable understanding of the supply base

• But gain little defensible advantage

Developing comprehensive sourcing

• Sourcing plan includes- parts- products- talent/R&D

• Advantage gained from- supplier

relationships- product

development- proprietary tools

and processes- market intelligence

Using an integrated single country strategy

• View LCCs as both a market and a sourcing location

• Leverage synergies between export sourcing and domestic production

- integrated capacity planning

- Supply chain- flexible

production

• Create global centers of excellence in LCCs

Capture global advantage

• Exploit global synergies in

- cost structure- manufacturing

strategy- Supply chain

• Re-deploy assets in high- cost countries

FIVE LEVELS OF LOW COST COUNTRY (LCC) ADVANTAGECheck Point: What Far is The Company in Question

Level 1 Level 2 Level 3 Level 4 Level 5- 20 -43860-00_BDH-kth_30May06_Cph.ppt Copyright © 2006 by The Boston Consulting Group. All rights reserved.

0%

5%

10%

15%

20%

25%

30%

35%

0% 5% 10% 15% 20%

Net growth of LCC imports, 1997–2002 (percentage points)(1)

LCC penetration, 2002: LCC imports as a percentage of U.S. consumption Footwear

Audio and Video equipment

Apparel

Measuring and controlling devices

Motor vehicles

Communication equipment

Motor vehicle parts

Household appliances

80%

70%

50%

Fabricated metal products

60%

Computer equipmentSemiconductors and

other electronic components

Heating and ventilationEngine, turbine and power transmission

equipment

Industrial goods average = 9.8%

Industrial goods average = 10.5%

Pumps, compressors, and material-handling equipment

Moving early Growing fast

Globalizing slowly Up and coming

Case Study U.S.

Value of 2002 LCCimports into theUnited States ($5B)

Consumer goods

CHECK POINT: AHEAD THE CURVE FOR THE INDUSTRY?Role of LCC For Sourcing


(1) The average annual growth rate of LCC imports minus the average annual growth rate of U.S. domestic consumptionNote: Consumption is defined as U.S. production plus imports minus exports; industrial imports from LCCs consist of North American Industry Classification System

codes 332 to 336 with import value greater than $2BSource: U.S. Census Bureau; BCG analysis

CHECK POINT: AHEAD THE CURVE FOR THE INDUSTRY?Role of LCC For Out-Sourcing (This Case India)

High-end

Call centers• GECIS• CITI Bank• HSBC

Data conversion• Decision support Intl.

Medical Transcription• Selectronic• Ephinay

Insurance claims processing• Conseco

Back office operations (payroll, accounting)

• GECIS• BA• World Bank

Animation• Toonz animation

Geographical systems• Creation of maps etc.

Testing • Altair Engineering

Manufacturing• Alcatel (Switching)• Novar Plc (IBS(1))

R&D (Fundamental & incremental)• GE FHP Motors (Manufacturing)• HP (Design)• Texas instruments (Design)• Intel • Cadence (Software)

Clinical research• Pfizer• Eli Lilly

Web/Digital content development• Smart analyst• E-value serve

Business consulting• Inductis

Embedded software development• Xerox• Motorola• Canon• Honeywell

Low end

(1) Intelligent Business SystemsNote: Only a few indicative companies listed for each application. The list is not exhaustive in natureSource: Literature survey, Nasscom



Communication and involvement of employees

HR support and incentive programs

Performance culture to ensure constant efficiency initiatives

3

2

Kaizen events

Key numbers,

bench-marking,

best practice

4b 4c

THE WINNING MODEL – EXAMPLE OF KEY ELEMENTSKnowing The Value of Your Capabilities And “Business System”

5

(1) Called ”policy deployment”Source: Interview February 2005

Integrated ”lean”business system(1)

“Lean”tools

4a

1

Global Global

INNOVATOR MARKET PERFORMANCE SUPERIOR TO REGIONAL PEERS

0

2

4

6

8

10

12

14

16

18

GlobalInnovators vs.

S&P 1200

US Innovatorsvs. S&P US 500

EuropeanInnovators vs.S&P Euro 350

AsianInnovators vs.

S&P AsianComposite

Total Shareholder Return For Innovative Companies and Industry benchmarks

10-Year TSR(ending

December 2005) Peer Group Median

Innovator Median

TSR = Total shareholder return = Capital appreciation plus dividendsInnovators based on public innovators domiciled in indicated regionS&P Asian composite = S&P/TOPIX 150 + S&P/ASX 50+ Asia 50S&P 1200 = Global Largecap Index = S&P US 500 + S&P Euro 350 + S&P/TOPIX 150 + S&P Asia 50 +S&P/ASX 50 + S&P/TSX 60 + S&P Latin America 40Source: 2006 BusinessWeek/BCG Innovation to Cash Survey; BCG\ValueScience analysis

- 24 -43860-00_BDH-kth_30May06_Cph.ppt Copyright © 2006 by The Boston Consulting Group. All rights reserved. - 24 -032206 Slides For VSC 01.ppt

NordicNordic

JUST OVER HALF OF NORDIC RESPONDENTS ARE SATISFIED WITH THEIR INNOVATION ROI

0%

20%

40%

60%

80%

Yes No

“Are you satisfied with the financial return on your investments in innovation?”

57%

43%

But >90% of CEOs rate innovation as top-3 priority and >70% plan to increase R&D spending in plan period

But >90% of CEOs rate innovation as top-3 priority and >70% plan to increase R&D spending in plan period


Source: 2006 BCG Nordic Innovation to Cash Survey

NordicNordic

UNDERSTANDING BARRIERS FOR INNOVATIONHow is The Company Approaching Innovation (track record, measures, targets, etc.)


4%

9%

17%

17%

17%

17%

17%

22%

22%

36%

35%

0% 10% 20% 30% 40%

Development times are too long

Not enough great ideas

Lack of coordination w ithin the company

Not enough customer insight

Risk-averse culture

Selecting the right ideas to commercialize

No good way to measure the ROI accurately

Marketing and/or communicating our innovation

Insufficient senior-management support

In-market performance is below expectations

Competitors are more innovative

“If you are not completely satisfied with the return on your investments in innovation, what are the obstacles you face?”

Source: 2006 BCG Nordic Innovation to Cash Survey

INNOVATION CHECK POINTS

R&D/Engineering Sales & Marketing

How is my R&D project investment weighted in terms of cost reductions vs. line extensions vs. truly innovative products?

How is my innovation process linked with the life-cycle management of a product?

Are the products slated to be launched in the next 2-3 years sufficiently breakthrough to deliver the sales growth in my plan?

What was the root cause of my last failed product launch? Have I fixed it?

Finance Manufacturing/operations

Am I differentially investing in the projects that will earn the highest returns?

How good is the organization at predicting the revenues and costs of new products? What is creating the systematic biases in our business plans and how can I fix them?

Is my plant sufficiently flexible to incorporate new products?

How quickly did I reach low-cost, at-scale manufacturing position on my last product launch?


FUNDAMENTAL BCG BELIEFS ABOUT STRATEGY

“Unless a business has a unique advantage over its rivals, it has no reason to exist”

“The underlying principle of a good strategy is simple: concentrate your strength against your competitor’s relative weakness”

“Strategy is by definition the essentially irretrievable commitment of resources…success almost always depends upon the competitor’s decision not to compete”

“Strategy is more than a posture or a pattern; it is a dynamic concept involving sequence, timing and competitive reaction...strategy development is thus a reiterative process requiring art as well and science”

Bruce Henderson, Founder of BCG


A GOOD BUSINESS PLAN ANSWERS THREE KEY QUESTIONS

Where do you want to go?• Vision and aspiration• (Quantitative) objectives in terms of market positions and financial

performance,

Which road(s) will you take?• What is your strategy to get there, and the subsequent high level activities

required?• What will you do and more importantly, what will you NOT do!

How will you get there – what does it take?• A more detailed action agenda covering priorities, timing, investment, etc.

1

2

3


INGREDIENTS FOR A SUCCESSFUL STRATEGY

Uniqueness Competition

Sustainability Implementation

Disruption (deconstruction)Surprise

Influence this dynamic equilibrium to

your own benefit

STRATEGY


Source: BCG

CHECK POINTS (I)

Uniqueness Competition

From the customers' perspective, is our product clearly different/differentiable from competitors' products?

Do our products offer further basicapproaches for differentiation?

Can we remove elements from our offering and would the customers really miss them?

Can our uniqueness/differentiationbe defended over the long term or can it be copied?

Are our investments in innovation sufficient to maintain our differentiation?

Do we know our competitors?

Have we correctly defined our marketsegment or possibly forgotten potentialcompetitors?

Do we spend enough time analyzingthe competitors' strengths/weaknesses?

Have any new competitors emerged and why?

Have we been surprised in the last few years by any unforeseen stepsfrom competitors?


Source: BCG

? ?

CHECK POINTS (II)

Surprise Disruption

Is our strategy focused not only on incremental changes?

Do we have "radical" innovationsin the pipeline?

Have we sufficiently surprisedcompetitors/customers in the past?

Have we been surprised several times by competitors?

In the past has the competition always quickly responded to ouractions?

Are our strategies capableof changing the competitive equilibrium over the long term?

Are there any considerations being made in our industry on deconstructing the value chain?

Do we have employees that do notonly act as administrators?

Is our strategy simply an update ordoes it really have somethingnew/different to offer?


Source: BCG

? ?

CHECK POINTS (III)

Sustainability Implementation

Is our strategy focused on the long term?

Do we have clearly formulated andconsistent long-term goals?

Do we reserve sufficient space for strategy discussions/the long-term in our planning?

Do we have a clear idea of the long-term trends in our industry?

Do we take the long-term implicationsof our decisions into consideration?

Have we devoted enough attention to implementing the strategy?

Are we also prepared to make uncomfortable decisions (despiteresistance) and to carry through?

Are the leaders fully committed tothe strategy and are employeesconvinced/loyal?

Do our present (decision-making)structures interfere with our strategy?

Are our systems (staff development,compensation, IT, etc.) aligned with our strategy?


Source: BCG

??

QUESTIONS A CEO SHOULD KNOW HOWTO ANSWER IN REGARD TO VALUE CREATION (I)

1. Do you understand the historical sources of your company's TSR?

2. What fundamental value will your current plans generate in the future?

3. What are the current market expectations embedded in your stock price?• Is there a gap between what you can deliver and what your investors

expect?

4. What drives valuation multiples in your industry?• Why is your multiple at the level it is relative to industry peers?

5. What are the key tradeoffs for your company between improving fundamental value, optimizing your valuation multiple, and distributing free cash flow?


Source: BCG 2005 Value Creators Report

QUESTIONS A CEO SHOULD KNOW HOWTO ANSWER IN REGARD TO VALUE CREATION (II)

6. Who are the dominant investors in your company and what are their priorities?• Are your plans in sync with their investment goals?

7. What are the consequences of your company’s value creation strategy for line managers and their business units?

• Do they know what they must deliver to achieve your TSR target?• Have you translated that target into operational metrics and goals that

they can actually influence?

8. Are management processes such as planning and budgeting, resource allocation, and incentive compensation aligned with your value creation strategy?

• Do they surface the right tradeoffs for management discussions? • Do they appropriately balance short-term and long-term priorities?


Source: BCG 2005 Value Creators Report

OTHER POINTS

Can the strategy be articulated short and precisely?

Is the strategy clear including key actions and investment plan?

What is the completive advantage and how are they maintained?

What is the projected revenues for existing products, known launches and thus the gap the “R&D machine” must cover?

What risks are being taking and how are they contained?


characteristics of value creating strategies and … · this material includes material developed...

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