Intelligent Growthhosteddocs.ittoolbox.com/intelligent-growth.pdf · 2013-11-13 · FINANCE AND STRATEGY PRACTICE. CFO EXECUTIVE BOARD™ Intelligent Growth. Expanding Margin and

FINANCE AND STRATEGY PRACTICECFO EXECUTIVE BOARD™

Intelligent GrowthExpanding Margin and Sales in an Uneven Global Recovery

2 December 2010

Presented by

Anna Kipchuk Director, Finance and Strategy Practice [email protected]

and

Alexander Bant Analyst, Finance and Strategy Practice [email protected]

COPIES AND COPYRIGHT

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The pages herein are the property of The Corporate Executive Board Company. Beyond the membership, no copyrighted materials of The Corporate Executive Board Company may be reproduced without prior approval.

LEGAL CAVEAT

The CFO Executive Board has worked to ensure the accuracy of the information it provides to its members. This report relies upon data obtained from many sources, however, and the CFO Executive Board cannot guarantee the accuracy of the information or its analysis in all cases. Furthermore, the CFO Executive Board is not engaged in rendering legal, accounting, or other professional services. Its reports should not be construed as professional advice on any particular set of facts or circumstances. Members requiring such services are advised to consult an appropriate professional. Neither The Corporate Executive Board Company nor its programs are responsible for any claims or losses that may arise from a) any errors or omissions in their reports, whether caused by the CFO Executive Board or its sources, or b) reliance upon any recommendation made by the CFO Executive Board.

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From the CFO EXECUTIVE BOARD™of the FINANCE AND STRATEGY PRACTICE www.cfo.executiveboard.com

© 2010 The Corporate Executive Board Company. All Rights Reserved. CFO7176910SYN

TOOLBOX FOR FINANCE: AN ONLINE KNOWLEDGE SHARING COMMUNITY

Mission

Toolbox for Finance helps finance professionals do their jobs better by enabling them to easily share knowledge and collaborate with experienced peers.

Collaboration Tools

■■ Discussion groups■■ Blogs ■■ Wikis■■ Professional networking■■ Company profiles

Value of Community

Make DecisionsAm I about to make the right decision?

Solve Problems Faster How do I…?

Stay CurrentWhat have my peers been learning?

Manage CareersHow do I become more valuable?

Evaluate Companies and ProductsHas anyone used…?

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SPEAKER BIOS

Anna KipchukDirector, Finance and Strategy Practice

Alexander BantAnalyst, Finance and Strategy Practice

Anna has served CFOs at Fortune 500 and Global 3000 companies for more than six years—developing insights and best practices in Finance Function Management to improve the effectiveness of CFOs and their teams. In this role, Anna has developed extensive knowledge of business practices to advise CFOs on key functional challenges, opportunities for driving sustained business growth and on the skills and organization they require to succeed.

Areas of expertise include: Private Equity Ownership, Strategic Planning and Risk Management, Capital Structure and Capital Markets, Finance Organizational Structure Development, Shared Services and Outsourcing, and Finance Talent Development.

Alexander has a background in International Economics and has worked on a variety of research projects across our CFO, Treasury, and Investor Relations programs in the Finance and Strategy Practice. Most recently, his research has included change management in the lens of corporate finance culture, bank fee analysis methods, as well as investor messaging and targeting.



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■■ Our network

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Finance and Strategy

Legal and Compliance

Corporate Leadership

Council

Information Technology

Sales, Marketing, and

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5



CEB’S RECOVERY TOOLKIT

For 25 Years, the Corporate Executive Board has provided critical information to help executives through recessions and recoveries. We have allocated substantial resources to support you through the current period of economic uncertainty. Beyond our usual research services and other events, you can rely on us for the following information and advice.

Intelligent Growth Teleconference Series1

On-Demand Advisory Support Planning Resource Centers Get Involved in Our Research

Expanding Margin and Salesin an Uneven Global Recovery28 September 2010

Reducing Growth Investment Regret4 October 2010

Trends in Cash Investment20 October 2010

Adapting Plans and Performance Management to Execute in the Recovery3 November 2010

Reintroducing Costs Critical to Sales Growth15 December 2010

Plan ReviewsGain confidence in the strength of your action plans by comparing them against our archive of best (and emerging practices) to identify potential risks, opportunities for improvements and cost savings.

Peer Networks Tap into the collective wisdom of leading global practitioners, by submitting questions or thoughts via our peer networks for rapid response.

Economic Outlook CenterDaily capital markets updates, quarterly global economic dashboards, macroeconomic reviews, and planning assumptions guidance.

FP&A Solution Center Improve your existing budgeting and forecasting processes and introduce new initiatives, such as, rolling forecasts and flexible budgets, based on best-in-class road maps.

Capital Structure and Cash Management Tools for safeguarding credit facility commitments and managing balance sheet flexibility.

If you would like to learn more about the Intelligent Growth research, please contact our research team:

Anna Kipchuk Project ManagerCorporate Finance and Strategy Practice

[email protected]

+1-571-303-6204

1 Register or access replays of each teleconference through www.cfo.executiveboard.com.

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ROAD MAP FOR THE PRESENTATION

Being Bold in the RecoveryThe Intelligent Growth Project



8

0.0

50.0

100.0

0.0

50.0

100.0

43.049.0 51.1 47.8 48.9

Q1-

06

Q2-

06

Q3

-06

Q4

-06

Q1-

07

Q2-

07

Q3

-07

Q4

-07

Q1-

08

Q2-

08

Q3

-08

Q4

-08

Q1-

09

Q2-

09

Q3

-09

Q4

-09

Q1-

10

Q2-

10

Q3

-10

37

38

39

40

41

6,300

6,750

7,200

7,650

8,100

THE RETURN OF FEAR

Gross Margin and Revenue Performance, S&P 5001

Q1 2007–Q3 2010 Actuals

Despite strong improvement in fundamentals, executive confidence has dropped to new lows since 2009.

1 Non-financial companies.

Median LTM Revenues

Median LTM Gross Profit Margin

Rev

enue

s

Mar

gin

s

Q1 2006 Q1 2007 Q2 2008 Q3 2009 Q3 2010

n = 444 global business executives.

Q4 2009 Q1 2010 Q2 2010 Q3 2010

Positive Outlook

Neutral Outlook

Negative Outlook

Business Executives’ Confidence About Global Economic Performance in the Next 12 Months, IndexedThe Corporate Executive Board’s Business Barometer (November 2010)

Rising macro- and microeconomic concerns include the following:

■■ European sovereign debt crisis■■ Risk of deflation■■ Decreasing confidence in the strength of the consumer

■■ Housing market uncertainty ■■ Persistent unemployment

Q4 2010

9



DISPERSED RISKS AND OPPORTUNITIES

Emerging and Developing Markets Are Present Companies with a Complex Investment Screening Challenge

Emerging Markets Risk and Opportunity Scores Explained

The overall country risk score is derived using these ten criteria on a scale of 0-100, with 0 indicating very little risk to business profitability and 100 indicating very high risk.

1. Macroeconomic Risk2. Foreign Trade and

Payments Risk3. Financial Risk4. Security Risk5. Political Stability Risk

6. Government Effectiveness Risk

7. Legal and Regulatory Risk8. Tax Policy Risk9. Labor Market Risk10. Infrastructure Risk

The opportunity score is derived using a combination of indicators including GDP, value of trade, wealth, and growth prospects.

129

44Mexico

OR

74

21Chile

O

R 81

56Argentina

O

R

125

45Brazil

O

R

102

29Poland

O

R

106

49Turkey

O

R

Indonesia

92

55

O

R

India

222

51

O

R

Bangladesh

53

53

O

R

64

62Ukraine

O

R

71

41South Africa

OR

65

38Egypt

OR

Russia

163

57R

O

China

454

47

O

R

Malaysia

95

34

O

R

Philippines

56

52

O

R

Source: The Economist Intelligence Unit Risk Briefing (2010); Grant Thornton International Ltd.

O Opportunity

R Risk

High Opportunity or Low Risk

Moderate Opportunity or Risk

Low Opportunity/Severe Risk

Very Low Opportunity/Profound Risk

DERF 10-4750

Catalog # ■■ TLR6271410SYN

Title ■■ HO: TLR Summit AER 0916



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THREE PLAUSIBLE SCENARIOSWhile most executives expect slow growth to continue, weak prices and the continued build-up of liquidity have increased the plausibility of alternative scenarios.

Possible Scenario for 2011–2012 Investment Boom

“Grasshopper” Recovery Continues

Deflationary Death Spiral

Excess liquidity spurs investment as uncertainty recedes.

Consumer deleveraging continues to dampen

economic growth.

Double dip leads to decade-long flatline.

Key Drivers ■■ Unprecedented liquidity sitting on business balance sheets

■■ Fear and uncertainty preventing investment

■■ As uncertainty diminishes (buoyed by steady increase in economic output and corporate fundamentals), investment growth expands exponentially

■■ Solid recovery in corporate fundamentals

■■ Stable unemployment and continued consumer income growth

■■ Consumption growth dragged down by consumer deleveraging and saving

■■ Demand for money remains elevated due to uncertainty

■■ Excess capacity and depressed demand exert downward price pressure

■■ Price decreases feed additional desire to hold cash, exerting more deflationary pressure

Key Indicators to Watch

■■ Capital expenditures

■■ CEB Business Barometer

■■ Consumer confidence indices

■■ Business inventories

■■ Labor force participation rate (and unemployment)

■■ Income growth and savings rate

■■ Consumer Price Index

■■ Monetary supply (e.g., M2)

■■ Commodity prices

Re-Leveraging Deleveraging

Recovery Recession



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THE COST-GROWTH TRADE-OFFCFOs are facing a dilemma to grow while managing increased cost pressures; historically, excellence in cost cutting has come at the expense of top-line growth.

■■ On average, Elite Cost Cutters—those companies that beat peers in yearly margin improvements—achieved top-line growth ~3.5 percentage points lower than their non-elite peers over the 1994–2008 period.

Revenue CAGR1994–2008

The Question We Heard Most Often from CFOs in 2010

“How can I control costs and grow at the same time without sacrificing the

discipline that we’ve achieved in the past 12 months? To what degree can

I expect to achieve both in this unpredictable environment?”

Elite Cost Cutters Other Companies

12%

15%

n = 102. n = 378.



12

500

126

48 46

INTELLIGENT GROWTH IS RARE BUT ACHIEVABLE

Research Methodology for Identifying Intelligent Growth Companies

In the past 18 years only 46 companies in North America have been able to both outperform peers in sales and margin growth, and expand sales and margin for more than half the time (i.e., nine years or more out of 18).

Fortune 1000 North American Companies1

With Performance Data from 1990 to 2008

Companies That Outperformed Their

Industry Group in EBIDTA margin2 and

Sales CAGR2 Between 1990 and 2008

Companies That Simultaneously Grew

the Top Line and Expanded Margins in More Than Half the Years Between 1990

and 2008

Companies That Did Not Experience a

Growth Stall in the Past 18 Years

1 Excluding Financials and Utilities companies.

2 Average EBITDA margin and Sales CAGR above the Industry Group median.



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Only 9% of the largest 500 organizations in North America have achieved balanced growth over the past 20 years; they earned outsized returns versus industry peers.

■■ While high total shareholder return (TSR) was not a screening criteria used in our study, the Intelligent Growth companies significantly outperform their peers, delivering more value to shareholders than industry peers that focus only on margin or sales growth over extended time periods.

(1.2%)(0.8%)

0.3%

5.6%

INTELLIGENT GROWTH = HIGH-VALUE GROWTH

TSR Premium1 Over Industry Median, Intelligent Growth Companies Versus Control Group, Sustained Cost Leader and High-Growth Companies1990–2008, North American Dataset

Companies That Surpassed Industry

Peers in EBITDA Margins Only

Control Group of Companies

Companies That Surpassed Industry

Peers in Sales Growth Only

Companies That Surpassed Industry Peers

in Sales Growth and EBITDA Margins with

More Than 10 Balanced Cost/Growth Years

∆ = 5.3

1 TSR Premium: Each company’s compound annual TSR in excess of its industry group‘s median compound annual TSR for 1990–2008.

n = 46 North American Intelligent Growth companies versus 454 North American industry peers.

Intelligent Growth

Companies



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“Boom” “Bust”

Stable Growth Peak Recession Trough

THE ECONOMY COMES IN FOUR FLAVORS

Typical Representation of Economic Cycle Phases

We overlook critical economic inflection points (such as the trough) across the business cycle if we rely only on high-level “boom” and “bust” timelines.

Dissecting the Cycle into Four Phases For Which Management Should Plan

Critical Inflection Point: Trough management and recovery preparation begin here.

Critical Inflection Point: Manage growth strategy in an asset bubble and prepare for the next downturn.

Calling the turn to the recession becomes the main focal point in management discussions.



15

Intelligent Growth Company

Performance

Stable Growth

(3–5 Years)

Peak

(1 Year)

Recession

(1–2 Years)

Trough

(1–2 Years)

1990–2000 Cycle +2% TSR Above Industry Median

+11% TSR Above Industry Median



2001–2007 Cycle (1%) TSR Above Industry Median




Everyone Else

INTELLIGENT GROWTH COMPANIES KNOW THEY ARE IN A “VALUE CREATION HOT SPOT”

Total Shareholder Return Premium1 Generated Across the Four Stages of the Economic Cycle, Intelligent Growth Companies Versus Everyone Else1990-2007, North American Dataset Analysis

Above-average TSR performance starts with “intelligent growth” in the economic trough: a period when you are more likely to achieve competitive advantage.

■■ Intelligent Growth companies create considerable TSR advantage in these early postrecession years and continue beating their industry peers in value created in the stable growth and peak years.

0% TSR Above Industry

Median

n = 46 North American Intelligent Growth companies versus 454 North American industry peers.

1 TSR Premium: Compound annual TSR in excess of the industry group’s median compound annual TSR for the time period of each respective phase of the economic cycle.

Value Creation Hot Spots



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Stable Growth

(3–5 Years)

Peak

(1 Year)

Recession

(1–2 Years)

Trough

(1–2 Years)

■■ Play “catch-up” to market leaders with growth investments.

■■ Annual planning becomes the standard as forecasts and assumptions stabilize.

■■ Costs increase lockstep with sales.

■■ M&A and growth investments at highest point (leveraged balance sheet to finance).

■■ Strong consensus exists around the long-term plan.

■■ Margins at thinnest point as cross-portfolio growth is the priority.

■■ Cut CapEx to preserve liquidity until sales return.

■■ Reforecast frequently to sense market “bottom”.

■■ Broad cost cuts: layoffs, furloughs, mothballing.

■■ Hold growth investments for recovery.

■■ Use leading indicators and rolling forecasts to sense for “safe to proceed” signals from market.

■■ Broad cost controls established, e.g., “set at 2007 levels”.

Executive mindshare is focused on…

...“Making up for lost time,” accelerating

growth investments, and deemphasizing cost management.

...improving market position and satisfying investor

desire for growth and cash.

...reforecasting and re-planning.

...moving the business from a pure cost to an effecient

growth goal.

A REACTIVE MODEL

Control Company Focus in Each of the Four Phases of the Economic Cycle

Many management teams think of economic scenarios as a series of discrete challenges that they must help the business respond to rapidly.

■■ Reacting to a Sales Forecast: Many management teams—conditioned by years of earnings projections and linear sales forecasts in a stable growth environment —spend more time reacting to the challenges of the current economic scenario as opposed to preparing for the next phase.



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CYCLE DISCIPLINE

Intelligent Growth Company Focus in Each of the Four Phases of the Economic Cycle

While the timing of the next recession is unknown, winning companies’ actions will be influenced more by what they need to do to thrive in the next phase of the cycle, not just today.

■■ Cycle Discipline: Only Intelligent Growth companies (9% of the companies in the study) exhibit what we refer to as “cycle discipline,” or the tendency to pull forward preparations for the next economic phase of the business cycle.

Stable Growth

(3–5 Years)

Peak

(1 Year)

Recession

(1–2 Years)

Trough

(1–2 Years)

■■ Reduce exposure to cyclical market changes by diversifying markets and products.

■■ Achieve high efficiency sales growth through COGS discipline.

■■ Strengthen the balance sheet.

■■ Review the plan for handling the next recession.

■■ Divest underperforming assets.

■■ Protect CapEx and SG&A investments that are key for future growth from stringent cost cuts.

■■ Use scenario planning to create optionality in business unit operating plans.

■■ Make high-return growth investments.

■■ Build consensus around how the customer has changed.

■■ Maintain cost discipline while allowing sales-driving costs back in selectively.

DERF 10-5405

Catalog # ■■ CFO6584410SYN

Title



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THREE CHALLENGES TO INSTILLING CYCLE DISCIPLINEThe challenge of efficient growth after a recession is tackled at three critical levels by Intelligent Growth companies.

The Cycle Discipline Problem

“How do I instill sufficient financial discipline to grow efficiently in a weak growth phase?”

Our focus today

1. How do I screen in and screen out growth investments with greater confidence?

2. How do I encourage the business to be more disciplined about preparing for the next economic challenge?

3. How can I ensure that the business brings back the right costs?

19



ROAD MAP FOR THE PRESENTATION

Being Bold in the RecoveryThe Intelligent Growth Project

20



HOW TO BE BOLD—SIX INTELLIGENT GROWTH RECOMMENDATIONS

1. Invest now in growth. Waiting for certain growth is riskier than acting boldly today. The best companies act earlier in the recovery, and concentrate their bets by having a materially higher percentage of capital devoted to relatively larger, longer-term projects.

2. Upgrade your growth investment process by shifting analytical resources away from up-front screening toward project life-cycle analysis. Create a “learning loop” by using scenarios to screen projects and dedicating staff to mid-cycle evaluations.

3. Pick winners as well as losers in your growth portfolio. Mandate that business cases contain definitions of “project failure,” i.e., clear financial and strategic thresholds that trigger disbursement.

4. Dare to be adequate at forecasting and budgeting in an uncertain environment. Dedicate your time to bringing more business cycle awareness to the performance and strategy review processes.

5. Forecast through your customers’ eyes. Your value chain is the best source of economic intelligence. Listen to it and run scenarios that allow for rapid changes in the plan.

6. Be selective about which expenses you bring back in the recovery. Rather than allowing across-the-board increases, filter out costs that don’t directly support your growth strategy.



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12%

(6%)

11%

2%

Intelligent Growth Fact: Waiting for certain growth is riskier than moving forward now.

■■ Investments made early in economic recoveries when other organizations are hesitant set up Intelligent Growth companies for superior long-term TSR performance.

■■ No Consensus on Risk Appetite—Our 2010 research for corporate treasurers found that a lack of management and Board consensus on financial risk appetite was a key driver of suboptimal capital allocation decision making and hesitancy.

#1: INVEST IN GROWTH NOW

Five-Year Average Change in CapEx Post-DownturnIntelligent Growth Versus Control Group Companies

Post 2001 Recession

Post 1990 Recession

Intelligent Growth Companies

Others

Management Recommendations

Take an integrated approach to capital planning. Finance sits at a critical juncture in the corporation where capital supply intelligence (banking industry shifts, future funding availability) meets capital demand requirements (investment pipeline). Ensure that the CEO and Board are fully appraised of how changing requirements on the supply/demand sides impact one another.

n = 46 Intelligent Growth Companies, 46 Control Group Companies (North American data set).



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DON’T JUST TAKE OUR WORD FOR IT

Additional Testimony on Being Bold in the Trough

Trough scenarios, marked by changing customer economics and falling asset prices, represent a point in the time when companies need to take the right decisions and set themselves up for success. “Those [companies] that invested during

down cycles prospered when better times

returned. You don’t beat it. You manage in

this environment. We need to then really ask

the question: What do we invest in, what’s

important, what’s going to happen? …In a

down economy its time to take share.”Steve BallmerCEO, Microsoft Corporation March 2009

“Berkshire is always a buyer of both

businesses and securities, and the disarray

in markets gave us a tailwind in our

purchases. When investing, pessimism

is your friend, euphoria the enemy.”Warren BuffettBerkshire Hathaway Inc.February 2009

Source: “Microsoft on the Prowl,” Network World (2 March 2009); Berkshire Hathaway Inc.



23

AVOID THE “INCREMENTALISM TRAP”

Maximum Impact of Investment Approaches on Investment RegretRegression Analysis, Three Dependent Variables = Regret (July 2010)

Intelligent Growth Fact: Portfolios with larger, longer-term projects reduce investment regret1.

Intelligent Growth Case-in-Point—Corning Inc.’s “Patient Money”

■■ Corning earmarks a portion of its R&D budget as “patient money” that is used to make significant investments with longer payback periods than other investments.

■■ This investment philosophy has enabled Corning to continue to invest heavily in its display and optical fiber divisions—businesses that took 14 and 20 years, respectively, to become profitable.

1 Investment regret is defined as experiencing the negative effects of past decisions or anticipating future negative effects of current investment decisions.

Source: CFO Executive Board research, “Corning: The Growth and Strategy Council”, MIT Sloan School of Management, April 2009.

11%

11%

9%

24%

10%

10%

(10%)

(10%)

(24%)

10%

(10%)

(24%)

9%

9%

(10%)

Long-Term Payout Projects

Large Capex Projects

High-Risk Projects

Low-Risk Projects

Small Capex Projects

Short-Term Payout Projects



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Intelligent Growth Fact: Keeping track of capital projects throughout the entire investment life cycle and identifying underperforming assets quickly is critical to balancing efficiency and growth goals.

■■ This longer “residual control” also enables Intelligent Growth companies to act with greater confidence in portfolio adjustment decisions, and reallocate resources on a more timely basis; i.e., they do not allow under-performing assets to consume valuable resources for too long.

#2: INCREASE RESIDUAL CONTROL OVER CAPITAL INVESTMENTS

Analytic Resources Dedicated to Each Stage of the Capital Investment Life CycleIllustrative, Intelligent Growth Versus Control Group Companies, Based on Primary and Secondary Qualitative Research


Document your financial and strategic assumptions as to why and how large capital investments will create value, including what “failure” looks like. Track the project’s life cycle progress against these original requirements, not solely whether it is running on time or on budget, and disinvest when the project fails to meet these clear expectations.

High

Low

Ana

lyti

c R

eso

urce

s

Ded

icat

ed t

o T

ask

Business Case

Creation

Investment Screening

Capital Deployed

Mid-cycle Reviews

Post- Completion

Audit

Asset Utilization

Checks


Control Group Companies

Stage of Asset Life Cycle or Capital Evaluation Process

Δ Greater Residual Control over

Deployed Capital



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ESTABLISH A LEARNING LOOP

Source: BNSF Railway.

5. Randomized Postaudit Reviews

1. Scenario-Based Growth Budget Setting

2. Performance Assumption Documentation

3. Project Investment Screening

4. Exception-Based Mid-Cycle Performance Reviews

Document assumptions about macro- and micro-performance drivers and track assumptions and triggers to revisit throughout the project life cycle.

Conduct sensitivity analysis on project proposals to identify weaknesses in underlying assumptions.

Encourage shared learning and continuous improvement through postmortem reviews that root-cause project execution failures and circulate best practices.

BNSF increases confidence in its investment decisions by continuously reviewing its execution capabilities and improving the models used for future decisions.

Monitor capital investments throughout the project life cycle and channel learnings about execution quality into future screening discussions.

Use short-range scenario planning to establish several different likely growth CapEx funding thresholds.

DERF 10-5405


Title



26

Superior cycle awareness helps the Intelligent Growth companies stay disciplined in divesting underperforming assets at the peak and avoid acquisitions when asset prices are highest.

#3: FOCUS ON LOSER PICKING

Portfolio Turnover Among Intelligent Growth Versus Peers in Four Phases of the Economic CycleIllustrative

Stable Growth Peak Recession Trough


Control Group Companies

Note: Size of Bubble = Relative volume of portfolio turnover.

1 “Both” means a balance of acquiring and divesting assets.

n = 46 North American Intelligent Growth companies versus 46 Control Group peers (North America data set).

Both1 Acquisitions

DivestituresBoth

Acquisitions

DivestituresBoth

Both



27

DERF 10-5405


Title

#4: FIX THE PERFORMANCE FEEDBACK LOOP

Performance Management Information FlowchartIntelligent Growth Company Focus Areas Highlighted in Blue

Finance teams at Intelligent Growth companies have developed exemplary techniques in the plan execution portion of the annual planning process.

■■ Working Harder Doesn’t Always Pay Off—Many finance teams have attempted to fix this feedback loop by doing more of the things that inhibit the traditional annual planning approach1:

– 50% have increased forecast frequency;

– 45% are tracking more business drivers;

– 41% are reporting more frequently to management and the board; and

– 32% have sped up the performance review cycle.

Sales Forecast

Operating Plan/Budget

Dare to Be AdequateMultiple components of the annual planning process serve largely as financial control mechanisms to keep business units aligned with the long-term plan. They do not help senior management in their quest for better information about changing market direction, or provide assurance that the current plan is still the correct one in a volatile operating environment.

Aspire to Intelligent GrowthFinance teams at Intelligent companies like Lowe’s and Nestle devote more effort to ensuring that the current

“theory of the business” is reflected in the performance management process, and that operating reviews are used as an opportunity to learn about good and bad assumptions, identify customer behavior, and build consensus among senior management on the way forward.

Strategy Review

Defining/Measuring

Performance

Operating Reviews

1 n = 76 global financial planning professionals.



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Intelligent Growth Fact: Your value chain is the best source of economic intelligence.

■■ Leading CFOs take a personal role in identifying the direction their main customers are heading. Both the CFO and line finance should frequently question business managers’ interpretation of macro- and micro-economic trends and bring more business cycle awareness to performance and strategy review processes.

#5: FORECAST THROUGH YOUR CUSTOMERS’ EYES

Pros and Cons of Macro- and Micro-Indicators

Sample Macroeconomic Indicators Sample Microeconomic Indicators

■■ Real GDP ■■ Year-on-Year Construction ■■ Sweet Crude Oil Index Price■■ Interest Rates■■ Unemployment in Key Markets

■■ Car Sales Year-on-Year Growth■■ Nominal Payroll Brazil■■ Chinese Disposable Income■■ Building Forecasts—United States and Western Europe

■■ Electricity Prices

Macroeconomic leading indicators are a useful means of adding context to planning reviews but can overcomplicate decision making if a clear link is not drawn between a change in the indicator and its impact on a business driver or key assumption.

Microeconomic indicators, especially if they are closely tied to customer’s business are more clearly linkable to future business performance.


Balance your use of macro and micro leading and lagging indicators when evaluating trends and triggers that could be indicative of future growth and demand. Interact with your customers and “customers’ customers” to understand which indicators they track for their businesses, and their relevance to your own performance.



29

#6: BE SELECTIVE ABOUT WHICH EXPENSES YOU BRING BACK

Average Importance of Cost Reintroduction in the RecoveryIndexed (Q2 2010)

Traditional SG&A budgeting approaches generally overlook the long-term importance of certain spend categories; this can severely hamper execution in the recovery.

Three Common SG&A Mistakes:

1. The “Cost Sledgehammer”—Treating all SG&A costs as equal ignores the lagging impact of some spend categories. This approach may take the form of a broad cost mandate , e.g. “X% of last year’s spend.”

2. Benchmarking Versus Peers—While benchmarking is a useful “sanity check” for total spend levels it generally ignores the degree to which your cost base should align with the long term plan.

3. Cost Moves Lockstep with Sales—Similar to the sledgehammer approach above, it is too easy using this technique to make large cuts or increases in cost that do not reflect the requirements of individual business units.


Other Companies

IT

Customer Service

R&D

Management Compensation

Sales

Marketing

DERF 10-5405


Title

30



EXECUTIVE GUIDANCE 2011: ACHIEVING INTELLIGENT GROWTH

Four Management Disciplines to Drive Intelligent Growth In 2011

1. Customer Experience Innovation

– Reinvent the Buying Experience to Drive Revenue Growth – Activate Latent Brand Advocates Through Social Media

2. Key Talent Focus

– Reinvigorate the Lost Generation of Key Corporate Talent – Drive Staff Productivity Through Manager-Led Development

3. Risk Vigilance

– Measure and Manage “Integrity Capital”

4. Overspend on Key Corporate Center Capabilities

– Stress “Residual Control” Over Capital Investments – Permanent Cost and Capital Management

Learn More

Order your free copy of the Executive Guidance 2011 publication

Register for the Webcast

7 December 2010, 11 a.m. (EST) 8 December 2010, 1 p.m. (EST)

8 December 2010, 11 a.m. (EST) 9 December 2010, 4 p.m. (EST)



31

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The CFO Executive Board is pleased to provide CPE credits for your participation today1.

How to Request CPE Credits

1. Please follow the link included in your dial-in information e-mail, or below. You will be able to request the Continuing Education credits we offer for this event by filling out the survey. https://survey.executiveboard.com/mrIWeb/mrIWeb.dll?I.Project=ASPFCPECREDITSUR

2. Be sure to enter ALL of your pertinent personal information (name, title, institution, address, telephone, and e-mail), including the Meeting ID below, so we can send your CPE credits to you as soon as possible. Meeting ID: MR-158996

3. Once you submit the online evaluation, the Roundtable will process your request and will e-mail you electronic copies of your CPE credit certificate/certificates within two to three weeks.

Questions?

If you have questions about this process, please feel free to contact our dedicated account director.

Phone: +1-866-913-8102E-Mail: [email protected]

1 Please note that local issuing organizations have final authority over acceptance of Continuing Education credits and organizational standards vary according to geographical regions. Members should contact their issuing organization to determine whether specific courses will be accepted for credit.



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Intelligent Growthhosteddocs.ittoolbox.com/intelligent-growth.pdf · 2013-11-13 · FINANCE AND STRATEGY PRACTICE. CFO EXECUTIVE BOARD™ Intelligent Growth. Expanding Margin and

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