Presentation is loading. Please wait.

Presentation is loading. Please wait.

Teaching Notes: FinntrackFinntrackStrategy: Analysis and Practice Strategy: Analysis and Practice ©2005 McGraw-Hill Education EuropeMcGraw-Hill Education.

Similar presentations


Presentation on theme: "Teaching Notes: FinntrackFinntrackStrategy: Analysis and Practice Strategy: Analysis and Practice ©2005 McGraw-Hill Education EuropeMcGraw-Hill Education."— Presentation transcript:

1 Teaching Notes: FinntrackFinntrackStrategy: Analysis and Practice Strategy: Analysis and Practice ©2005 McGraw-Hill Education EuropeMcGraw-Hill Education Europe Discussion Notes

2 Index Introduction to DSM –Multinational CorporationsMultinational Corporations –OverviewOverview –Corporate OrganisationCorporate Organisation –Markets and BusinessesMarkets and Businesses –Business ObjectivesBusiness Objectives Financial Policy Revenue Maximization Financial Value Maximization Shareholder Value Maximization –Annual ReportsAnnual Reports –Corporate Governance, Risk Management and Internal ControlCorporate Governance, Risk Management and Internal Control Strategic Risk Management –StrategyStrategy Growth Investing Foreign Direct Investing (FDI) Economies of Scale - Integration Acquisitions and Mergers Valuation (finance) Workshop –Case AnalysisCase Analysis –DebateDebate –Case QuestionsCase Questions –How to Use Your Workshop ResourcesHow to Use Your Workshop Resources –DisclaimerDisclaimer –Learning ObjectivesLearning Objectives Click on Logo Source: WikipediaWikipedia

3 Index Introduction to DSM –OverviewOverview –Corporate OrganisationCorporate Organisation –Markets and BusinessesMarkets and Businesses –Business ObjectivesBusiness Objectives Financial Policy Revenue Maximization Financial Value Maximization Shareholder Value Maximization –Annual ReportsAnnual Reports –Corporate Governance, Risk Management and Internal ControlCorporate Governance, Risk Management and Internal Control Strategic Risk Management Click on Image Source: DSMDSM

4 Index Business Drivers Business Analysis –Quantitative MethodsQuantitative Methods –Strategic Business AnalysisStrategic Business Analysis Financial Statements - The System Financial Statements - Analysis –Financial RatiosFinancial Ratios Corporate Strategy –Business Strategy OverviewBusiness Strategy Overview –Value Based ManagementValue Based Management –Value DriversValue Drivers –Business EconomicsBusiness Economics –Economic Value AddedEconomic Value Added –Market CapitalisationMarket Capitalisation –Shareholder ValueShareholder Value –Shareholder Value AnalysisShareholder Value Analysis –Value CreationValue Creation –Value Management ModelsValue Management Models –Centralization, Decentralization and DelegationCentralization, Decentralization and Delegation Why Delegate? Click on Image Source: DSMDSM

5 Index Performance Assessment: Balanced ScorecardPerformance Assessment: Balanced Scorecard Performance Management Framework Econometrics Balanced Scorecard Vision and Strategy Corporate Culture Financial Customer Internal Business Learning and Growth Measurement of Intellectual Capital Business Value as a System Systems Thinking Organisational Effectiveness Value Chain Chapter 9 - Annotated Lecture OutlineChapter 9 - Annotated Lecture Outline Lecture Chapter 18 - Annotated Lecture Outline Lecture Chapter 21 - Annotated Lecture Outline Lecture Click on Image Source: DSMDSM

6 Workshop This workshop series is designed to compliment Teaching and Learning Strategies for undergraduate, postgraduate and executive level Strategic Management and related programmes and courses using the case studies featured in the Strategy Analysis and Practice text.Strategy Analysis and Practice The overall aim is to support the learning contents offered in the relevant chapters of the book whilst expanding participants knowledge and skills base required to understand, review and analyse the decisions taken during the strategy development and implementation processes of DSMs Vision 2005: Focus and Value agenda from 2000 - 2005.

7 Workshop Strategy Analysis and Practice John McGee, Warwick Business School Howard Thomas, Warwick Business School David Wilson, Warwick Business School

8 Case Analysis A case study is a particular method of qualitative research.case study qualitative research Rather than using large samples and following a rigid protocol to examine a limited number of variables, case study methods involve an in-depth, longitudinal examination of a single instance or event: a case.case They provide a systematic way of looking at events, collecting data, analyzing information, and reporting the results.dataanalyzinginformation As a result the researcher may gain a sharpened understanding of why the instance happened as it did, and what might become important to look at more extensively in future research. Click on Image Source: DSMDSM

9 Case Analysis Case studies lend themselves especially to generating (rather than testing) hypotheses. testinghypotheses The scope and relevance of case studiesThe scope and relevance of case studies Types of case study Illustrative case studies Exploratory case studies Critical instance case studies Program implementation case studiesProgram implementation case studies Program effects case studies Cumulative case studies Business school case studies Medical case studies History of the case study Conclusions Notable case studies References See also External links Click on Image Source: DSMDSM

10 Workshop Debate Workshop discussion topics have been divided into five parts according to the relevant chapters of the book: 1.IntroductionIntroduction 2.Business AnalysisBusiness Analysis 3.Corporate StrategyCorporate Strategy 4.Performance Assessment: Balanced ScorecardPerformance Assessment: Balanced Scorecard 5.Business Value as a SystemBusiness Value as a System You should ensure that you have understood the contents of chapters 9, 18 and 21 prior to attending any of the above debates.91821 Also see: How to Use Your Workshop Resources Learning Objectives Learning from Case Studies: A Short Guide for Students

11 Case Questions Please Note: At your instructors discretion the indicative questions below and elsewhere in this resource may be varied or deemed unnecessary for teaching and learning purposes for some courses or modules. Identify DSMs key performance indicators and evaluate their the corporate strategic performance. What should DSM do if a business group did not meet its contract, given DSMs historical culture of tolerance for mediocre performance? Finally, there were some more fundamental questions. Implementing the new financial metrics had led to greater emphasis on short-term performance. DSM felt that this short-term focus could be hazardous for a specialty company that heavily depended on innovation and R&D.metrics

12 Case Questions For example, in 2000 one of DSMs most successful and profitable product was Stanyl, a product which had been 10 years in development, with negative EPs throughout all those years. Stanyl How would these kinds of investment project be handled under the new approach? Also see Learning Using Case Studies for further informationLearning Using Case Studies for further information Also see A Model for Case Analysis and Problem SolvingA Model for Case Analysis and Problem Solving

13 How to Use Your Workshop Resources Viewing You will need either MS PowerPoint program or PowerPoint Viewer installed on your computer. The latter may be downloaded free from Microsoft website here.here Navigation The Learning Contents (Literature Reviews) are linked to a relevant public domain on the Internet. Most, if not all pictures/images are clickable, i.e. linked to its source which provides further information on the topic or the copyright holder.

14 How to Use Your Workshop Resources If your version of PowerPoint does not show navigation buttons on the slide, right click on the screen and select your destination from the dialogue box. Alternatively use the small arrowheads, indicating previous and next.

15 Disclaimer This information is provided with the understanding that the authors and publishers do not assume any legal responsibility for the completeness or accuracy of the contents or any opinions or views expressed on these pages or linked destination sources. It is the nature of the media (Internet) that some of the pages may not always be available due to broken or dead links, withdrawals, etc. Whilst the publishers will be pleased to take any appropriate corrective action, for example, by replacing or removing the sources when possible, they unable to assume any legal responsibility for unavailability of any third party material for whatever reason beyond their direct control.

16 Learning Objectives The main objective of the workshop is to evaluate DSMs corporate strategic planning process and outcomes and their impact on the companys business level operations. Participants will have an opportunity of developing and enhancing their strategic thinking and internet research skills analytical and critical thinking skills by reviewing the factors that influenced corporate centre's decisions on the businesses in their portfolios understanding of distinction between scale and scope and implications that these concepts have for adding value in multi-business firms

17 Learning Objectives awareness of the links between strategy and organizational structure and the way organizational structures have changed over time skills to analyse and critically evaluate the different factors that can add value in multi-business firms knowledge and understanding of the empirical research findings of work which has examined the links between strategy and performance in multi-business corporations knowledge and understanding of a range of performance measures and the concepts of shareholder value and economic value-added and their linkage to the strategy process

18 Learning Objectives understanding of the notion of a balanced scorecard and the ways in which this framework can be used to manage value understanding of the importance of the performance feedback loop for assessing and making strategic choices understand of the strategic systems perspective and the way in which this can be used to build an holistic picture of strategy context, content and process understanding of stakeholder theory and be able to apply this framework to gain insight into strategic issues in a range of organizations ability to identify a range of challenges facing organizations in the future and explain the ways in which a strategic systems approach can help managers to think and act strategically

19 Introduction to DSM Overview Multinational Corporations Corporate Organisation Business Objectives Strategy Corporate Governance, Risk Management and Internal ControlCorporate Governance, Risk Management and Internal Control Source: DSMDSM

20 Overview Company Name History Products Data Click on Image Source: DSMDSM

21 Overview DSMDSM (in full Koninklijke DSM N.V., or Royal DSM N.V.) is a multinational chemicals company. Its headquarters are in Heerlen, the Netherlands. Originally a state-owned coal mining company (Dutch State Mines/De Staats Mijnen). chemicalsHeerlenNetherlands Click on Image Source: WikipediaWikipedia

22 Overview Name The name DSM is actually derived from the English language, it is the acronym of the translation of the Dutch name; De Nederlandse Staatmijnen translated into Dutch State Mines (DSM). This company was regularly in the news in the late 1960's, because of the dutch government's decision to close all the (state)mines. In 1973, after the last mine was closed, the company decided to carry the acronym as its name. Click on Image Source: WikipediaWikipedia

23 Overview History DSMDSM was established in 1902 as a coal mining company. Through the years the company focused not only on mining, but also on the chemical sector. Due to the closure of all the mines and the unemployment that followed, the dutch government stimulated the chemical plants, to provide jobs for the miners. In 1989 DSM was privatized, and started its first sale of the company's common shares to public investors. In 2002 the company sold their petrochemical division (the naphtha crackers) to Sabic of Saudi Arabia. Click on Image Source: Collection D.VisserCollection D.Visser

24 Overview Industrial chemicals (e.g. feedstocks for plastics producers) Performance materials (e.g. automotive plastics, resins, elastomers) Life science products (e.g. antibiotics, food specialties) Nutritional products (e.g. vitamins)Nutritional Click on Image Source: WikipediaWikipedia Products

25 Data DSM has about 24 thousand employees, in a.o. the Netherlands, Sweden, the United States, Switzerland, Austria, Belgium, the United Kingdom, Canada, Brazil, Germany, Italy, Spain and Australia. DSM has a total of 270 production locations and offices worldwide and achieved a turnover of 7.7 billion Euros in 2004, with a net profit of 262 million Euros.NetherlandsSweden United StatesSwitzerlandAustriaBelgiumUnited KingdomCanada BrazilGermanyItalySpainAustralia Overview

26 Multinational Corporations A multinational corporation (MNC) or multinational enterprise (MNE) or transnational corporation (TNC) is a corporation/enterprise that manages production establishments or delivers services in at least two countries.multinational enterprise (MNE) corporationcountries Critiques Examples In fiction See also Fostering Growth and Promoting a Responsible Market Economy - A G8 DeclarationFostering Growth and Promoting a Responsible Market Economy - A G8 Declaration Annual Report on the Guidelines for Multinational EnterprisesAnnual Report on the Guidelines for Multinational Enterprises The 2005 edition includes a special focus on corporate responsibility in the developing world

27 Multinational Corporations Multinational corporations (MNC) are often divided into three broad groups: Horizontally integrated multinational corporations manage production establishments located in different countries to produce same or similar products.Horizontally integrated multinational corporations Vertically integrated multinational corporations manage production establishment in certain country/countries to produce products that serve as input to its production establishments in other country/countries. Diversified multinational corporations manage production establishments located in different countries that are neither horizontally or vertically integrated.Diversified multinational corporations

28 Multinational Corporations Multinationals have played an important role in globalization. Given their international reach and mobility, prospective countries, and sometimes regions within countries, must compete with each other to have MNCs locate their facilities (and subsequent tax revenue, employment, and economic activity) within.globalizationtax To compete, countries and regional political districts offer incentives to MNCs such as tax breaks, pledges of governmental assistance or improved infrastructure, or lax environmental and labour standards. This process of becoming more attractive to foreign investment can be characterized as a race to the bottom.environmentallabour standardsrace to the bottom

29 Corporate Organisation 2005 2000 Source: DSMDSM Overview of activities The activities of DSM are grouped into four clusters: Nutrition, Pharma, Performance Materials and Industrial Chemicals. DSM is active worldwide. The company creates innovative products and services that help improve the quality of life. More...More... Corporate movie DSM has created a unique movie which introduces you to a few examples of our key products and explains the benefits that they bring to people around the world.

30 Corporate Organisation DSM had a decentralized organizational structure bult around 15 business groups (consisting of various business units) that were empowered to execute all business functions. Larger Image Source: healthallianze.co.nzhealthallianze.co.nz

31 Markets and Businesses Agriculture Automotive Building & construction Dietary supplements Electrical & electronics Feed / animal nutrition Fibers, textiles & clothing Food & beverages Furniture Marine Medical materials Packaging Personal care / cosmetics Pharmaceuticals Sports, leisure & consumer goodsSports, leisure & consumer goods Transportation & mechanical engineeringTransportation & mechanical engineering Business Groups Source: DSMDSM

32 Business Objectives Larger Map Click on Image Image by BizEdBizEd Shareholder Value Growth Sales 60% > 10 billion by 2005Sales 60% > 10 billion by 2005 Specialty Products 80% Industrial 20% Financial Targets Financial Value Market Capitalisation

33 Revenue Maximization Larger Picture Source: Georgetown UniversityGeorgetown University Revenue Profit maximization Revenue Maximisation Click on Image

34 Financial Policy Objectives Given the dynamic nature of DSMs markets, it has always been important for the company to have a strong financial position. This gives DSM the financial resilience to continue pursuing its strategic goals even during economic downturns. DSM aims for a net debt which is less than 40% of group equity plus net debt and an operating profit before amortization and depreciation (EBITDA) which is at least 8.5 times the balance of financial income and expense. This underlines the company's aim of maintaining its A long-term credit rating. DSM aims to achieve a cash flow return on investment (CFROI) which is higher than the weighted average cost of capital (WACC).EBITDACFROIWACC Key Financial Data Source: DSMDSM Click on Image

35 Shareholder Value Maximization Creating and managing shareholder value Shareholder value Definition Shareholder Value Maximization Criticism Alternative Definition based upon Criticism: Stakeholder AnalysisAlternative Definition based upon Criticism: Stakeholder Analysis Also see Value Based ManagementValue Based Management Source: Shareholdervalue.comShareholdervalue.com

36 Financial Value Maximization Larger Image Click on Image Source: Return Driven StrategyReturn Driven Strategy

37 Financial Value Maximization Stock (Share) Valuation Fundamental criteria (fair value) Market criteria (potential price) See also External links Return on Investment Calculations Arithmetic return Logarithmic return Examples of high yielding investmentsExamples of high yielding investments See also External links Click on Image Source:UserStrategy.comUserStrategy.com

38 Financial Value Maximization 1)DCF Analysis: IntroductionDCF Analysis: Introduction 2)DCF Analysis: The Forecast Period & Forecasting Revenue GrowthDCF Analysis: The Forecast Period & Forecasting Revenue Growth 3)DCF Analysis: Forecasting Free Cash FlowsDCF Analysis: Forecasting Free Cash Flows 4)DCF Analysis: Calculating The Discount RateDCF Analysis: Calculating The Discount Rate 5)DCF Analysis: Coming Up With A Fair ValueDCF Analysis: Coming Up With A Fair Value 6)DCF Analysis: Pros & Cons Of DCFDCF Analysis: Pros & Cons Of DCF 7)DCF Analysis: ConclusionDCF Analysis: Conclusion Discounted Cash Flow

39 Financial Value Maximization Cash Value Added - CVA The difference between the operating cash flow that a company demands and the operating cash flow it generates. Operating cash flow demanded is the cash the company requires to meet its business costs within a given period. Operating cash flow generated is all of the cash that a business generates through sales and investments without any reductions for non-cash expenses such as depreciation, amortization, deferred interest expenses and so on. cashsales Larger Image Source: MetapraxisMetapraxis

40 Internal Rate of Return The internal rate of return (IRR) is defined as the discount rate that gives a net present value (NPV) of zero. The NPV is calculated from an annualized cash flow by discounting all future amounts to the present.internal rate of return (IRR) discount ratenet present valuecash flowdiscounting Source: WikipediaWikipedia Larger Image Click on Image Source: Baarns Consulting GroupBaarns Consulting Group

41 Divestment In finance and economics, divestment or divestiture is the reduction of some kind of asset, for either financial or social goals. A divestment is the opposite of an investment.financeeconomicsasset investment Divestment for financial goals Divestment for social goals Criticisms of divestment for social goalsCriticisms of divestment for social goals External links See also Larger Image Click on Image Source: AccentureAccenture

42 Annual Reports Key Financial Data 2005 2000 Financial Statement 2005 2000 Source: DSMDSM Click on Image Source: DSM Report by the Managing Board Review of business Report by the Supervisory Board to the shareholders Information about the DSM Share

43 Corporate Governance, Risk Management and Internal Control 2005 Click on Image Source: DSMDSM The Dutch Corporate Governance Code prescribes that quite a number of documents relating to Corporate Governance should be published on the company's website. We gladly adhere to this practice in order to inform our stakeholders and other interested parties of the way our company has embedded its Corporate Governance policies. Here you can find that DSM is applying all 113 Best Practices of this code with one exception.113 Best Practices Also see DSM managed in a controlled, consistent and balanced way, World Economic Forummanaged in a controlled, consistent and balanced way World Economic Forum Also see Value Maximization, Stakeholder Theory, and the Corporate Objective Function

44 Strategic Risk Management Despite growing sensitivity to shareholder value, most VBM initiatives fail. They simply fail to be integrated into day-to-day decision-making. This is not a new insight. Several advisors, including our former colleagues, recommend compelling behavioral change through incentives. Others, including ourselves, weave the concepts of free cash flow and Economic Value Added into corporate strategy, by making EVA ®- based targets a vital part of long-term planning. Both initiatives add value. Yet they sometimes just scratch the surface.Economic Value Added Shareholdervalue.com Click on Image Source: Shareholdervalue.comShareholdervalue.com

45 Financial Risk What is Financial Risk? Measuring Market Risk Interest-Rate Risk Liquidity Risk Credit Risk Value at Risk Details of the definition Example Common VaR calculation models Caveats Further reading External links Larger Image Click on Image Source: Danmarks NationalbankDanmarks Nationalbank

46 Strategy Vision 2005: Focus and Value Diversification Divestment Growth Acquisitions and Mergers 50%Acquisitions and Mergers Foreign Direct Investment Organic Growth 6% p.a.Organic Growth International Trade Market Capitalisation Click on Image Source: netg.comnetg.com

47 Growth Investing Organic Growth Organic growth Organic growth is the rate of business expansion through increasing output and sales as opposed to mergers, acquisitions and take-overs.businessmergersacquisitions Growth investing is a style of investment strategy. Those who follow this style, known as growth investors, invest in companies that exhibit signs of above-average growth, even if the share price appears expensive in terms of metrics such as price-to-earning or price-to- book ratios. In typical usage, the term "growth investing" contrasts with the strategy known as value investing. However, some notable investors such as Warren Buffett have stated that there is no theoretical difference between the concepts of value and growth when considering ("Growth and Value Investing are joined at the hip"). Indeed, when just investing in one style of stocks, diversification could be negatively impacted.investmentshareprice-to-earningprice-to- bookvalue investingWarren Buffettdiversification Organic Growth

48 International Trade International trade International trade is the exchange of goods and services across international boundaries or territories. In most countries, it represents a significant share of GDP. While international trade has been present throughout much of history (see Silk Road, Amber Road), its economic, social, and political importance has been on the rise in recent centuries. Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing are all having a major impact. Increasing international trade is the usually primary meaning of "globalization". GDP Silk RoadAmber RoadIndustrializationtransportation globalizationmultinational corporationsoutsourcingglobalization

49 International Trade International trade theory Ricardian model Heckscher-Ohlin model Specific Factors Gravity model Regulation of international trade Risks in international trade Economic risks Political risks See also External links Data Click on Image Source: HSBC Bank plc 2002 - 2006HSBC Bank plc 2002 - 2006

50 Growth Investing Foreign Direct Investment Foreign direct investment (FDI) Foreign direct investment (FDI) is the movement of capital across national frontiers in a manner that grants the investor control over the acquired asset. Thus it is distinct from portfolio investment which may cross borders, but does not offer such control. Firms which source FDI are known as multinational enterprises (MNEs). In this case control is defined as owning 10% or greater of the ordinary shares of an incorporated firm, having 10% or more of the voting power for an unincorporated firm or development of a greenfield branch plant that is a permanent establishment of the originating firm.capitalportfolio investmentMNEsbranch plant Click on Image Source: The GlobalistThe Globalist

51 Foreign Direct Investment Policies to Attract Foreign Direct InvestmentPolicies to Attract Foreign Direct Investment Doing Business Direct Investment is Primary Strategy to Access Foreign MarketsDirect Investment is Primary Strategy to Access Foreign Markets China and India Jockey for the Top Most Attractive Foreign Direct Investment Destination GloballyChina and India Jockey for the Top Most Attractive Foreign Direct Investment Destination Globally World Economic Forum Business Strategy Competitiveness Click on Image Source: University of Michigan Library

52 Economies of Scale - Integration Integration This occurs when two firms join together to form one new company. Integration can be voluntary (a merger) or forced (a takeover). The figure below shows the three main types of integration. Click on Image Source: BizEd, University of BristolBizEd

53 Acquisitions and Mergers Click on Image Source: George & CoGeorge & Co Financing M&A Merger Acquisition High-yield Examples Motives behind M&A M&A and Investment Banking M&A Marketplace Difficulties Levels and flows Merger Classifications of mergers Issues World Economic Forum Also see Value DriversValue Drivers

54 Valuation (finance) Valuation Valuation of companies (business valuation)Valuation of companies (business valuation) Valuation using discounted cash flowsValuation using discounted cash flows Valuation using multiples Usage Asset pricing models Related Material Click on Image Source: George & CoGeorge & Co

55 Business Drivers Larger Image Source: MetapraxisMetapraxis Also see Business Prophet - C.K. PrahaladBusiness Prophet - C.K. Prahalad Insights and Opportunities: Transforming Procurement Capabilities in AsiaInsights and Opportunities: Transforming Procurement Capabilities in Asia Economic Value Added

56 Business Analysis 1.Benefits of Business AnalysisBenefits of Business Analysis 2.Roles of Business AnalystsRoles of Business Analysts 3.Business Process ImprovementBusiness Process Improvement 4.Goal of Business AnalystsGoal of Business Analysts 5.External LinksExternal Links Also see Quantitative Methods Strategic Business Analysis Financial Statements Quantitative Method From Wikipedia, the free encyclopediaFrom Wikipedia, the free encyclopedia Larger Image Click on Image Source: BizEdBizEd

57 Quantitative Methods Lecture 1: Functions & Economic Relationships Lecture 2: Economic Models/Linear Models Lecture 3: Basic Differential Calculus Lecture 4: Optimisation Lecture 5: Functions of Several Variables Lecture 6: Unconstrained Optimisation Lecture 7: Constrained Optimisation Lecture 8: Growth & Dynamics Lecture 9: Introduction to Difference Equations Source: Bob Beachill Leeds Metropolitan University beach@thenet.co.uk Quants Handbook Click on Image Source: Brian C. McCarthy Ohio UniversityBrian C. McCarthy

58 Strategic Business Analysis Larger Image Click on Image Source: WikipediaWikipedia SWOT Analysis PEST market analysis tool Porter's Five Forces Model Value Chain Managing Your Value Chain Resources and Capabilities Organisational Capabilities Financial Analysis

59 Financial Statements: The System Larger Image Click on Images Source: Investopedia.comnvestopedia.com

60 Financial Statements: Analysis 1)Financial Statements: IntroductionFinancial Statements: Introduction 2)Financial Statements: Who's In Charge?Financial Statements: Who's In Charge? 3)Financial Statements: The SystemFinancial Statements: The System 4)Financial Statements: Cash FlowFinancial Statements: Cash Flow 5)Financial Statements: EarningsFinancial Statements: Earnings 6)Financial Statements: RevenueFinancial Statements: Revenue 7)Financial Statements: Working CapitalFinancial Statements: Working Capital 8)Financial Statements: Long-Lived AssetsFinancial Statements: Long-Lived Assets 9)Financial Statements: Long-Term LiabilitiesFinancial Statements: Long-Term Liabilities 10)Financial Statements: Pension PlansFinancial Statements: Pension Plans 11)Financial Statements: Conclusion Printer friendly version (PDF format)Financial Statements: Conclusion Printer friendly version (PDF format) Source: Investopedia.comnvestopedia.com

61 Financial Ratios A financial ratio is a ratio of two numbers of reported levels or flows of a company. It may be two financial flows categories divided by each other (profit margin, profit/revenue). It may be a level divided by a financial flow (price/earnings). It may be a flow divided by a level (return on equity or earnings/equity). The numerator or denominator may itself be a ratio (PEG ratio).numerator denominator Ratios Flow-to-flow Level-to-level Ratio-to-ratio To cash flow To earnings To market cap See also External links Larger Image Download Financial Ratio Analysis (177K) for Microsoft Excel.Financial Ratio Analysis Source: Baarns Consulting GroupBaarns Consulting Group

62 Corporate Strategy Literature Reviews Strategic Management Business Strategy Value Based Management Value Creation Value Management Models Centralization and Decentralization and DelegationCentralization and Decentralization and Delegation Corporate Social Responsibility Financial Highlights Also see Annotated Lecture Outline Image by The Knowledge Management AdvantageThe Knowledge Management Advantage Click on Image for further information Synergy

63 Performance Assessment Performance Management Framework Econometrics Balanced Scorecard Vision and Strategy Corporate Culture Financial Customer Internal Business Learning and Growth Feedback Measurement of Intellectual Capital Image by TPGTPG Click on Image for further information Literature Reviews Also see Annotated Lecture Outline

64 Business Value as a System Systems Thinking Organisational Effectiveness Value Chain Stakeholder Theory Theory of Constraints Literature Reviews Click on Image by Andersen Consulting Also see Annotated Lecture Outline

65 Business Strategy Overview Larger Map Source: BizEd, University of BristolBizEd Click on image for further information

66 Value Based Management Click on Image for further information Source: FDCFDC Source: Dresden International University Managing for Value

67 Value Drivers Twelve Value DriversTwelve Value Drivers FOCUS has developed a unique tool that is proven to help ensure the success of your transaction. For buyers and sellers alike, the key to achieving successful M&A transactions is to identify the value components or Value Drivers of the transaction and then to make certain a plan is in place to integrate these components at the least cost. Your Customer Base Recurring Revenue Product Integration Gross Margin Intellectual Property Human Capital Management Experience and ExpertiseManagement Experience and Expertise General Administrative Leverage Distribution Leverage History/Reputation and Operating TenureHistory/Reputation and Operating Tenure Sales and Marketing Effectiveness Barriers to Competitive Entry/DifferentiationBarriers to Competitive Entry/Differentiation 12 VALUE DRIVERS: Self Assessment Scorecard

68 Value Drivers Crucial organisational capabilities, giving the firm competitive advantage. Different from Rappaport value drivers. Life Style Extra Rappaport value drivers Life Style Extra sales growth rate, operating profit margin income tax rate, incremental investment in working capital, incremental investment in fixed capital, replacement of fixed capital, cost of financing (cost of capital) forecast duration (the planning period). Turner, R. (1998). Projects for Shareholder Value: The Influence of Project Performance Parameters at different Financial Ratios. Project Management, 4(1), 70-73.Projects for Shareholder Value: The Influence of Project Performance Parameters at different Financial Ratios Larger Image Click on Image Source: The Segal Group, IncThe Segal Group, Inc

69 Value Drivers Measuring and Ranking Value DriversMeasuring and Ranking Value Drivers Larger Image Value drivers intangible assets and intellectual capital The new New Economy Analyst Report – March 16, 2003 Juergen DaumsJuergen Daums new New Economy Best Practice service ©2003 Juergen Daum. All rights reserved.

70 Business Economics Larger Map Source: BizEd, University of BristolBizEd

71 Business Economics Economics, which focuses on measurable variables, is broadly divided into two main branches: microeconomics, which deals with individual agents, such as households and businesses, and macroeconomics, which considers the economy as a whole, in which case it considers aggregate supply and demand for money, capital and commodities. Aspects receiving particular attention in economics are resource allocation, production, distribution, trade, and competition. Economic logic is increasingly applied to any problem that involves choice under scarcity or determining economic value. Click on Images for further information. microeconomics macroeconomicsaggregate supplydemandmoneycapitalcommoditiesresource allocationcompetition value Click on Images for further information. Economics Source: WikipediaWikipedia

72 Economic Value Added Larger Image What Does Economic Value Added Really Mean? Click on Images for further information Source: David Harper, (Contributing Editor - Investopedia Advisor)Investopedia Advisor

73 Value Creation Copyright © 2000, Community Intelligence Labs. Click on ImageCommunity Intelligence Labs Michael Goold, Andrew Campbell and Marcus Alexander, Corporate Strategy and Parenting Theory, Long Range Planning, Vol.31, No.2, pp.308-314, 1998. Corporate Strategy and Parenting Theory Parenting Advantage (Goold & Campbell) Parenting Styles (Goold & Campbell) Core Competence (Hamel & Prahalad) Distinctive Capabilities (Kay) Cash Value Added Operational Effectiveness

74 Value Management Models Larger Image Source: performgroupperformgroup Click on image for further information Larger Image Click on Image Source: RealisationRealisation

75 Value Management Models - Six Sigma Six Sigma Six Sigma was pioneered by Bill Smith at Motorola in 1986[1]. Originally, it was defined[2] as a metric for measuring defects and improving quality; and a methodology to reduce defect levels below 3.4 Defects Per (one) Million Opportunities (DPMO). Six Sigma is a registered service mark and trademark of Motorola, Inc[3]. Motorola has reported over US$17 billion savings[4] from Six Sigma to date.Bill SmithMotorola[1][2]Defects Per (one) Million Opportunities[3][4] AlliedSignal and GE became early adopters of Six Sigma and reported benefits of over US$300 million during its first year of application[5]. Their CEO's, Larry Bossidy and Jack Welch, played a vital role in popularizing Six Sigma. Other major organizations who claim to have benefited from Six Sigma implementation are Ford, Caterpillar, Microsoft, Raytheon, Quest Diagnostics, Seagate Technology, Siemens, Merrill Lynch, Lear, 3M and many more.GE[5]FordCaterpillarMicrosoft RaytheonQuest DiagnosticsSeagate Technology SiemensMerrill LynchLear3M Click on Image Source: KETCH.caKETCH.ca

76 Value Management Models - Six Sigma Definition Application & Success Healthcare Banking Insurance Construction Military Methodology DMAIC DMADV Roles Required for Implementation Examples of Some Key Tools Used Criticisms of Six Sigma Of its origin Of the term: Six Sigma Of statistics Of methods Of effects References See also External links Click on Image Source: QCI International. All rights reserved. QCI International. All rights reserved.

77 Value Management Models - Value Chain Source: Themanager.orgThemanager.org Click on images for further information

78 Shareholder Value What is Shareholder Value? What Drives Shareholder Value?What Drives Shareholder Value? Shareholder Value Analysis Larger Image Source: AccentureAccenture

79 Shareholder Value Analysis Larger Image Source: agility.com.auagility.com.au Rediscovering Shareholder Value: A Proven Approach How to Build Value into a Merger Shareholder Value Tool

80 Market Capitalisation Click on Image Source: Valuation "Float" Categorization of companies by market capCategorization of companies by market cap Examples Levels See also Lists External links Data

81 Centralization, Decentralization and Delegation Advantages of Centralization Close control of operations Uniformity of policies, practices, and procedures Better use of centralized experts Advantages of Decentralization Faster decision-makingdecision-making Decision better adapted to local condition Better management experience for managers that are considered for promotion to higher level management Click on Image Copyright: Cornell University Cornell University

82 Why Delegate? At a certain point, there are just too many facets to running a successful business to continue doing it alone. In an increasingly complex business environment, with all the trends affecting business today, such as globalization, the information technology explosion, strategic alliances, increased mergers and acquisitions, heightened competition, and higher expectations of nearly every customer, it just isn't possible to still be that one person in control of everything. Bringing in others to manage is an absolute necessity for survival now.increasingly complex business environment strategic alliancesmergers and acquisitions Source:

83 Performance Management Framework Performance Management History What is BPM? Metrics / Key Performance Indicators Application software types Designing and implementing a business performance management programmeDesigning and implementing a business performance management programme Vendors See also Performance Management: Making it Work: Achieving the Right Value BalancePerformance Management: Making it Work: Achieving the Right Value Balance Advocating Productivity Larger Image Click on Image Source: SourceMedia and DM ReviewSourceMedia and DM Review

84 Econometrics Econometrics literally means 'economic measurement'. It is a combination of mathematical economics, statistics, economic statistics and economic theory.measurement mathematical economics Click on Image Source: econ101.comecon101.com Undergraduate Econometrics Graduate Econometrics Online Resources for Econometric StudentsOnline Resources for Econometric Students

85 Balanced Scorecard Literature Reviews Balanced Scorecard Click on Image by PA Consulting GroupPA Consulting Group A comprehensive view of business performanceA comprehensive view of business performance Public sector Balanced Scorecard Purpose of the Balanced Scorecard Evolution of the Balanced Scorecard See also References Balanced Scorecard

86 Vision and Strategy People sometimes say that it is pointless to develop a sense of purpose for a company. There already is a purpose: "To maximize return on investment to shareholders." Obviously, making money is important. But to confuse the essential requirement for advancing in the game with the deeper rationale, is a profound confusion. Focusing on the purpose of making money at the expense of other purposes, will naturally distract an organization's competitive advantage." (P. Senge) Organization's Vision Mission Statement Click on Image Source: PsylonPsylon

87 Corporate Culture Image by Matsushita Electric Industrial Co. Ltd.Matsushita Electric Industrial Co. Ltd. Influences on organizational culture Strong/Weak cultures Classifying organizational culture Hofstede Deal and Kennedy Charles Handy Edgar Schein Elements of culture Critical Views on Organizational CultureCritical Views on Organizational Culture Figures in Organizational Culture See also Sources

88 Financial Finance Examples of some basic financial conceptsExamples of some basic financial concepts Business finance Finance of states Financial economics Financial mathematics Financial analysis See also External links Click on Image Source: PPARCPPARC

89 Customer Types of Customers Needs and Expectations The Loyalty Effect Larger Image Click on Image Source: Forward AnalyticsForward Analytics

90 Internal Business Stakeholder view Common usage Examples of common stakeholders Shareholder Concept - Maximising Shareholder WealthShareholder Concept - Maximising Shareholder Wealth Stakeholder Concept - A Wider Range of ObjectivesStakeholder Concept - A Wider Range of Objectives See also External links Stakeholder Larger Image Click on Image for further information

91 Learning and Growth Learning Organization What was intended! Feedback Taxonomy Roles and flows Challenging assumptions Accounting Larger Image Click on Image for further information

92 Training and Development Systematic strategies Measuring the return on investment of your training programs, beyond the classroom and the bottom line, creates a learning environment that can make any company stronger Source: Managementmag.com Managementmag.com Return on Investment

93 Feedback In cybernetics and control theory, feedback is a process whereby some proportion or in general, function, of the output signal of a system is passed (fed back) to the input. Often this is done intentionally, in order to control the dynamic behaviour of the system. Feedback is observed or used in various areas dealing with complex systems, such as engineering, architecture, economics, and biology.cyberneticscontrol theory feedback engineeringarchitectureeconomicsbiology Click on Image Source: VensimVensim

94 Feedback Types of feedback In electronic engineering In mechanical engineering In economics and finance In nature In organizations In gaming Sources See also Climate Feedback Loop Source: geocomplexity.netgeocomplexity.net

95 Measurement of Intellectual Capital Source: QuantAAQuantAA The Structure of Intellectual Capital Why Care about IC Tracking IC Measurement of IC Related Articles Intellectual Property Gaining Protection in the Muslim WorldIntellectual Property Gaining Protection in the Muslim World Intellectual Property Rights in Islam Resources

96 Systems Thinking Systems thinking Systems thinking involves the use of various techniques to study systems of many kinds. It includes studying things in a holistic way, rather than through purely reductionist techniques. It aims to gain insights into the whole by understanding the linkages and interactions between the elements that comprise the whole "system". Systems thinking can help avoid the silo effect, where a lack of organizational communication can cause a change in one area of a system to adversely affect another area of the system.systemsholisticreductionistsilo effectorganizational communication Why use systems thinking techniques?Why use systems thinking techniques? What is a system? Examples Methodologies Applications See also Bibliography External links Click on Image Source: systems-thinking.orgsystems-thinking.org

97 Organisational Effectiveness The external environment and shareholder value expectationsThe external environment and shareholder value expectations Business Strategy Building leadership and management capabilityBuilding leadership and management capability Achieving strategic readiness of intangible assetsAchieving strategic readiness of intangible assets Strategic success measures Culture Larger Image Click on Image Source: Perform GroupPerform Group

98 Value Chain The Hidden Costs of a Forgotten Business System Larger Image Click on Image Source: Expert Views, Inc.Expert Views, Inc.

99 Stakeholder Theory Click on Image Source: San Diego UniversitySan Diego University As originally detailed by R. E. Freeman (1984), stakeholder theory attempts to ascertain which groups are stakeholders in a corporation and thus deserve management attention. In short, it attempts to address the "Principle of Who or What Really Counts."R. E. Freemanstakeholder theory stakeholderscorporation

100 Theory of Constraints Larger Image Click on Image Source: de.lge.comde.lge.com Theory of Constraints (TOC) is a body of knowledge on the effective management of (mainly business) organizations, as systems. The author is Eliyahu M. Goldratt, with many others contributing to the body of knowledge.managementbusiness organizationssystemsEliyahu M. Goldratt Theory of Constraints SummaryTheory of Constraints Summary

101 Theory of Constraints The thinking process (TP) Throughput Accounting Application-specific TOC solutions Operations Supply Chain / Logistics Finance and Accounting Project Management Marketing and Sales The Six Necessary and Sufficient Questions relating to TechnologyThe Six Necessary and Sufficient Questions relating to Technology Development and practice Also See References Larger Image Click on Image Source: Osaka Gakuin University Osaka Gakuin University

102 Corporate Strategy Lecture Outline 1/4 Lecture Introduction The move from a focus on competitive strategy to a focus on corporate strategy. A discussion of the growth in multi-business firms with illustrative examplescompetitive strategygrowth in multi-business firms Slide: Definition of corporate strategy. Click on Image for further information

103 Corporate Strategy Lecture Outline 2/4 Changes in Organisational Structures over Time An explanation of the ways in which organizational structures have evolved and developed over time and a discussion of the advantages and disadvantages of U versus M forms of organization.organizational structures Slide: Figure 9.2 plus bullet points outlining strengths and weaknesses of this form of organizationFigure 9.2 Slide: Figure 9.3 bullet points outlining strengths and weaknesses of this form of organizationFigure 9.3 Click on Image for further information

104 Corporate Strategy Lecture Outline 3/4 Strategy and Structure A discussion of the two-way relationship between strategy and structure and Alfred Chandlers work. A consideration of the questions raised by the rise of M forms of organizationrelationship between strategy and structure Slide: Bullet points of issues (page 343) Managing the Multi-business Firm 1: The Corporate-Business Interface An introduction to issues of business unit boundaries, groupings of businesses and headquarter/business unit relationships. An exposition of common corporate-business interface styles.corporate-business interface styles Slide: Bullet points relating to three different styles (p.347) Managing the Multi-business Firm 2: The Role of the Corporate Headquarters An explanation of the different ways in which the centre can add value and a description of Gold and Campbells work on parenting styles Slide: Figure 9.7Figure 9.7 Slide: Figure 9.8Figure 9.8

105 Corporate Strategy Lecture Outline 4/4 Managing the Multi-business Firm 3: Managing the Portfolio A brief review of portfolio models such as the familiar BCG matrix plus an explanation of the limitations of these models and the reasons why they are no longer popular.BCG matrix Slide: Figure 9.9Figure 9.9 Evidence and Experience A brief review of the finding of some of the empirical work in the area, emphasizing the difficult of measuring relatednessmeasuring relatedness Slide: bullet points on concept of relatedness Concluding Comments Link back to the resource-based view highlighting the connection between core competences and relatedness. A summary of the key tensions in managing portfolio businesses including centralization v decentralization, vertical v horizontal focus and co-operation v competition. centralization v decentralization

106 Performance Assessment 1/5 Lecture Introduction - placing this set of lectures in context by explaining the links between value creation and capture and strategic management. An explanation of the central importance of performance assessment and feedback in the strategy process. performance assessment in the strategy process Slide: Figure 1.6Figure 1.6 The Domain of Business Performance - a brief review of some of the different domains business performance emphasizing the distinction between operational, financial and effectiveness measures.operationalfinancial effectiveness measures Slide: Figure 18.1Figure 18.1

107 Performance Assessment 2/5 Concepts of Value - an exposition of some alternative concepts of value and related performance measures including accounting, economic value-added and shareholder based approaches. Students may have covered some of these concepts in greater depth on other modules so it may be necessary for the lecturer to refer to work undertaken in other modules.economic value-added shareholder based approaches Slide: Concepts of Value and performance management: bullet point list of sub-headings from pages 674-677performance management The link between shareholder value and business models - an explanation of Yip's characterisation of business models and the way this links with 'value-based' management techniques. Undergraduate lecturers may select to omit this section.business models Slide: Figure 18.2Figure 18.2

108 Performance Assessment 3/5 The Balanced Scorecard - an introduction to the balanced scorecard framework and a discussion of its economic value-added (EVA) and shareholder value added (SVA) roots. A discussion of the basic building blocks of the models and the way measures are derived.economic value-added Slide: Figure 18.3Figure 18.3 The Balanced Scorecard as a Strategic Management System - linking the balanced scorecard to the strategy concepts, including key success factors, to provide an overall map.balanced scorecard to the strategy concepts Slide: Figure 18.418.4 Larger Image Click on Image for further information

109 Performance Assessment 4/5 The Strategic Management System in Practice - a discussion of the roles and responsibilities of the senior management team in the light of the links between the balanced scorecard and the strategic management system. This could include a discussion of the advantages and disadvantages of linking the top team's performance to balanced scorecard outcomes.team's performance Slide: Figure 18.518.5 Click on Image for further information

110 Concluding Comments - a recap on how the building blocks that have been constructed in previous lectures can be brought together through the use of value-based management techniques such as the balanced scorecard. The lecture could conclude with a return to the emergent versus planned strategy debate, a theme throughout the module, by discussing the role of performance feedback in the strategy process.emergent versus planned strategy Larger Image Click on Image for further information Performance Assessment 5/5

111 Business Value as a System 1/5 Lecture Introduction - the aim of this lecture is to pull together a number of themes that have emerged throughout the course. Emphasis is placed on an integrated, systems view of strategy. Lecturers may choose to introduce some systems theory concepts such as but this is optional.systems view of strategy The main point is to show how prior lectures have acted as a series of building blocks to build a view of the organization as part of an integrated web of relationships. Slide: Figure 21.1 Click on Image for further information

112 Business Value as a System 2/5 Stakeholder Theory - The concept of the organization at the heart of an intricate web of relationships leads naturally to a discussion about stakeholders. The main elements of stakeholder theory need to be explained but again the emphasis in this final lecture should be on the firm as a locus of contacts and contracts. Lecturers may choose to allude to learning theories at this point, showing how learning allows the firm to adapt to change within its network.stakeholder theory Slide: Table 21.2 p783 Larger Image Click on Image for further information

113 Business Value as a System 3/5 Creating Value for Whom? - Once the firm is viewed from a stakeholder perspective, the next question becomes whose interests do the firm serve? Much of the traditional strategy literature takes for granted that shareholders have primacy and the main goal of business organizations is to maximize shareholder value. Once the existence of multiple stakeholders is recognized then it makes sense to look to a wider set of objectives, including corporate social responsibility i.e. themes that have been developed in earlier sessions. Slide: Bullet points in two columns list main principles of shareholder and CSR perspectives (taken from page 786) Larger Image Click on Image for further information

114 Business Value as a System 4/5 Creating and Capturing Value - the authors argue that the integration of a strategic systems approach with the goal of maximizing shareholder value offers the best practical insight into managing a business.maximizing shareholder value Lecturers may agree or disagree but, whatever viewpoints are adopted, the main purpose of this session is to draw together key themes from prior lectures and to show how the pieces fit together. The key messages of the text are that strategy is highly context specific and that competitive advantage most commonly lies in the space where strategy and practice meet. Intangible assets are of vital importance to the attainment of competitive success and reputation and image and identity are particularly important elements within the resource portfolio. Slide: Pulling it Together: The Example of HP - bullet points drawn from top of page 788

115 Business Value as a System 5/5 Concluding Comments - lecturers will want to give this last session their own flavour but may care to use Sundaram and Inkpen (2004) quote 'All of us seek a path to a promised land in which accountable firms managed by ethical decision-makers create the greatest value for the greatest number of stakeholders' and weave their own critical argument around this theme.Sundaram and Inkpen


Download ppt "Teaching Notes: FinntrackFinntrackStrategy: Analysis and Practice Strategy: Analysis and Practice ©2005 McGraw-Hill Education EuropeMcGraw-Hill Education."

Similar presentations


Ads by Google