Understand, Execute, and Communicate Return Driven Strategy to Maximize Your Valuations

Transcription

1 Understand, Execute, and Communicate Return Driven Strategy to Maximize Your Valuations NIRI-Chicago 2004 IR Workshop September 23, 2004 Mark L. Frigo, PhD, CPA, CMA Director The Center for Strategy, Execution, and Valuation Kellstadt Graduate School of Business DePaul University Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 1

2 The Return Driven Strategy Hierarchy Commitment Tenet Commit to Ethically Maximize Financial Value Goal Tenets Fulfill Otherwise Unmet Customer Needs and Target and Dominate Increasing Market Segments Competency Tenets Operate Effectively and Efficiently, Innovate Offerings, Brand Offerings Supporting Tenets Use Key Supporting Activities to Better Achieve Higher Tenets Foundations Genuine Assets, Significant Force of Change, Strategic Performance Measurement Page 2

3 The Return Driven Strategy Initiative Study the great: Long-term approach, need sophistication beyond one metric 10+ Years CFROI about double or more the cost of capital Growth rates exceeding averages, GDP TSR consistent with ROIs and Growth (about 2X market or more) Study mediocre, bankrupt companies what goes wrong? Years of significant value destruction, bankrupt firms Great ROIs, troubled growth rates Low valuation despite otherwise solid performance (MO) Studying the expertise in venture capital firms and successful start-ups Commonalities in the strategies of start-ups that succeed The Result: Return Driven Strategy Page 3

4 Return Driven Strategy Overview of the Model Eleven Hierarchical Tenets of Return Driven Strategy summarize activities that are causes of highest levels of financial results and value creation - and in their absence, massive loss. Genuine Assets are the building blocks of sustainable competitive advantage. While "activities" can be copied, Genuine Assets cannot. Significant Forces of Change Great companies have demonstrated an ability to gain and maintain dominance by recognizing and adjusting to three distinct Forces of Change, globally. Strategic Valuation and Performance Measurement is the rigorous financial foundation supporting Return Driven Strategy. Page 4

5 What makes a High Performance Organization? Commitment to Ethically Maximize Value Creation Hyper-Vigilance to Customer Need Targeting Market Segments with Intent to Dominate Synchronization of Strategic Competencies Continuous Innovation of Offerings to Fulfill Customer Needs Operational Excellence Branding of Offerings Other Activities Supporting the Strategic Competencies Actively Leveraging Genuine Assets Page 5

6 Return Driven Strategy ABOUT RETURN DRIVEN STRATEGY Return Driven Strategy is a framework and set of guidelines for evaluating, developing and refining executable strategy firmly aligned with the goal of maximizing financial value. The ongoing academic, clinical, and real-world research and development of the framework has been led by Dr. Mark L. Frigo and Joel Litman over the last several years. Return Driven Strategy is being successfully used by executives in strategic planning retreats, at board meetings, as a platform for Balanced Scorecard initiatives and by investment analysts. It has also been successfully used and adopted by privately-held companies and non-profit organizations. Page 6

7 Notes Page 7

8 Notes Page 8

9 Notes Page 9

10 Resources Articles: Litman and Frigo, When Strategy and Valuation Meet: Five Lessons from Return Driven Strategy Strategic Finance (August 2004) Frigo and Litman, What is Return Driven Strategy? Strategic Finance (February 2002) Frigo, Performance Measures that Drive the First Tenet of Business Strategy Strategic Finance (September 2003) Frigo, Performance Measures that Drive the Goal Tenets of Strategy Strategic Finance (October 2003) Forthcoming book on Return Driven Strategy Contact: Dr. Mark L. Frigo Page 10