The CFO as a strategist-catalyst partner to the CEO The Dbriefs Driving Enterprise Value series

Transcription

1 The CFO as a strategist-catalyst partner to the CEO The Dbriefs Driving Enterprise Value series Ajit Kambil, Managing Director, Deloitte LLP Bill Ribaudo, Partner, Deloitte & Touche LLP Date July 19, 2017

2 Welcome to the next episode in Driving Enterprise Value Shareholder value Revenue growth Operating margin (after taxes) Asset efficiency Expectations Volume Price Realization Selling, General & Administrative (SG&A) Cost of Goods Sold (COGS) Income Taxes Property, Plant & Equipment (PP&E) Inventory Receivables & Payables Company Strengths External Factors Acquire New Customers Retain and Grow Current Customers Leverage Income- Generating Assets Strengthen Pricing Improve Customer Interaction Efficiency Improve Corporate/ Shared Service Efficiency Improve Development & Production Efficiency Improve Logistics & Service Provision Efficiency Improve Income Tax Efficiency Improve PP&E Efficiency Improve Inventory Efficiency Improve Receivables & Payables Efficiency Improve Managerial & Governance Effectiveness Improve Execution Capabilities Product & Service Innovation Product & Service Innovation Cash/Asset Management Demand & Supply Management Marketing & Advertising IT, Telecom & Networking Product Development Logistics & Distribution Income Tax Management Real Estate & Infrastructure Finished Goods Accounts, Notes & Interest Receivable Governance Operational Excellence Marketing & Sales Account Management Price Optimization Sales Real Estate Materials Merchandising Equipment & Systems Work in Process & Raw Materials Accounts, Notes & Interest Payable Business Planning Partnership & Collaboration Retention Customer Service & Support Human Resources Production Service Delivery Program Delivery Relationship Strength Cross-Sell/ Up-Sell Order Fulfillment & Billing Procurement (Excluding Production Materials & Merchandise) Business Performance Management Agility& Flexibility Business Management Strategic Assets Financial Management Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 2

3 Outline Changing expectations of the CFO role From responder to transformer: Four ways of working with CEOs Identifying immediate strategy opportunities Framing a strategy process for differentiation Aligning capital allocation to strategy Leveraging revenue multipliers Conclusions Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 3

4 CFOs face a changing business context Business model and competitive issues New disruptive competitors Convergence across industries and obliteration of traditional industry boundaries Products or services to products + services Competing on design and experiences Activism and capital allocation Talent: changing workforce demographics and war for talent Finance operations issues Digital Finance: Cloud, RPA, Blockchain, Cognitive and In-memory Accounting for complex product service combinations Developing the next generation of leaders across multiple/different locations, cultures and generations Technology-driven issues Real-time connectivity driving transparency The internet of things drives new levels of asset efficiency and new models of competition Social, mobile, analytics, cognitive and cloud transforming competition Regulatory, demographic and macroeconomic issues Fracturing of countries, markets and regulations globalization and its discontents Increasing regulatory demands real time monitoring through IT The bathtub recovery, new normal and contestable markets Critical resource constraints water, energy, minerals Aging populations Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 4

5 Driving increasing CEO expectations of CFOs as a strategy partner Catalyze behaviors and change across the organization to execute strategic and financial objectives Catalyst Threshold performance CFO Strategist Provide financial leadership in determining strategic business direction, M&A, financing, capital market and longer-term strategies vital to the future performance of the company Protect and preserve the critical assets of the organization and accurately report on financial position and operations to internal and external stakeholders Steward Operator Balance capabilities, talent, costs, and service levels to fulfill the finance organization s core responsibilities efficiently Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 5

6 Four ways of partnering with the CEO Provide analytic and information systems support at the request of the business Transformer Enable new product service offerings through finance or IT strategy that enable differentiation Responder Architect Find ways to address a business problem with a finance solution and get to yes Critically examine the proposals from the businesses to assess if they realistically create value Challenger Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 6

7 Polling question #1: The dominant constraint limiting the profitable growth of my company is: An external factor (e.g., declining markets, increasing resource costs etc.) An internal factor (e.g., ineffective resource allocation to opportunities, lack of management consensus, culture, indecisive CEO, etc.) Don t know/not applicable Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 7

8 CFOs and CEOs can identify strategic opportunities together What are the dominant constraints on the growth of our organization, and how can we use finance to push back the constraints? What is the dominant uncertainty facing our organization, and how can we help structure and navigate the uncertainty? What are the areas of spend with greatest uncertainty on returns, and how can we reduce uncertainty in the value of spend? What could disrupt our organization, and how will we respond? If we double or halve the size of our organization will we rescale flexibly and create more value for stakeholders? What should we have on our kill list? Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 8

9 Polling question #2 What is the dominant constraint on the growth of your company? Write a few words to describe the dominant constraint. Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 9

10 Polling question #3: My company has a clear process agreed to by leadership for framing our goforward company strategy. Agree Disagree Don t know/not applicable Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 10

11 CFOs can help to frame a strategy process What is our WINNING aspiration? The right playing field: What will we offer Geographies, product categories, consumer segments, channels, vertical stages of production The purpose of our organization: Our guiding aspirations Where will we play? How will we win? The set of capabilities required to succeed: Our reinforcing activities Our specific configuration What capabilities must be in place? What makes us distinctively better: Our value proposition Our service delivery What are the priority initiatives? The support systems Systems, structures, and measures required to support our choices Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 11

12 Competing on client experience People: Ensure people are skilled and able to meet the client needs People Delivery: Ensure services are delivered in a cost effective and timely manner with quality Our spaces Our digital interactions Coordinate consistent delivery across all experience dimensions Our insights Delivery Methods tools, events and offerings Methods, tools, offerings and events: Ensure well designed methods, tools, offerings, events delivered to clients Insights: Deliver better topical insights of relevance to clients Digital: Provide a well designed digital platform for interactions Spaces: Provide compelling spaces for client and employee interactions Coordination Systems: Provide coordination and measurement systems such as a consistent CRM to support the strategy Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 12

13 Differentiating to win Network Connections with others to create value Process Signature or superior methods for doing your work Product system Complementary products and services Channel How your offerings are delivered to customers and users Customer engagement Distinctive interactions you foster Profit Model Network Structure Process Product Performance Product System Service Channel Brand Customer Engagement Configuration Offering Experience Profit model The way in which you make money Structure Alignment of your talent and assets Product performance Distinguishing features and functionality Service Support and enhancements that surround your offerings Brand Representation of your offerings and business Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 13

14 Beyond a strategy process it is increasingly critical to align capital allocation to business strategy Source capital Debt Equity Cash flows Deploy capital Business model Projects Revenues/ROIC Return capital Dividends Buybacks Capital appreciation Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 14

15 40-year S&P 500 lookback: There are (only) four business models Each leverages a different set of assets IP assets (Technology creators) Customer and interaction assets (Network orchestrators) Physical assets (Asset builders) People assets (Service providers) Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 15

16 Polling question #4: What are the assets your company leverages for its business model? Physical People IP Customers & interactions Don t know/not applicable Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 16

17 Technology-based business models have lower marginal costs Network orchestrator Many make, many sell Technology creator Make one, sell many Service provider Hire one, sell one Asset builder Make one, sell one Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 17

18 Growth and, therefore, they scale faster Network orchestrator Technology creator Service provider Asset builder Years Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 18

19 Technology New technologies birth economic revolutions shifting value Network revolution ~2010 Information revolution ~1990 Industrial revolution ~mid- 1800s Services revolution ~1975 Agrarian economy Time Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 19

20 Where revenue multipliers increase at the rate of twice the former business model Biotechnology Software Pharmaceuticals Technology creators 4x Network orchestrators 8x Credit card companies Stock exchanges Social networks Digital divide Industrials Hospitals Hotels 1x Asset builders 2x Service providers Consultants Financial services Insurance *Revenue Multiplier equals TSHV divided by revenue (expressed as a multiple) *Revenue Multiplier equals TSHV divided by revenue (expressed as a multiple) Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 20

21 Investors reallocated capital towards technology based models Selected composition of S&P 500 market 100% 83% 68% 32% 20% 16% 80% 80% 84% 60% 68% 40% 20% 17% 32% 0% Source: Ocean Tomo, LLC Intangible assets Tangible assets Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 21

22 The top S&P 500 components have changed entirely since 1990 Top 10 S&P 500 components for 1990 Top 10 S&P 500 components for 2017 Valuation* Company $65 IBM $64 Exxon $50 General Electric $48 Philip Morris $42 Shell $35 Bristol-Myers Squibb $35 Merck $34 Walmart $33 AT&T $31 Coca Cola Company Valuation* Apple $754 Alphabet $586 Microsoft $507 Amazon $425 Berkshire Hathaway $412 Facebook $411 Exxon Mobil $340 Johnson and Johnson $338 JPMorgan Chase & Co. $313 Wells Fargo $278 Source: Capital IQ *In billions of USD Source: Capital IQ *In billions of USD Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 22

23 Five steps to make progress Understand Create Develop Reallocate Formulate current business and mental models new market balance sheet, identifying intangible assets new business models that leverage new intangible assets capital to new business models that leverage new assets new KPIs that support the new business models and align incentives Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 23

24 Moving toward the network to generate shareholder value Business Current model Potential model opportunities Potential model opportunities 1 Solutions Technology creator Technology creator/ Network orchestrator Create a rental or subscription model Establish networks of manufacturers Technology creators Network orchestrators 2 2 Services Asset builder Network orchestrator Establish R&D incubators 4 Asset builders 2 Service providers 3 Products Asset builder Technology creator/ Network orchestrator Capture and commercialize data Build cloud based computing platform Combined potential opportunities move the revenue multiple from 3x to 5x, increasing enterprise value by 50% 4 Analytics Asset builder Technology creator Collaborate with R&D centers Build cloud based computing platforms Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 24

25 The Great Race Industries are converging while traditional industry boundaries are blurring Asset builders/service providers are striving to embrace technology Technology creators/network orchestrators are investing in tangible assets Businesses need to balance tangible and intangible investments Limited examples are beginning to reveal progress The businesses that dominate tomorrow s landscape will be those that blend the physical and virtual to win the Great Race and those that remain onedimensional are likely to struggle. Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 25

26 Conclusions CFOs are increasingly critical to their CEOs as a strategic partner. The ways of partnering vary with issues: as a CFO agree in advance on your posture and role in strategy and change initiatives. Identify strategic opportunities today to focus actions and ensure a consistent strategy process to develop longer term strategy and capabilities critical to differentiation Determine how different business model revenue multipliers impact your valuation and align business strategy to the capital allocation strategy. Ensure clear communications on business model changes the pathways for change and expected revenue multipliers associated with strategic choices. All of the above imply the CFO role today demands more strategy and change skills and actions significantly beyond traditional finance. Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 26

27 Question and answer Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 27

28 Join us August 31 at 3 p.m. ET as our Driving Enterprise Value series presents: Advanced forecasting in FP&A: Automation is here and expanding Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 28

29 Eligible viewers may now download CPE certificates. Click the CPE icon in the dock at the bottom of your screen. CPE Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 29

30 Resource information Subscribe to CFO Insights, our biweekly CFO Program publication: Follow the Deloitte University Press Executive Transitions Collection: Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 30

31 Contact information Ajit Kambil Managing Director Deloitte LLP Connect with me on LinkedIn William J. Ribaudo Managing Partner Deloitte & Touche Connect with me on LinkedIn Miles Ewing Principal Deloitte Consulting LLP Connect with me on LinkedIn Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 31

32 This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation. Copyright 2017 Deloitte Development LLC. All rights reserved. The CFO as a strategist-catalyst partner to the CEO 32

33 About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ( DTTL ), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as Deloitte Global ) does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the Deloitte name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see to learn more about our global network of member firms. Copyright 2017 Deloitte Development LLC. All rights reserved. 36 USC