Cash for Growth:
Releasing Capital Employed to Finance Growth
Arnaud Bossy, Director, Growth Implementation Solutions

“50...
Cash for Growth:
Releasing Capital Employed to Finance Growth
Market Insight

When companies evaluate their growth strateg...
Cash for Growth:
Releasing Capital Employed to Finance Growth
Market Insight

Leadership, dedicated governance, employee i...
Cash for Growth:
Releasing Capital Employed to Finance Growth
Market Insight

A layered assessment is necessary to evaluat...
Cash for Growth:
Releasing Capital Employed to Finance Growth
Market Insight

Diagram 4: Ten Growth Processes, Solutions C...
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Cash for Growth: Releasing Capital Employed to Finance Growth

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When companies evaluate their growth strategies, there are times when new opportunities arise, or when an ongoing strategy needs additional effort. Even with a strong business case, finding the necessary funding can be extremely complicated due to the difficulty or reluctance to increase the level of debt in a financially constrained environment. How can organisations release capital employed in the short to medium term to self-finance growth?

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Cash for Growth: Releasing Capital Employed to Finance Growth

  1. 1. Cash for Growth: Releasing Capital Employed to Finance Growth Arnaud Bossy, Director, Growth Implementation Solutions “50 Years of Growth, Innovation & Leadership”
  2. 2. Cash for Growth: Releasing Capital Employed to Finance Growth Market Insight When companies evaluate their growth strategies, there are times when new opportunities arise, or when an ongoing strategy needs additional effort. Even with a strong business case, finding the necessary funding can be extremely complicated due to the difficulty or reluctance to increase the level of debt in a financially constrained environment. How can organisations release capital employed in the short to medium term to self-finance growth? Diagram 1: How to Self-Finance Growth Receivables Other Payables External Payables WIP/ Inventories Receivables Fixed Assets WIP/ Inventories Other Payables External Payables M€ Cash Released Fixed Assets Equity Equity CASH CASH AFTER BEFORE Source: Frost & Sullivan It doesn’t happen on its own... Frost & Sullivan identifies three macro levers that can be activated. Firstly, align the payables and receivables to market and country levels. Apply this through terms and conditions, and reinforce with rigorous processes and binding measures to encourage their application. Secondly, optimise work in progress and inventory through statistical stock dimensioning, process lead-time reduction and faster innovation. To this intent, process improvement initiatives and resources can be utilised and focussed for a maximum impact within a three to six month period. Finally, manage fixed assets to move them off the balance sheet, in particular with the sale and leaseback of key buildings and equipment. © 2013 Frost & Sullivan Page 2
  3. 3. Cash for Growth: Releasing Capital Employed to Finance Growth Market Insight Leadership, dedicated governance, employee involvement and training are fundamental building blocks... Implementation of such levers needs to be carefully thought through, as they require many changes across the operations that need to be carried out in a sustainable way. Therefore, they need to be packaged into a program that will ensure that priority levers are translated into actions, coordinated by a dedicated program manager, monitored by the CFO in terms of balance sheet impact, and supported by existing business improvement resources who are trained in leading projects. Leadership will play a key role in providing a strong focus on “cash, cash and more cash” to all the teams involved in the program. This organisational alignment can happen through objectives sharing, training, raising awareness and coaching employees—from operations to purchasing, from planning to finance, from operational excellence to front-line managers. Diagram 2: Three Pillars for Successful Implementation CASH Governance Training & Coaching High Visibility - Project scope and objectives defined - Balance sheet based measure of success - Owners for initiatives - Operational indicators in improvement phases - Cash for Growth champions - Cash for Growth sponsors - Awareness sessions - Coaching of managers in leading changes - Involvement of staff in workshops and project teams - Frequent communication of results - Involvement of management team in steering committees and project sponsoring Decision based regular instances to deal with roadblocks Engagement and personal development of key contributors Clarity and transparency around initiatives Source: Frost & Sullivan An agile sprint for early results and focus on priorities... Implementing the levers to generate cash for growth allows companies to benefit from quickwins as early as the third month, with a significant impact on their capital employed within 9 to 18 months. The cash generated is typically between 30 per cent and 60 per cent of annual sales. © 2013 Frost & Sullivan Page 3
  4. 4. Cash for Growth: Releasing Capital Employed to Finance Growth Market Insight A layered assessment is necessary to evaluate the potential benefits of a Cash for Growth program. It is initially based on management perception at scoping stage, then financial data for the assessment (assets productivity, days of payables, net fixed-asset turn, etc.). Finally, there is an analysis on local operational indicators for shaping detailed initiatives and for action planning (reduce early deliveries, sell redundant stock, review payment conditions, increase penalties applied, chase outstanding invoices, etc.). Diagram 3: Four Steps to Release Cash for Growth Scoping Assessment ASSESSMENT WORKSHOP - Assessment workshop - Detailed roadmap selfassessment - Prioritisation of levers based on ‘impact on business’ and ‘cost of implementation’ Shaping - Training of local champions within business units - Revising assessment figures - Estimating impact of Cash for Growth program on balance sheet - Actual measurement of Key Performance Indicators (KPI) - Use of financial data and estimations Implementation - Implementing action plans - Actual measurement of Local Operational Indicators - Monitoring impact on KPIs - Launch of QuickWins Source: Frost & Sullivan Whilst reaching the stage when cash is available for investment in a growth strategy, it is highly recommended to re-evaluate the investment choice as competitive, economical or geopolitical factors may have changed the game during those months. Companies can benefit from considering all 10 growth processes in their review in order to prioritise between all opportunities and best invest the capital employed released. Only then can the implementation of growth strategy begin and growth be realised. © 2013 Frost & Sullivan Page 4 1
  5. 5. Cash for Growth: Releasing Capital Employed to Finance Growth Market Insight Diagram 4: Ten Growth Processes, Solutions Covering All Major Growth Sources Fact Foundation Strategic Options Business Case Implementation Mergers & Acquisitions Growth Processes New Product Launch Distribution Channel Optimisation Geographic Expansion Vertical Expansion Strategic Partnering Technology Strategy Customer Strategy Sustainable Profitable Growth New Product Development Competitor Strategy Innovation Management Source: Frost & Sullivan Are YOU ready to grow? The pragmatic and insight-led approach explained above, based on our experience in a variety of industries, can help your company identify key levers to generate capital employed. It is key to selecting the most impactful levers based on the business’s balance sheet structure and operational improvement areas. With a clear path to releasing Cash for Growth, why shouldn’t your company benefit from this extra resource to get ahead in the race for growth? Arnaud Bossy About Frost & Sullivan Frost & Sullivan, the Growth Partnership Company, works in collaboration with clients to leverage visionary innovation that addresses the global challenges and related growth opportunities that will make or break today’s market participants. For more than 50 years, we have been developing growth strategies for the Global 1000, emerging businesses, the public sector and the investment community. Is your organisation prepared for the next profound wave of industry convergence, disruptive technologies, increasing competitive intensity, Mega Trends, breakthrough best practices, changing customer dynamics and emerging economies? Contact Us: CONTACT US Start the discussion • enquiries@frost.com • www.frost.com 1

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