Integrating the Financial    Perspective into M&A and R&D               Activities      2010 Life Science Financial       ...
Agenda   What is “World Class FP&A” and why is it so darn important?                         Case Studies1. Unilever2. Joh...
• A "world-class" finance organization is one that enables  operating management to be truly proactive. In order to be  pr...
Strategic Role of FinanceSource: McKinsey                            4
FP&A in Current Economic EnvironmentSource: McKinsey                          5
Strategic Relevance and Priority of Finance Issues                                                                        ...
Case Study: Unilever                              “Finance of the Future”Source: Hackett Group, 2007                      ...
Source: Hackett Group, 2009                              8
Case Study: Unilever               “Innovation Funnel” - Select best versus just good practices      Considered           ...
Case Study: Unilever         Transition Finance Professionals to Business Partners • More time analyzing, less time gather...
FP&A: COE or Outsource? • Trend from “concierge” FP&A in current economic environment • Consolidate/centralize or outsourc...
Case Study: Ethicon Endo-Surgery Situation Analysis •   Circa early ’90’s •   New J&J operating company •   Highly competi...
Case Study: Ethicon Endo-Surgery                  Team Based Model   • “Teams” redefined! – no easy task      – Many organ...
Case Study: Ethicon Endo-Surgery                                           Product Development                            ...
Case Study: Ethicon Endo-Surgery                                          TEAM ROSTER           R&D                       ...
Case Study: Ethicon Endo-Surgery         It wasn’t easy !!! •   Requires “C” level drive •   Restructuring with layoffs • ...
Case Study: Corning, Inc.Situation Analysis•   Circa 1999 - 2001•   Telecom Industry Boom•   Strategy to Expand beyond fib...
Case Study: Corning, Inc.• Execution of Strategy Became Entirely Dependent Upon M&A• Self feeding M&A environment: “Cornin...
Case Study: Corning, Inc.                            19
Case Study: Corning, Inc.          The music stopped – Nortel Earnings                   Announcement• Stock dropped 30% o...
Case Study: Corning, Inc.                   Key Learnings !!  NEVER EVER EVER ignore valuation fundamentals        RUN FAS...
Questions?                          Special thanks …..                                Thomas Davoren                      ...
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Lifesci cfo conference v2

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World class financial engagement in R&D and Corporate Development organizations

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Lifesci cfo conference v2

  1. 1. Integrating the Financial Perspective into M&A and R&D Activities 2010 Life Science Financial Forum May 10, 2010 Phoenix, AZ1
  2. 2. Agenda What is “World Class FP&A” and why is it so darn important? Case Studies1. Unilever2. Johnson & Johnson – Ethicon Endo Surgery3. Corning 2
  3. 3. • A "world-class" finance organization is one that enables operating management to be truly proactive. In order to be proactive, the FP&A group must foresee the effects of different management choices and provide useful advice about those choices.• The "world-class" FP&A group is constantly tuned-in to the company, to the industry and to the customers in order to proactively advise operating management about the financial impact of their decisions.Source: Howard Fowler CFO, TransForce, Inc 3
  4. 4. Strategic Role of FinanceSource: McKinsey 4
  5. 5. FP&A in Current Economic EnvironmentSource: McKinsey 5
  6. 6. Strategic Relevance and Priority of Finance Issues 67% How do I drive more efficiency and automation in finance? 61% 53% How does finance become a more effective business partner? 57% Ensuring a successful ERP implementation and/or realization of the value of our ERP 57% application platform 51% 45% How can finance contribute to improving planning processes in the organization? 49% Adding more value and becoming more strategically relevant to the broader organization 55% from a stakeholder perspective 49% 62% Aligning strategic priorities with financial outcomes 48% 43% How do I drive greater performance and deliver more value through talent management? 42% 43% How do I design and deploy effective data warehousing, BI and analytics solutions? 41% Gaining credibility and acceptance of the Shared Service Centers and Centers of 31% Excellence 40% 35% Priority How do I plan for and manage globalization of service delivery in the finance function? 38% Strategic Relevance 4 out of the top 10 issues are focused on becoming a more effective business partnerSource: Hackett Group, 2009 6
  7. 7. Case Study: Unilever “Finance of the Future”Source: Hackett Group, 2007 7
  8. 8. Source: Hackett Group, 2009 8
  9. 9. Case Study: Unilever “Innovation Funnel” - Select best versus just good practices Considered Not Considered“broad applicability “observed to add and significant value and can beimpact on decision used within themaking and is either finance units at their mandated or own discretion” strongly recommended” Brand Launch – clear advice on leverage of brand development investments Customer Development – evaluation of likely impact on sales promotions Innovation – decision making toolkit for probability analysisSource: Hackett Group, 2007 9
  10. 10. Case Study: Unilever Transition Finance Professionals to Business Partners • More time analyzing, less time gathering and correcting • Ensure right people become business partners • Move transactional accounting to out-sourced or shared services • If it does not require in-depth understanding of the market – outsource it. Percent of analysts considered partners with operational managersSource: Hackett Group 10
  11. 11. FP&A: COE or Outsource? • Trend from “concierge” FP&A in current economic environment • Consolidate/centralize or outsource transactional activities • Create COE’s for analytical decision support activitiesSource: Deloitte, 2009 11
  12. 12. Case Study: Ethicon Endo-Surgery Situation Analysis • Circa early ’90’s • New J&J operating company • Highly competitive environment • Rapid adoption and growth of endoscopy • Decentralized management • Inefficient use of resources …… need to transform Product Development / R&D / Business Development to succeed in rapid growth, competitive market 12
  13. 13. Case Study: Ethicon Endo-Surgery Team Based Model • “Teams” redefined! – no easy task – Many organizational challenges • Multifunctional – EVERY function part of team • Empowered – Governed by business plan, team contract • Co-located – Multi-functional Team Centers • Self-managed Finance work group – Very first in J&J 13
  14. 14. Case Study: Ethicon Endo-Surgery Product Development Business Development Advanced TechQuarterly Leadership BAM’s • rapid Present & Business Assessment Models deployment Prioritize (mini business plans) • efficient use of • Multi-Functional • Strategic Intent resources • Competitive Analysis •Strategic Fit • sound financial • Regulatory • ROI • Valuation – Financial Model rationale Scheduling Team Team Contract Resource Planning Assignment 14
  15. 15. Case Study: Ethicon Endo-Surgery TEAM ROSTER R&D VALUATION MODELS Production Eng EXPENSE BUDGET Finance CAPITAL BUDGET Marketing Quality/Regulatory SALES FORECAST Supplier Management SCHEDULE Clinical Affairs TEAM CONTRACT• Fully empowered multi-functional team• Governed by team contract• Co-located in team center 15
  16. 16. Case Study: Ethicon Endo-Surgery It wasn’t easy !!! • Requires “C” level drive • Restructuring with layoffs • Build team culture • Eliminate or De-emphasize traditional reporting structures • Minimize fears of being on a team – what’s next? 16
  17. 17. Case Study: Corning, Inc.Situation Analysis• Circa 1999 - 2001• Telecom Industry Boom• Strategy to Expand beyond fiber optics into components• Skyrocketing Multiples - New Economy Mentality• White hot M&A environment 17
  18. 18. Case Study: Corning, Inc.• Execution of Strategy Became Entirely Dependent Upon M&A• Self feeding M&A environment: “Corning Cash”• P/E trading as high as 147x• Valuations +200x Revenue common• Environment of “nervous optimism”• Value = Growth Rate + Quality of Earnings 18
  19. 19. Case Study: Corning, Inc. 19
  20. 20. Case Study: Corning, Inc. The music stopped – Nortel Earnings Announcement• Stock dropped 30% overnight• Share price went from high of $109.25 to $60.13 in 2 months• Didn’t stop there. Dropped to $1.33 by October 2002• Erased over $85 BILLION of market capitalization• Over 18,000 workers laid off with major plant closures• Wrote off $3.5 BILLION impaired goodwill 20
  21. 21. Case Study: Corning, Inc. Key Learnings !! NEVER EVER EVER ignore valuation fundamentals RUN FAST from words “new economy” ALWAYS Ensure a Valid Strategy & Business Plan NEVER let Investment Bankers dictate value to Exec Management 21
  22. 22. Questions? Special thanks ….. Thomas Davoren The Hackett Group P: 312-421-4504 C: 312-560-9161 tdavoren@thehackettgroup.com www.thehacketgroup.com “ Enabling executives to achieve World-Class enterprise performance” Robert C. Helfrich Director of Business Development Welch Allyn, Inc. (315) 685-4684 helfrichr@welchallyn.com 22
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