Driving Long-Term, Sustainable Value – The Role of the CFO-Dr Mark Frigo, DePaul University & E. Terry Groff, Reading Bakery Systems

© Copyright Dr. Mark L. Frigo 2019 - Do not copy or redistribute without express written consent of Dr. Mark L. Frigo
Driving Long-Term, Sustainable Value
The Role of the CFO
Chief Financial Officer XXXVI Summit 2019
Marcus Evans
May 10, 2019 8:00am-8:45am
Palm Beach, FL
Dr. Mark L. Frigo, PhD, CPA, CMA
Director, The Center for Strategy, Execution, and Valuation
DePaul University - Chicago, IL (USA) mfrigo@depaul.edu
E. Terry Groff
Former President & CEO
Reading Bakery Systems
© Copyright Mark L. Frigo 2019 - Do not copy or redistribute without express written consent of Dr. Mark L. Frigo

Dr. Mark L. Frigo is Director of the Center for Strategy, Execution and
Valuation and the Strategic Risk Management Lab in the Kellstadt Graduate
School of Business at DePaul University in Chicago. He is the Ledger & Quill
Alumni Foundation Distinguished Professor of Strategy and Leadership at
DePaul where he directs the CFO Strategic Leadership Initiative. Author of
seven books and over 100 articles, his work is published in leading business
journals including Harvard Business Review. Dr. Frigo is a Certified Public
Accountant (CPA), a Certified Management Accountant (CMA) and holds a
Ph.D. in Econometrics. He is co-author of best selling book DRIVEN: Business
Strategy, Human Actions and the Creation of Wealth which is used by CFOs
and management teams to drive superior performance and Strategic Risk
Management: A Primer for Directors and Management Teams and
forthcoming book by Stanford University Press. Dr. Frigo presents keynotes,
executive education programs, and executive workshops throughout North
America, Europe and Asia-Pacific. Dr. Frigo is an advisor to CFOs, CEOs,
executive teams and boards in Fortune 500 companies and entrepreneurs in
developing innovation and growth strategies.
For articles, videos, books and knowledge products for CFOs please see
www.markfrigo.com or contact him at mfrigo@depaul.edu 312-286-8349
About the Speakers

E. Terry Groff If you needed 3,000 pounds of Oreo’s an hour, you’d call Terry
Groﬀ. For over 35 years, Terry ran Reading Bakery Systems, transforming a 6-
person machine shop making a pretzel twisting machine into a global leader
in snack food production systems with over 165 employees and more than
$60,000,000 in sales. If you’ve ever enjoyed a cookie, cracker, pretzel, baked
potato chip or a slice of pizza, there’s a good chance Terry’s former company
built all or some portion of the production machinery that was used to
make those morsels. Terry is a graduate of Lafayette College and Harvard
Business School’s Finance for Small Business program. One of Terry’s
passions is talking about how he used Dr. Mark Frigo’s “Driven” strategy to
energize his organization’s business growth, dramatically increasing the
valuation of the firm by 1/3rd and how he uses Dr. Frigo’s Pyramid to screen
businesses for acquisition.
Terry is an avid pilot, holding single, multi-engine and instrument ratings as
well as two turbojet qualifications.
About the Speakers

• A Framework for Creating Long-Term
Sustainable Value (A way of thinking)
• Case Study (A Success Story)
• “Value Creation Checklist” for CFOs
Creating Long-Term Sustainable Value

Changing
The Way You
THINK!!

High Performance Companies
(and High Performance CFOs)
THINK, ACT, & COMMUNICATE
DIFFERENTLY!

“The Center for Strategy, Execution, and Valuation
at DePaul University is an engagement platform
and laboratory for thought leaders and business
leaders in studying the strategy, innovation and
value creation of high performance companies,
organizations and leaders.”

Thinking Differently in a Positive & Powerful Way
“…. think differently in a positive and powerful
way to achieve greater success professionally
and personally”
“Positive” means the ability to create greater
long-term value
“Powerful” means “Maximum Efficiency…..
Minimum Effort” Judo Strategy

Judo Strategy “Maximum Efficiency, Minimum Effort”
(Creating Greater Value with Less Effort & Resources)

Strategy Execution Performance
Σ
Valuation
Plans Actions Results Forecasts
“The Value Chain of Business”

1
1
Capitalism for the Long Term
"Creating Long-Term Sustainable Value” Strategic Finance (October 2018)

1
2
Mark L. Frigo with Dominic Barton

Return Driven Strategy Initiative
The Center for Strategy, Execution and Valuation

What can we learn from High Performing Companies?
www.markfrigo.com

The Return Driven Strategy Initiative
Global Research on High Performance Companies
Studied >15,000 companies screened globally for a 20-30 year period.
Study the Great: Long-term approach, needs a sophistication screening beyond
one metric (ROI + Growth = Value Creation)
1. Superior ROI: 10+ Years CFROI about double (2x) or more the cost of
capital every year for at least 10 consecutive years, AND
2. Disciplined Growth: 10+ Years Asset Growth rates exceeding GDP
Growth (while maintaining 2xROI spread), AND
3. Superior Shareholder Value Creation: 10+ Years Total Shareholder
Returns (TSR) consistent with ROIs and Growth (usually about 2x
market or more)
The Result: “Return Driven Strategy”

High performing companies show an extraordinary ability to continually
re-strategize and execute (ROI + Growth = Value Creation)
1.Superior ROIs For at least a ten year period,
the firm’s returns must have exceeded its cost of
capital by 2x or more, proving the companies
resource allocation and efficiency capabilities.
2.Disciplined Growth For the same period, the
company must have compounded its returns by
reinvesting in itself, much like a high interest
bank account, while maintaining superior ROIs.
This Growth/ROI combination translates to
rapidly growing economic value added.
3.“Consistent” Shareholder Returns
Total returns to shareholders relative to major
market indices should be consistent with the ROI
and growth patterns. This characteristic must
take into consideration “embedded
expectations” analysis, and therefore no hard-
and-fast rule can be made about RTSR levels.

Assessing Your Company through the Life Cycle Framework
18
The Life Cycle framework
 Recognizes that all companies go through development, growth, maturity and decline and some “re-birth”
 Helps uncover the right analytical questions and focus attention on the key issues likely to determine future
excess return
– A company’s position on the Life Cycle depends on the level and change of its economic return and its re-investment rate
– Value creation is “Driven” by “innovation” for companies on the left side of the life cycle and “productivity” for companies on the right
Early Stage
Growth
Slowing/Maturing
Business
Distressed
Business
Mature
Business
High
Growth
Discount
Rate
Economic
Return Fade
Capital Allocation
Grow Assets
Capital Allocation Capital Allocation
Improve then Grow Shrink Assets
Value creation occurs across the entire Life Cycle as long as the
company is doing the right thing with its capital
Innovation Productivity

Strategic Investor Relations
Communicating the Strategy to the Board and Investors
What should be communicated
…..and Why?

Strategic Leadership Traits of High Performance CFOs
DePaul University CFO Strategic Leadership Initiative

2
1
Mark L. Frigo with Dominic Barton

Level 1
Managing
the
Present
Business
Levels 2
Creating
the
Future
Business
Performance
Goals and Targets
Executing the
2019 Plan
Growth & Innovation
Opportunities
2020+
Strategies
Strategic Leadership for CFOs and Finance Teams
Managing the Present Business AND Creating Future Growth

Strategic Leadership for CFOs and Finance Teams
Strategic Discipline, Balance and Alignment to Create Future Growth
Managing the Present
Focus on Current Customers
and Performance Benchmarks
Internally Focused
Focus on Delivering Offerings
Haphazard Stakeholder
Engagement
Reactive to Forces of Change
(Regulatory, Technology,
Customers, Competitors)
Creating the Future
Focus on Future Customers and
Future Customer Needs
Externally Focused
Focus on Innovating Offerings
Strategic Partnering, Strategic
Stakeholder Engagement
Proactive Risk Management;
Creation of Unique Capabilities
in a Learning Culture

Insight from Good to Great Companies and DRIVEN Companies
GTG Criteria for Selection
Start with 1,435 companies.
Screening and selection process TSR
Insight from GTG:
1. Level 5 Leaders
2. Hedgehog Concept
3. Right People on the Bus….
4. Confront the Brutal Facts
DRIVEN Criteria for Selection
Start with >15,000 companies
Three criteria (for > 10 years)
Insight from DRIVEN:
1. Innovate the Entirety of the
Offering
2. Target Unmet Needs of the Right
Customer Groups…
3. Engage Employees and Others
DRIVEN Companies:Abbott, Kimberly-Clark, Gillette, Walgreens

Good to Great - Disciplined People, Thought and Action
Return Driven Strategy - A Framework for Disciplined Thought & Action
Source: Collins, Good to Great – Why Some Companies Make
the Leap …and Others Don’t
Source: Frigo and Litman, DRVEN - Business Strategy,
Human Actions and the Creation of Wealth
RDS = A Language and Logic for Disciplined Thought & Action
High Performance CFOs: Think, Act and Communicate Strategically

Consider Company A and Company B
Company A Company B
Source: Credit Suisse HOLT Lens

Apple – From Troubled Company to Market Leader
Motorola – From Market Leader to Troubled Company
Source: Credit Suisse HOLT Lens

1. Developing & assessing the strategy
and plans of the company
2. Developing Focused Growth Strategies
3. Communicating the strategy inside the
company and to the Board
4. Strategic Investor Relations
5. Evaluating M&A Opportunities
6. Strategic Risk Management
7. Developing a strategy for the CFO and
Finance organization
How CFOs Use this way of thinking
Strategic Leadership Skill #1 - Think, Act, and Communicate Strategically

And Now for a
SUCCESS STORY!

TL Green Biscuit & Cracker
Indianapolis, Indiana
Reading Thermal Systems
Robesonia, Pennsylvania
E.I. Groff Technical Center
Sinking Spring, Pennsylvania
ExACT Continuous Mixing
Reading Pretzel & Snack
A Case Study: Developing a Focused Growth Strategy

From Going Nowhere…..
-
5,000
10,000
15,000
20,000
25,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Revenue 1994 - 2006

Reading Bakery Systems Executive Workshop December 7, 2005
“Thinking Differently about Your Business”

Thinking differently about our Customers
Stop thinking “sales territories” and replace with “Motivation
Categories”
• Corporate modus operandi: “protect my job”
• Entrepreneur’s modus operandi: “protect my money”
Focus increased attention on customers who appreciate and value
what you do.
• Take care of those who take care of you
• “Fire” customers who don’t value what you do
Doing business with customers who always are unhappy
Doing business with customers who cost you money
STOP the “Lose-Lose” relationship and recover the wasted
energy

Thinking differently: Creating Pricing Power
Recognition of the trend, especially among corporate buyers, to
treat all buying as simply a “price exercise.”
How can we differentiate ourselves from our competitors?
How can we regain Pricing Power?
o Create separate Technical Center to create “Exploratory
Environment”
o Create relationships with food science programs at colleges and
universities: Penn State, Rutgers, Guelph (Canada) University
o Pay for a PhD; get specific research; breakthrough nozzle
design; breakthrough flavor chromatography had major impact
on oven design.

From Going Nowhere…..
To Growing the Business and its Valuation
Enter Return Driven Strategy

Executive Conferences
Presented with CEOs Who Have Used the Framework
http://www.youtube.com/watch?v=mjIJ5DwX5NE

A “Value Creation Checklist” for Driving Profitable Growth
For CFOs “Thinking Differently”
1. Target the Right Customer Needs
Focus your business on the changing unmet needs
of your customers and emerging new customers
2. Target the Right Customers
Target the right customer groups, groups of
customers with increasing needs you can fulfill
with your unique capabilities and value your
offerings
3. Change and Innovate Your Offerings
Continuously change (innovate) your offerings to
better fulfill changing customer needs
4. Brand Your Offerings
Actively “brand” your offering by making the
connection in the mind of your customers
between your offerings and their unmet needs
5. Use the Right Incentives and Measures
Use the right incentives and performance
measures to drive the business toward greater
value creation and valuation of the business

Value Creation Checklist (excerpts)
On a 1-10 scale, how important are the checklist item below at your
company (1=low importance, 10 high importance)
1. Develop clarity as to the purpose of the firm
2. Align strategy and compensation
3. Motivate and mentor employees for continual learning and
productivity improvement
4. Increase involvement of top management with lean implementations
5. Design performance measurement to blend short-term and long-term
performance measures
6. Develop feedback to monitor changes in external environment and
assess validity of key strategic assumptions

Some Take-aways…
• Our research on hundreds of high
performance organizations and executives
supports the need to develop “focused”
growth strategies for creating long-term value
• Our research on high performance CFOs
shows the value of strategic leadership skills
• Use your strengths and experiences of others
to develop your own uniques approach
• Take action!
• Develop your “Value Creation Checklist”

Thank you! …… Questions?
For articles, books, videos, Value Creation Checklists and other resource material
www.markfrigo.com mfrigo@depaul.edu

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Driving Long-Term, Sustainable Value – The Role of the CFO-Dr Mark Frigo, DePaul University & E. Terry Groff, Reading Bakery Systems