1. Researchers analyzed European companies that proactively reduced costs before the 2008 financial crisis to determine what factors allowed them to perform better long-term.
2. They found that proactive companies scored higher on three "visionary variables": degree of innovation, degree of centralization, and internally sourced CEOs.
3. Specifically, proactive companies invested more in research and development, had more centralized business functions, and were more likely to promote CEOs from within instead of hiring externally.
Initial public offerings: Improve the process and improve firm performance The University of Alabama
This white paper summarizes extensive research on the drivers of firms post initial public offering (IPO). It highlights the importance of the first year post IPO and the core strategic advantage of an agile,fast and responsive human resource strategy.
We find that IPO firms with generously compensated CEOs and large pay disparities between the CEO and other top executives have lower failure rates and longer time to survive in subsequent periods following the offering. Economically, firms with CEO pay (pay gaps) in the 75th percentile have a failure risk that is, on average, 11.56% (13.20%) lower than the failure risk of firms with CEO pay (pay gaps) in the 25th percentile. The relationship between CEO pay and IPO survival is strengthened among firms with lower agency conflicts, whereas the link between pay gap and IPO survival is pronounced among firms with stronger internal promotion incentives. The results are robust to alternative specifications and additional sensitivity tests.
Initial public offerings: Improve the process and improve firm performance The University of Alabama
This white paper summarizes extensive research on the drivers of firms post initial public offering (IPO). It highlights the importance of the first year post IPO and the core strategic advantage of an agile,fast and responsive human resource strategy.
We find that IPO firms with generously compensated CEOs and large pay disparities between the CEO and other top executives have lower failure rates and longer time to survive in subsequent periods following the offering. Economically, firms with CEO pay (pay gaps) in the 75th percentile have a failure risk that is, on average, 11.56% (13.20%) lower than the failure risk of firms with CEO pay (pay gaps) in the 25th percentile. The relationship between CEO pay and IPO survival is strengthened among firms with lower agency conflicts, whereas the link between pay gap and IPO survival is pronounced among firms with stronger internal promotion incentives. The results are robust to alternative specifications and additional sensitivity tests.
Issue | McKinsey Quarterly 2013 Number 4
@McKQuarterly
Strategy to beat the odds
Examines how to make wise strategic choices, mobilize the C-suite to take advantage of big data, use social technologies to engage employees and transform organizations, and build vibrant communities with help from companies.
Results of a survey I participated in at the beginning of the year around business improvement groups. An opportunity to break away from the competition during hard times !
International Journal of Business and Management Invention (IJBMI)inventionjournals
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online
Rationale for adopting CREAM Report - Deming WayJAYARAMAN IYER
CREAM Report is the essence of Corporate Governance, Risk Management, Earnings, Accounting Quality and Management Quality. It establishes ACCESS - Accelerating Corporate Energy in Sustainable State.
Reclaim Your Business: HR Outsourcing in 2012CPEhr
Reclaim Your Business:
How Human Resources Outsourcing Will
Enable Companies to Rebuild in 2012. After years of recession, stagnant economic growth, high unemployment
and continuing uncertainty fueled by a partisan Washington, most small
and mid‐sized employers are looking towards the future with reserved
optimism. However, while many economic factors remain in flux,
employers are able to take control of their business in 2012. Many are
proactively investigating how Human Resources (HR) Outsourcing can
assist them in trimming excess operating costs, reducing insurance
premiums and HR overhead, and improving employee productivity.
The main objective of this study was to establish the effect of Mergers and Acquisition (M&A) on a firm’s competitive advantage in the IT industry. A descriptive research approach was adopted with a target population comprising of all employees atHewlett Packard Company (HP) in Nairobi, Kenya.Horizontal mergers were found to be the most common types of mergers. These mergers weremainly driven by external economies of scale, market power, combined complimentary resources and customer service quality. The findings also established that the major elements of competitive advantage were volume of transactions and markets share. External economies of scale, market power and combined complimentary resources contributed positively to competitive advantage while surplus funds and idle resources did not drive competitive advantage. Based on the study,researchers recommended that decisions on M&A should be based on first understanding which facets of the business will be driven by the M&A in order to derive a competitive advantage. In addition, there is need for companies to do progress evaluation of the M&A specifically to review its impact on competitive advantage.
Issue | McKinsey Quarterly 2013 Number 4
@McKQuarterly
Strategy to beat the odds
Examines how to make wise strategic choices, mobilize the C-suite to take advantage of big data, use social technologies to engage employees and transform organizations, and build vibrant communities with help from companies.
Results of a survey I participated in at the beginning of the year around business improvement groups. An opportunity to break away from the competition during hard times !
International Journal of Business and Management Invention (IJBMI)inventionjournals
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online
Rationale for adopting CREAM Report - Deming WayJAYARAMAN IYER
CREAM Report is the essence of Corporate Governance, Risk Management, Earnings, Accounting Quality and Management Quality. It establishes ACCESS - Accelerating Corporate Energy in Sustainable State.
Reclaim Your Business: HR Outsourcing in 2012CPEhr
Reclaim Your Business:
How Human Resources Outsourcing Will
Enable Companies to Rebuild in 2012. After years of recession, stagnant economic growth, high unemployment
and continuing uncertainty fueled by a partisan Washington, most small
and mid‐sized employers are looking towards the future with reserved
optimism. However, while many economic factors remain in flux,
employers are able to take control of their business in 2012. Many are
proactively investigating how Human Resources (HR) Outsourcing can
assist them in trimming excess operating costs, reducing insurance
premiums and HR overhead, and improving employee productivity.
The main objective of this study was to establish the effect of Mergers and Acquisition (M&A) on a firm’s competitive advantage in the IT industry. A descriptive research approach was adopted with a target population comprising of all employees atHewlett Packard Company (HP) in Nairobi, Kenya.Horizontal mergers were found to be the most common types of mergers. These mergers weremainly driven by external economies of scale, market power, combined complimentary resources and customer service quality. The findings also established that the major elements of competitive advantage were volume of transactions and markets share. External economies of scale, market power and combined complimentary resources contributed positively to competitive advantage while surplus funds and idle resources did not drive competitive advantage. Based on the study,researchers recommended that decisions on M&A should be based on first understanding which facets of the business will be driven by the M&A in order to derive a competitive advantage. In addition, there is need for companies to do progress evaluation of the M&A specifically to review its impact on competitive advantage.
Duplex and Super Duplex - Ensuring Your Fastener is CorrectTim Wilson
An article written by Tim Wilson from West Special Fasteners.
A brief overview of why it is important that your fastener in Super Duplex is supplied correctly
This report, commissioned by BSI (the British Standards Institution), focuses on the process of creating resilient companies— businesses that are able to both respond effectively to short-term setbacks and adapt to long-term shifts in their environments.
Minimum of 400 words in the body Minimum of 2 sources from the l.docxssuserf9c51d
Minimum of 400 words in the body Minimum of 2 sources from the literature in addition to course texts
Gamble, J., Peteraf, M., & Thompson, A. (2019).
Essentials of strategic management: The Quest
for Competitive Advantage
. (6th ed.), New York, NY: McGraw Hill Higher Education
Keller, T., & Alsdorf, K. L. (2012).
Every good endeavor: Connecting your work to God's work
.
New York, N.Y: Dutton, Penguin Random House.
Krogerus, M., & Tschäppeler, R. (2018).
The decision book: 50 models for strategic thinking.,
(Revised ed.), New York, NY: W. Norton & Company, Inc.
Rumelt, R. (2011).,
Good strategy/bad strategy: The difference and why it matters
., New York,
NY: Crown Busines
Content must include:
Summary of the author’s Main Thread – no less than 125 words · What you agreed with, did not agree with and why – no less than 125 word
APA FORMAT A MUST FOR THE REPLY PLEASE
This week's discussion focuses on the core theme of evaluating a company's internal environment. For a company to have success, an understanding of its current internal threats as well as opportunities for external threats is important. By evaluating these threats, companies can better improve in areas of weakness, which is vital for a company to move forward.
Process: Evaluating the Internal Environment
Two factors need to be considered when looking into a company’s strategy. Gamble, Peteraf, and Thompson (2019)assessing if a company has gained financially and looking at their stance in the competitive market are two indicators that show if a company is progressing. Due to this, companies need to ensure that they have an accurate assessment of their internal assets and liabilities that may negatively impact the business's success. According to Gamble, Peteraf, and Thompson (2019), a VRIN test can be used to help sustain competitive success in their market. Businesses differ depending on what these resources are and how they are combined. Resources include but are not limited to processes, capabilities, assets, attributes, information, and knowledge. Together, they allow businesses to execute their relevant activities. Gamble, Peteraf, and Thompson (2019)describes that not all resources of a business are equally and strategically relevant. Only certain resources are capable of being input to a value-creating strategy, which puts the organization in a position of competitive advantage.
An organization's resources should have four attributes to provide the potential for a competitive advantage. These attributes form the VRIN characteristics, which can be discovered by focusing on four essential qualities that make up the VRIN acronym: value, rareness, imitability, and non-substitutable. The value and rareness qualities help determine if resource availability help create a competitive edge, whereas the imitability and non-substitutable qualities determine how much attention needs to be placed on sustaining a competi.
Equity Research 16 December 2002AmericasUnited Stat.docxYASHU40
Equity Research
16 December 2002
Americas/United States
Strategy
Investment Strategy
Assessing the Magnitude and
Sustainability of Value Creation
Illustration by Sente Corporation.
• Sustainable value creation is of prime interest to investors who seek to
anticipate expectations revisions.
• This report develops a systematic way to explain the factors behind a
company’s economic moat.
• We cover industry analysis, firm-specific analysis, and firm interaction.
Investors should assume that CSFB is seeking or will seek investment banking or other business from the covered
companies.
For important disclosure information regarding the Firm's ratings system, valuation methods and potential conflicts of interest,
please visit the website at www.csfb.com/researchdisclosures or call +1 (877) 291-2683.
research team
Michael J. Mauboussin
212 325 3108
[email protected]
Kristen Bartholdson
212 325 2788
[email protected]
Measuring the Moat 16 December 2002
2
Executive Summary
• Sustainable value creation has two dimensions—how much economic profit a
company earns and how long it can earn excess returns. Both are of prime interest to
investors and corporate executives.
• Sustainable value creation is rare. Competitive forces—including innovation—drive
returns toward the cost of capital. Investors should be careful about how much they
pay for future value creation.
• Warren Buffett consistently emphasizes that he wants to buy businesses with
prospects for sustainable value creation. He suggests that buying a business is like
buying a castle surrounded by a moat—a moat that he wants to be deep and wide to
fend off all competition. According to Buffett, economic moats are almost never stable;
competitive forces assure that they’re either getting a little bit wider or a little bit
narrower every day. This report seeks to develop a systematic way to explain the
factors that determine a company’s moat.
• Companies and investors use competitive strategy analysis for two very different
purposes. Companies try to generate returns above the cost of capital, while investors
try to anticipate revisions in expectations for financial performance that enable them to
earn returns above their opportunity cost of capital. If a company’s share price already
captures its prospects for sustainable value creation, investors should expect to earn
a risk-adjusted market return.
• Studies suggest that industry factors dictate about 10-20% of the variation of a firm’s
economic profitability, and that firm-specific effects represent another 20-40%. So a
firm’s strategic positioning has a significant influence on the long-term level of its
economic profits.
• Industry analysis is the appropriate place to start an investigation into sustainable
value creation. We recommend getting a lay of the land—understanding the players, a
review of profit pools, and industry stability—followed ...
A firm is a Business unit which owns,controls and manages a plant.Such a Business unit may be a sole Proprietor,a partnership,a company or a cooperative enterprise.The Firm is the owner of the plant and it controls the operation of plants.
As a senior executive, you may think you know what Job Number 1 is.docxfredharris32
As a senior executive, you may think you know what Job Number 1 is: developing a killer strategy. In fact, this is only Job 1a. You have a second, equally important task. Call it Job 1b: enabling the ongoing engagement and everyday progress of the people in the trenches of your organization who strive to execute that strategy. A multiyear research project whose results we described in our recent book, The Progress Principle,[ 1] found that of all the events that can deeply engage people in their jobs, the single most important is making progress in meaningful work.
Even incremental steps forward -- small wins -- boost what we call "inner work life": the constant flow of emotions, motivations, and perceptions that constitute a person's reactions to the events of the work day. Beyond affecting the well-being of employees, inner work life affects the bottom line.[ 2] People are more creative, productive, committed, and collegial in their jobs when they have positive inner work lives. But it's not just any sort of progress in work that matters. The first, and fundamental, requirement is that the work be meaningful to the people doing it.
In our book and a recent Harvard Business Review article,[ 3] we argue that managers at all levels routinely -- and unwittingly -- undermine the meaningfulness of work for their direct subordinates through everyday words and actions. These include dismissing the importance of subordinates' work or ideas, destroying a sense of ownership by switching people off project teams before work is finalized, shifting goals so frequently that people despair that their work will ever see the light of day, and neglecting to keep subordinates up to date on changing priorities for customers.
But what about a company's most senior leaders? What is their role in making -- or killing -- meaning at work? To be sure, as a high-level leader, you have fewer opportunities to directly affect the inner work lives of employees than do frontline supervisors. Yet your smallest actions pack a wallop because what you say and do is intensely observed by people down the line.[ 4] A sense of purpose in the work, and consistent action to reinforce it, has to come from the top.
Four traps
To better understand the role of upper-level managers, we recently dug back into our data: nearly 12,000 daily electronic diaries from dozens of professionals working on important innovation projects at seven North American companies. We selected those entries in which diarists mentioned upper- or top-level managers -- 868 narratives in all.
Qualitative analysis of the narratives highlighted four traps that lie in wait for senior executives. Most of these pitfalls showed up in several companies. Six of the seven suffered from one or more of the traps, and in only a single company did leaders avoid them. The existence of this outlier suggests that it is possible for senior executives to sustain meaning consistently, but that's difficult and requires vigilance.
Thi ...
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
HBRs 10 Must Reads on Change Management Cracking the Code of Cha.docxshericehewat
HBR's 10 Must Reads on Change Management: Cracking the Code of Change
Cracking the Code of Change
by Michael Beer and Nitin Nohria
THE NEW ECONOMY HAS ushered in great business opportunities—and great turmoil. Not since the Industrial Revolution have the stakes of dealing with change been so high. Most traditional organizations have accepted, in theory at least, that they must either change or die. And even Internet companies such as eBay, Amazon.com, and America Online recognize that they need to manage the changes associated with rapid entrepreneurial growth. Despite some individual successes, however, change remains difficult to pull off, and few companies manage the process as well as they would like. Most of their initiatives—installing new technology, downsizing, restructuring, or trying to change corporate culture—have had low success rates. The brutal fact is that about 70% of all change initiatives fail.
In our experience, the reason for most of those failures is that in their rush to change their organizations, managers end up immersing themselves in an alphabet soup of initiatives. They lose focus and become mesmerized by all the advice available in print and online about why companies should change, what they should try to accomplish, and how they should do it. This proliferation of recommendations often leads to muddle when change is attempted. The result is that most change efforts exert a heavy toll, both human and economic. To improve the odds of success, and to reduce the human carnage, it is imperative that executives understand the nature and process of corporate change much better. But even that is not enough. Leaders need to crack the code of change.
For more than 40 years now, we’ve been studying the nature of corporate change. And although every business’s change initiative is unique, our research suggests there are two archetypes, or theories, of change. These archetypes are based on very different and often unconscious assumptions by senior executives—and the consultants and academics who advise them—about why and how changes should be made. Theory E is change based on economic value. Theory O is change based on organizational capability. Both are valid models; each theory of change achieves some of management’s goals, either explicitly or implicitly. But each theory also has its costs—often unexpected ones.
Theory E change strategies are the ones that make all the headlines. In this “hard” approach to change, shareholder value is the only legitimate measure of corporate success. Change usually involves heavy use of economic incentives, drastic layoffs, downsizing, and restructuring. E change strategies are more common than O change strategies among companies in the United States, where financial markets push corporate boards for rapid turnarounds. For instance, when William A. Anders was brought in as CEO of General Dynamics in 1991, his goal was to maximize economic value—how-ever painful the remedies might be. Ove ...
WE BELIEVE that our Eighth Core Portfolio investment strategy provides the answers to the previously mentioned issues and offers a truly balanced approach to investing.
Equities, bonds, real estate and commodities are four asset classes that cover the core of any asset allocation process. The Eighth Core Portfolio is based on the idea that, during any given stage of a global investment cycle, money will flow across these assets, thereby affecting their performance. Rather than time the entry into the outperformer and the exit from the underperformer the Eighth Core Portfolio invests globally across all four in equal measure thereby ensuring that it participates in the best asset class in any environment. Over the investment period a constant exposure is maintained in order to avoid any outperforming asset class becoming a drag when the market turns.
This balanced approach is designed to produce medium to long term returns which exceed those of nominal cash returns. Historical evidence shows that this strategy has had proven outperformance in various timeframes and in all environments (see Tables 1 to 3) More importantly it minimizes volatility by taking advantage of the low correlations between the individual asset classes (see Table 4).
The main ideology behind the conception of ERM is to help companie.docxoreo10
The main ideology behind the conception of ERM is to help companies proactively identify, analyze and manage risks and events that have the capability of impacting the business. Developing a collaborative response is crucial is possible when early identification of risk is achieved. Changes in the business environment require sound judgment in anticipating both the consequences of the particular event and the potential likelihood.
The research conducted illustrates that the difficulty is intensified because the company should be innovative and adaptive, a feature that lacks in many corporations. Following the implementation in different companies, the primary challenge posed is locating the respective area in the company where its potentiality is more enhanced. The transition has been implemented from the traditional leadership function to the various levels of operation.
One of the crucial insights obtained from the interaction with companies adopting the ERM system indicates that the change is effective especially if used in a suitable context. The funds in implementing the system may pose a challenge, however, in such a situation, a counter project can be carried out in regards to the nature of the company. So, upon implementation, the ERM program progresses from its initial establishment to a sophisticated program with prolonged use.
ERM is regarded as a complete approach and as a result, leaders can trust the program as a comprehensive approach to risk management. The plan is meant to scratch through a broad range of operational threats in the internal and external environment of the company that could impact its short term and long-term success. In conclusion, the general conclusion is right; it is true to say that ERM has enabled the provision that is crucial in fulfilling and excelling in leadership mandate.
Companies:
1- Oula fuel marketing co
2- Kuwait resort company
http://www.boursakuwait.com.kw/Stock/Financials.aspx?Stk=651&S=INC
ACT553 – FINANCIAL ACOUNTING II
FALL 2016
1. Revenue Recognition
Revenue is the largest item on the income statement and we must assess it on a quantitative and qualitative basis.
_Use horizontal analysis to identify any time trends
_Compare the horizontal analyses of the companies.
_Consider the current economic environment and the company`s competitive landscape. Given that they operate in the same industry, you may expect similar revenue trends.
_Read the management’s discussion and analysis (MD&A) section of the annual reports to learn how the companies’ senior managers explain revenue levels and changes.
2. R&D Activities
Do the companies engage in substantial R&D activities?
_Determine the amount of the expense on the income statement. You may need to look in the footnotes or the MD&A for this information. Is the common-sized amount changing over time? What pattern is detected?
_Read the footnotes and assess the company’s R&D pipeline. What are the major outcomes ...
2. Authors
Sebastiaan Nijhuis Director, Advisory Services
Ernst & Young, the Netherlands
Jelmer Westerhuis Advisor, Advisory Services,
Ernst & Young, the Netherlands
In a climate of ongoing economic uncertainty, when the threat of severe economic shock looms large,
some companies are managing to thrive. By adhering to a set of management principles,
they are building strength in the face of adversity. So what is it that these companies are actually
doing? We analyzed a specific group of European companies to find out.
55
3. T
he financial crisis of 2008 was the worst the
world has seen since the 1930s. The last four
years have seen economic retrenchment in
Europe and stability has not yet returned to the
market. Although the prospect of a Eurozone
breakup appears to be receding, corporate
leaders are once again being forced to revaluate
their businesses as they contemplate a decade of
low-growth levels in Europe.
Some companies have proved better equipped than others
in managing this ongoing turbulence. What steps have these
companies taken that enable them to become stronger in
unpromising conditions?
Many theories have been developed to explain the outstanding
performance of companies and right after a crisis is a good moment
to test whether the theories hold firm.
Centralization is often
the answer to improved
operational efficiency
and plays a key role in
controlling costs.
56 Volume 5 │ Issue 1
Article
4. Proactive versus distressed
To identify the factors that underpin strength, we selected a number
of European companies that responded quickly to the changing
market conditions in the run-up to the financial crisis of 2008. They
did so by implementing significant cost reductions in preparation
for the downturn to come. In the two years following the cost
reductions, they achieved a significantly better performance
compared with the companies that had not made such preparations.
Proactive companies responded before their performance
declined — unlike the distressed companies, which did not take
action to address their underperformance.
Making a distinction between “proactive” and “distressed”
firms is probably the most crucial identifier in our research. This
distinction is supported by Jim Collins (2001) in his book Good
to great: why some companies make the leap ... and others don’t.
He identified that a common trait among “great” firms was that
they all reacted quickly to change by facing up to the facts and
taking action accordingly. Tom Peters (1984) described similar
traits in his book In search of excellence. He found eight themes
that were common to “excellent” firms, one of which was that they
had a “bias for action.” In other words, if the environment changes,
and if the market conditions worsen, excellent firms take action
and adapt.
We studied a group of firms that reacted quickly to changing
market conditions by implementing major cost reductions. These
firms did so either for proactive reasons or for distressed reasons.
We investigated whether these two groups of firms had different
scores on carefully selected success factors.
Success factors
Management literature suggests a series of factors that underpin
superior performance. These include levels of debt, boardroom
gender balance, ownership structure, the strength of a binding
mission statement and common culture and levels of corporate
social responsibility. However, our study focused on three important
factors that could be tracked and measured. These factors,
or “visionary variables” as we call them in the study, are partly
informed by the book Built to Last,1
in which the authors highlight
“visionary habits” as the defining factors for successful companies.
Our key visionary variables are: the degree of innovation, the
degree of centralization and the degree of internally sourced CEOs
(see Figure 1).
We anticipated a stronger relationship between the three
visionary variables and proactive companies than with distressed
companies. If proved true, this would help to explain why proactive
companies continue to grow stronger and record a more stable
financial performance.
Figure 1. The three visionary variables
1 2 3Degree of
innovation
Degree of
centralization
Internally
sourced CEO
A high degree of innovation is an indication
that a company focuses on long-term
profitability. Consistent investments in
innovation will enable a company to keep
renewing itself, so it can adapt to the market
and stay ahead of the competition. It ensures
long-term stability and allows a company
to be creative and respond to changing
market demands with innovative products.
A high degree of centralization indicates
that the company can look at the impact of
decision-making on the whole organization.
Centralization is often the answer to
improved operational efficiency and plays
a key role in controlling costs.
Internally sourced CEOs are those who are
trained and educated within the company,
instead of being recruited from outside.
This is important because an internally
sourced CEO is often better equipped
to understand and build on the company’s
core identity, values and purpose.
Having an internally sourced CEO is likely
to strengthen unity within the company,
leading to increased retention rates among
the brightest and best staff.
57
What factors determine long-term solid financial performance?
Having an internally sourced CEO
is likely to strengthen unity within
the company, leading to increased
retention rates among the brightest
and best staff.
1. J. Collins and J. Porras, Built to Last, New York: HarperCollinsPublishers, 1994.
5. Research methods
Researchers took quantitative data from the companies’ financial
statements. To measure innovation, we followed a formula
established by Collins. We divided research and development by
sales and measured a five-year average. If companies invest more
in research and development, the percentage by sales will become
bigger. The second measure was fixed assets divided by sales,
which was also measured over a four-year average. If the company
invests significantly in plant, building and equipment, it is able to
deliver on innovative ideas. A third measure is the dividend payout
ratio, measured as a five-year average. If the dividend payout ratio
is low, the company sees innovative opportunities within its own
company and will reinvest its money back into the company, instead
of paying it out as a dividend. In other words, a low dividend payout
ratio will be a sign of high innovation within the company.
All companies are compared with their direct competitors on
these three variables for multiple years. We measured how well
they did and marked them accordingly. A low mark of one indicates
that the firm performed worse than its direct peer, a mark of
two indicates similar values on the three variables and a mark of
three indicates that the firm scores higher on these variables and
therefore has a higher degree of innovation.
To measure centralization, we identified seven business
functions within the company — including accounting, legal and
human resources — and scoured annual reports to find out if each
was centralized. If one or two functions were centralized, the
company was awarded a low mark of one; centralization of between
three and five functions earned a moderate mark of two and a high
mark of three was awarded to those who had centralized more than
five functions.
For an internally sourced CEO, we assessed the background of
the CEO at the point in time at which the company implemented
cost reductions. If, at this point, the CEO had been in the company
for more than three years before becoming a CEO, they would be
considered as internally sourced, and were given one mark. Other
CEOs were considered external and were not awarded marks.
Proactive companies have more visionary variables in place
Our investigation indicates that proactive companies have visionary
variables in place to a higher extent than distressed companies.
In other words, companies that respond to changing market
conditions proactively boast a higher degree of innovation, operate
their businesses in a more centralized fashion and employ more
internally sourced CEOs. The variable that sees the most significant
difference between proactive and distressed firms is innovation.
Continental European companies
versus UK companies
The research was based on a sample of firms that implemented cost
reductions. Of these companies, two-thirds were based in Germany,
the Netherlands or France, and one-third was based in the UK.
In our sample, more UK-based companies proactively reduced
costs than their European counterparts (75% of UK companies
versus 52% in Europe). In other words, more UK companies
responded swiftly to changing market conditions before their
financial performance declined. Indeed, in our sample, only 25% of
UK companies implemented cost reductions for reasons of distress,
compared with 44% of European firms.
We identified some noteworthy differences between proactive
UK firms and the proactive firms from the other European
countries. Overall, European companies score higher on the
combination of visionary variables.2
While the UK companies tend
to be more innovative, their continental counterparts run business
functions in a more centralized way and are more likely to source
their CEOs internally.
58 Volume 5 │ Issue 1
Article
A high degree of innovation
is vital to a company’s
long-term success.
2. Insignificant on a 10% significance level (.479>.1, independent sample t-test).
6. Figure 4. How proactive UK and European companies match up
0
10
0
10
(1=low, 2=moderate, 3=high)
0
10
Three years active in company
before becoming CEO
(0=no, 1=yes)
(1=low, 2=moderate, 3=high)
00
Proactive
European
firms
Proactive
UK firms
1 2 3Degree of
innovation
Degree of
centralization
Internally
sourced CEO
7.046.97
5.005.15
6.116.36
Figure 3. How the three variables combine across proactive and distressed companies
All variables Innovation
+ CEO
Centralization
+ CEO
Centralization
+ innovation
1+2+3 1+3 2+3 1+2
00 All proactive
firms
All distressed
firms
4.734.32
6.856.07
5.545.18
6.095.60
10 1010 10
0 0 0 0
Figure 2. Comparison of the three variables across proactive and distressed companies
6.966.19
0
10
5.225.00
0
10
(1=low, 2=moderate, 3=high)
6.525.71
0
10
Three years active in company
before becoming CEO
(0=no, 1=yes)
(1=low, 2=moderate, 3=high)
00 All proactive
firms
All distressed
firms
1 2 3Degree of
innovation
Degree of
centralization
Internally
sourced CEO
59
What factors determine long-term solid financial performance?
7. Figure 5. Recommended actions: how to boost your visionary variables
1 2 3Degree of
innovation
Degree of
centralization
Internally
sourced CEO
• Set up succession planning
• Create a talent pool
• Create strong common culture
to limit outflow of employees
• Compare innovation ratios
to industry average
• Adopt innovation in corporate goals
• Reserve resources for stimulating
innovation within the firm
• Evaluate all business functions to see
if they can be executed more efficiently
• Compare to best practice in industry
• Evaluate pros and cons of
centralization of business functions
Putting theory into practice
Our investigation showed that proactive companies achieved higher
scores on the three measured visionary variables than distressed
companies. These results indicate that proactive companies not
only report stable financial performance during and after a crisis,
but also boast a higher degree of innovation, centralization and
employ more internally sourced CEOs.
The degree of innovation is vital to a company’s long-term success.
A number of actions can be taken to boost innovation. It should be
incorporated into corporate mission statements in order to create an
innovative mindset throughout the company. Innovative ideas should
be rewarded. All employees should be encouraged to come up with
ideas on how to improve the company. In addition, resources should
be made available to allow employees to do so.
To increase the degree of centralization, all business functions
within the company should be assessed to ensure that they are
administered as cost-effectively as possible. Many business functions
can be managed centrally, saving costs as a result. Benchmarking is a
useful way to learn from best practices within the industry.
To increase the likelihood of the next CEO and future CEOs
being sourced internally, a talent pool needs to be established.
When talent within the company is tracked, a succession planning
schedule should be set up to provide the appropriate career and
training facilities. This enables the company to think ahead and
build stability in the long term.
Thriving in harsh conditions
Our investigation showed that proactive companies that quickly
respond to changing market conditions outperform their peers.
They score higher on the visionary variables of innovation,
centralization and internally sourced CEOs.
To strengthen their position, today and in the future, companies
should be aware of how these variables affect their long-term
stability. And, by adopting an innovative mindset, executing their
business operations as efficiently as possible and ensuring a strong
common corporate culture championed by an internally sourced
CEO, companies can help themselves to withstand and thrive in
today’s tough economic climate.
To strengthen their position,
today and in the future,
companies should be aware of
how these visionary variables
impact their long-term financial
performance stability.
60 Volume 5 │ Issue 1
Article
8. 61
What factors determine long-term solid financial performance?
How Ernst & Young helped a European business
consisting of a manufacturing, retail and sales
division across 35 entities in more than 20 countries
to centralize operations and reduce costs.
The business as a whole was under extreme cost pressure.
It had to reduce costs and improve efficiency and effectiveness
across all its functions. All divisions were moving from
a country-based operation to a European-led operation,
leveraging economies of scale and leading practices,
and reducing overall sales and general administrative costs.
The company had employees based in all entities running
two ERPs with non-standard processes and significant
duplication of activity.
Value delivered
Ernst & Young worked with the client to:
1. Design a transformation program that included a new
operating structure, shared services, new technology and
a standard process model
2. Implement one standard design for the sales and
manufacturing operations and a separate design for retail
to optimize business operations
3. Deliver a full set of standardized processes and a phased
transition plan in readiness for implementation
4. Provide a future organizational design for both the new,
shared service center and for the retained organization