AEM220_305ToPost

AEM220_305ToPost - Strategy and Value Creation Cornell...

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Unformatted text preview: Strategy and Value Creation Cornell University, AEM220 Cheryl Francis March 5, 2008 What is Strategy? A plan for obtaining a specific goal. Comprehensive, large-scale and long-range plan (vs. tactics). For a corporation, what is the goal? Strategic Objective Positioning the Company to earn returns higher than the cost of capital in a growing, sustainable way. This maximizes the current value of present and future cash flow. Value vs. Financial Characteristics HNI Total Value Revenue Profit Margin ROI Free Cash Flow Growth Exp. $1.7B $2.6B 4.7% 13.8% $232M 12% HEW $3.8B $2.9B 6.1% 9.5% $347M 14% MORN $2.6B $0.4B 17.0% 20.6% $101M 26% = SUM OF FUTURE CASHFLOWS DISCOUNTED TO TODAY'S DOLLARS ILLUSTRATES VALUE 5 WAYS TO CREATE ECONOMIC VALUE 1. return of current operations 2. $ invested in high return projects and $ invested in low return projects 1. Speed up receipt of cash 1. # years of high expected returns 5. Cost of capital return of current operations RR Donnelley Telephone Directory Plant Process improvement Lower fixed costs Remove process bottlenecks Manage complexity $ invested in high return projects and $ invested in low return projects HNI aggressive profitable growth options Entering related markets Government, Education Broadening participation in the value chain Furniture services, Fireplace retail Controlling the channels of distribution Buying and aligning with distributors Expanding outside of the United States China acquisition Cutting our losses Exiting product lines or restructuring (80/20) Speed up receipt of cash Morningstar subscription business Lands' End catalog and Internet business Selling furniture or printing on 30-day terms Hewitt Human Resource Services outsourcing # years of high expected returns Morningstar Equity Research business Extend contracts Bring in new customers Add this valuable intellectual property to other products Extend global reach of business Cost of capital HNI borrowing and share repurchase HNI process predictability HNI delivering positive performance in a downturn HNI confidence in management and smooth CEO transition HNI corporate governance HNI Corporation $800 $700 $600 $500 $400 $300 $200 $100 $0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 HNI S&P500 OFIG Strategy and Value Creation Cornell University, AEM220 Cheryl Francis March 5, 2008 ...
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