This post is part of the 33 Ways to Amplify Your Profit Quickly.
Corporate Strategy is often overlooked by firms, even though it helps the corporate function add much value. Therefore, don't forget to improve your corporate strategy when you want to grow your company or turn its performance around. There are four things you can do:
Effectively Manage Your Cash
Improve Your Corporate Synergies
Control Capital Allocation and Manage Financial Policy
Prepare Equity Story and Investor Roadmap
1. Manage Your Cash Effectively
Cash is the lifeblood of the business. It needs to be managed carefully, especially in the Turnaround Scenario (where cash is scarce).
The objectives:
Understand the current cash liquidity situation.
Plan and execute cash release measures.
Steps to execute:
First, you immediately take control of cash management by establishing a Cash Management Office.
Set up a Cash Management Office with a direct reporting line to the CEO or CFO. The role of the Cash Management Office is essentially a cash decision-making committee that involves the CEO and CFO.
Standardize the cash-related processes and clarify roles and responsibilities regarding cash and liquidity to ensure quick decisions.
Monitor and validate the cash impact of ongoing activities.
Once you take control of cash, you can analyze current cash liquidity and establish cash forecasting capability.
Create and validate cash liquidity plan.
Identify and assess future cash liquidity constraints.
Ensure short-term financial security.
Then, you need to identify and define cash liquidity improvement measures.
Quantify and validate the impacts of quick-win initiatives on short-term and long-term liquidity.
Plan initiatives for continuous cash liquidity planning.
Launch and implement the liquidity initiatives.
2. Improve Your Corporate Synergies
If your company is a group of business units, you may need to restructure the group in order to create more value from parenting, synergies, or disposal.
The objectives:
Assess the portfolio of business units.
Clarify each business unit's role based on current performance, future attractiveness, and strategic fit.
Define M&A, disposal, and partnership opportunities to be executed.
Develop transaction strategy (spin-offs, divestitures) and prepare for transaction execution.
Steps to execute:
First, you need to understand the parenting strategy and the logic of the portfolio logic (if any).
Conduct management interviews to understand the portfolio logic (i.e., why a certain business unit is part of the overall group).
Review each business unit's market attractiveness, competitive position, financial performance, and ownership advantage.
Then, assess the potential of portfolio businesses.
Conduct sum-of-the-parts valuation to identify potential conglomerate discounts. Ideally, you want the value of your overall company to be higher than the sum of the value of all business units.
Analyze each business unit’s contribution to historical and future profit generation.
Afterward, you can simulate the impacts of possible scenarios.
Assess the impacts of portfolio changes (e.g., disposal, closure, acquisitions, merger).
Detail the implications of potential portfolio changes (including effects on cash and capital allocations).
Then, prioritize the portfolio opportunities and define the future parenting strategy.
Define the new portfolio logic.
Assess the implications of portfolio changes and decide on potential initiatives.
Validate the financial implications of portfolio changes.
Define the target portfolio.
Develop transaction (M&A, spin-offs, divestitures) plans and prepare for the transaction execution.
Implement the plans and execute the transactions.
3. Control Capital Allocation and Manage Financial Policy
One of the CEO's most important tools is capital allocation. To optimize your return, you must ensure you concentrate the capital on the most promising projects. Sometimes, when you don't have promising projects, you need to consider whether to return capital to the shareholders (e.g., via dividends or share buybacks).
The objectives:
Assess current Capital Expenditure (CAPEX) spending, capital allocation, and financial policy.
Identify and implement improvement opportunities.
Steps to execute:
First, you take control of capital spending (which can be done via the Cash Management Office).
Restrain Capital Expenditure (CAPEX) spending. Reallocate investments to support critical activities.
Consider immediate changes to dividends and share buybacks.
Increase to build trust/increase confidence.
Decrease to conserve cash.
Then, you review current capital allocation across all business units.
Identify high performers (by comparing them against peers). Make deep dives into outperformers.
Analyze each Business Unit’s performance and opportunities against its capital allocation.
Understand the current capital allocation practices (why a certain business unit gets that particular sum).
After that, you define the limits of your financial policy based on:
Cash generation (Free Cash Flow yield) and historical/planned cash use.
Balance sheet flexibility (including leverage and credit rating).
Free Cash Flow plan and sensitivity analysis.
Next, you identify the opportunities for improving capital allocation.
Revise the capital allocation guidelines for each business unit.
Map potential shifts/reductions in internal allocation (i.e., CAPEX projects).
Consider financial policy actions (including share buybacks, and dividend increases/reductions).
Prioritize the initiatives and estimate the potential impact.
Afterward, you can prepare detailed implementation plans and start executing them.
Finally, don't forget to establish also a standardized financial management process to ensure long-term performance.
Planning and forecasting process.
Monitoring and management review process.
4. Prepare Equity Story and Investor Roadshow
Sometimes it is critical during the Profit Amplification Program (PAP) to get the support of shareholders, bondholders, pension trustees, and other stakeholders. Therefore, you need to prepare the Equity Story and do the Investor Roadshow.
The objectives:
Assess the current investment thesis and investor base.
Develop an equity story based on the overall PAP agenda.
Steps to execute:
First, you need to understand the external stakeholders’ expectations of the company.
Analyze the current investor base to understand the dynamics and constraints from the market.
Interview selected stakeholders (e.g., investors and financial analysts) to understand better.
Then, you can develop a clear and compelling plan for engaging the financial markets.
Identify the target investor type. Don't forget to include other important audiences, such as bondholders, pension trustees, local governments, etc.
Define the go-forward investment thesis, key messages, and proof points.
Clarify the Roadmap and Aligned Communication Plan for them (i.e., what strategic and financial moves will happen and how we will communicate these to them).
Next, develop the equity story.
Benchmark market for successful Investor Relations examples.
Understand future competitive advantages and value-creation profile.
Create an equity story based on the overall value creation ambition and prioritized drivers.
Agree on external Key Performance Indicators and short-term financial policy.
Afterward, you can develop the key communication materials and the roadshow plan.
Draft initial PAP announcement.
PAP announcement.
Key messages/talking points.
FAQs.
Plan a timeline for investor communication along the journey. Don't forget to integrate investor communications with the PAP Management Office's overall Communication plan.
Create Investor Relations guidelines and a roadshow plan for rapid deployment. Ideally, you would deploy these guidelines together with the PAP Management Office.
Finally, you can execute the plans.
To see other ways to improve your profit, check the 33 Ways to Amplify Your Profit Quickly.
Alternatively, to continue exploring winning strategy, click here.
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