HIGH PERFORMANCE MANAGEMENT CONFERENCE INTRODUCTION TO BUSINESS ACUMEN

What is Business Acumen? Business acumen is the ability to quickly and accurately assess the complete business situation and make the best possible business decisions.

The “best decisions” depend on your strategy

Strategy Where are we NOW? Where are we GOING? HOW do we get there?

Key Strategy Frameworks Michael Porter’s Five Forces Model Treacy & Wiersema’s Value Discipline Model

Strategy is about making choices, trade-offs; it’s about deliberately choosing to be different. - Michael Porter Source: The Competitive Advantage, by Michael E. Porter

Rivalry among Existing Competitors Threat of NEW ENTRANTS Threat of SUBSTITUTES Bargaining Power of SUPPLIERS Bargaining Power of BUYERS Porter’s Five Forces Model GOVERNMENT

Treacy & Wiersema The Discipline of Market Leaders Three-year study of over 80 global companies in more then three dozen markets What they discovered changed strategic thinking forever…

There are only three different strategic approaches (value propositions to customers) that an organization can take. CHOOSE NARROW DOMINATE If you CHOOSE your customers and NARROW your focus, you can DOMINATE your market. “ “ No company can succeed today by trying to be all things to all people.

Strategic Value Propositions Customer Intimacy Operational Excellence Product Leadership

Companies pursuing customer intimacy… Customize products at the customer’s request Deliver comprehensive solutions Function as trusted partners, both within the customer organization and with external partners and users Deliver end-to-end (pre- and post- sale) customer service that enhances the value of products

Companies pursuing operational excellence… Become a low-cost producer of goods and services Continually increase process efficiency Exploit multiple distribution channels Make the customer buying and product-using experience rewarding and hassle-free

Companies pursuing product leadership… Create new products faster than competitors Produce cutting-edge products Convert customer information and knowledge quickly into market- leading products and services Deliver high levels of customer satisfaction

The Value Equation V= B C P P P Perceived value is equal to the relationship between perceived benefits and perceived cost Perceived value is equal to the relationship between perceived benefits and perceived cost

price impact on customers features servicetime green reliability quality ease of use The Value Dashboard

Operational Excellence Customer Intimacy Product Leadership Price LowHigh Marketing LowMediumHigh R&D DependsMediumVery High Sales Types TransactionalRelationshipDistributors/Medium Sales force Large sales force; Low base; Low commission Small sales force; High base; High commission Medium sales force; Medium base; Medium commission Production HighLowMedium High Outsourcing StrongLowMedium Investment in Production High Medium Financing Long termLong TermMedium

How do we know if we’re executing strategy effectively? Financial results are the scoreboard for strategic success!

Financial Statements Tell Us… Where the company got its money How we used that money Where the money is now

Two Important Statements The income statement captures business results – Revenue generated – Expenses incurred – Profit or Loss The balance sheet shows ability to meet financial obligations – Short-term ability to pay suppliers, wages, and debt – Long-term ability to pay debt and other obligations

The Income Statement Components: Revenue the company generated Expenses incurred to generate that revenue Profit or loss over time

$000’s% Sales$000’s% Sales% Change Revenue5,071, %5,230, %3.1% Cost of Goods Sold2,561, %2,850, %11.3% Gross Margin2,510, %2,379, %-5.2% R&D989, %1,263, %27.7% SGA706, %842, %19.2% Operating Profit813, %273,6805.2%-66.4% Interest107,6442.1%125,0822.4%16.2% Net Income before Tax706, %148,5972.8%-79.0% Taxes247,2054.9%52,0091.0%-79.0% Net Income459,0959.1%96,5881.8%-79.0% Analyzing the Income Statement

Operating Income Gross Margin R & D Sales & Marketing General & Admin Drivers of Profitability

Assets Liabilities + Owners’ Equity What the company owns How the assets were financed The Balance Sheet

Cash Investments Accounts Receivable Inventory Prepaid Expenses Fixed Assets Intangibles ASSETS

Accounts Payable Accrued Liabilities Wages Payable Taxes Payable Interest Payable Long Term Debt Capital Stock Retained Earnings LIABILITIES & OWNERS’ EQUITY

ASSETS = LIABILITIES + OWNERS’ EQUITY =

CURRENT ASSETS Cash Market Securities Accounts Receivable Inventory Prepaid Expenses LONG-TERM ASSETS Property, Plant, & Equipment Investments Intangibles CURRENT LIABILITIES Accounts Payable Accrued Liabilities Wages & Taxes Payable Short Term Debt LONG-TERM LIABILITIES Long Term Debt Pension Obligations OWNERS’ EQUITY Capital Stock Retained Earnings WORKING CAPITAL ASSETS = LIABILITIES + OWNERS’ EQUITY

2012% Assets2013% Assets% Change Current Assets Cash 253, %269, %6.15% Accounts Receivable 629, %644, %2.37% Inventories 337, %504, %49.40% Total Current Assets 1,221, %1,418, %16.16% Property, Plant & Equipment Plant & Equipment 3,692, %3,786, %2.57% Less: Depreciation 731, %989, %35.35% Total Long-term Assets 2,961, %2,797, %-5.52% Total Assets 4,182, %4,216, %0.81% Current Liabilities Emergency Loans -0.00%30, % Short-term Debt 124, %150, %20.15% Accounts Payable 675, %541, %-19.87% Accrued Liabilities 51, %68, %31.34% Total Current Liabilities 852, %789, %-7.37% Long-Term Liabilities Long-term Debt 1,350, %1,350, %0.00% Total Liabilities 2,202, %2,139, %-2.85% Owners' Equity Common Stock 520, %520, %0.00% Retained Earnings 1,459, %1,555, %6.62% Total Owners' Equity 1,979, %2,076, %4.88% Liabilities & Owners’ Equity 4,182, %4,216, %0.81% Analyzing the Balance Sheet

Summary Business acumen skills are important at all levels of an organization The best business decisions are determined by your business strategy Financial results show how well you are executing your strategy